Although it is almost 40 years since I studied Labor Economics, it was basically another version of supply and demand which I have thought about consistently throughout my career. A treasured follower of this blog forwarded me an article published by the Economic Policy Institute entitled "The Sad But True Story of Wages in America". The article highlights the fact that while U.S. Productivity grew 62% over the last 20 years, real wages in both the private and public sector grew only 12% over that same time frame. It goes on to urge policymakers to try and find policies that promote greater linkage between productivity improvements and wages.
Accomplishing what the authors desire is far more complicated than what the authors (or any workers) might think. The reason is the last 20 years data reflect the complete integration of the global economy using the now ubiquitous internet. Workers everywhere who do the same thing now compete with one another with the only independent factors influencing what companies need to pay being differences in productivity, the cost of transportation and the ease of communication. The steady flow of production facilities to emerging markets has reduced the demand for factory workers in the G10. Those workers had to flow to other occupations increasing the supply of workers in those fields. Now add in the fact that a younger person with 5 years of experience may be as competent as the worker who has 20 years of experience and it is not surprising that workers in almost all professions now find their compensation plateauing in their 40's. Until wages adjusted for productivity and transportation in the emerging markets rise to a level that makes U.S. workers competitive, this flow will not be stopped. The good news is that workers in the coastal provinces of China now earn @$12,000 per year and that is going up fairly fast.
A classic trade protectionist at this stage would say erect trade barriers. However, most of the high earners and prospering businesses in the U.S. are successfully competing in the global economy and a trade war would harm them and reduce their contribution to the economy. Trade wars reduce the overall pie, free trade increases it. Not to mention the fact that the facilities to produce these things in the U.S. may not even exist anymore.
One other major reason for the stagnant wages is the fact that the cost of health insurance has been increasing dramatically over the last 10 years (I will not dwell on the coinciding two major recessions, the last of which we have not and will not recover from for at least another 2 - 3 years). Workers cannot be paid more if their productivity improvement is going to buy them health insurance. If health insurance and employment were separate, then the workers would see their income rising, and also their insurance costs increasing. Once again we are at the familiar spot of controlling the increase in health care costs, which for private sector employees was completely in the hands of the private sector and where there has been little success. Why the Republicans cannot see the benefit of a single payer plan is beyond me.
Now onto the public sector wage stagnation. Unfortunately, the public sector is not in the global economy. Public revenues can only grow if the private sector is growing. When you have massive recessions (which party was in charge from 2000 to 2008??), public revenue is not going to increase. Add in the fact that public sector health care costs are growing enormously and what you have is a classic squeeze on the ability to pay public sector workers. Decreased revenues and higher fixed costs (medical), means that Public Leaders need to figure out how to reduce workers (costs) and increase productivity so that maybe down the road when revenues increase, they can be paid for their productivity.
Once again I have gone on, but I have one last point. Successful people have to support the government that provides for societal needs. High wage earners in the U.S. are generally successful in the global economy and benefit from everything living in the U.S. has to offer. Some of these high earners only pay a 15% flat tax on their income because it is (perhaps fraudulently) characterized as capital gains. Others pay the 35% top rate. Given the pressures placed on the Federal Government's cost structure by the War on Terror, why is it too much to ask of them to pay 39%? Why is it too much to ask of corporations that receive targeted tax breaks to give some of that up to help balance the budget. I understand negotiation but just saying no is disrespectful of the other side's position. That is why I am no longer a Republican. My belief that middle of the road policies are best get no respect in Republican arenas.
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