Friday, July 23, 2004

The General has been blogging the fall in real wages over the last 6 months or so in the US, but Richard Berner at Morgan Stanley thinks that's a bunch of hooey.
. . . I think that the fears of wage compression are overblown. A look at other wage metrics paints a brighter income picture. . . . commonly-used wage data obscure recent macro wage income performance. As I see it, the energy and food price shocks explain recent consumer weakness (see �A Whiff of Stagflation? Global Economic Forum, July 16, 2004). In my view, those price shocks halted real wage growth in the first half of 2004. Looking ahead, even merely stable energy and food prices would promote 1�-2% real wage growth in the next six months, correctly gauged.
Let's stop right there. Wages deflated by CPI have fallen 2.49% for production workers -- the bottom 80% of the pyramid -- since November 2003. It is true, however, that most inflation has been driven by food and energy prices. So what do production worker wages look like when deflated by core CPI which removes food and energy? Down 1.34% since the recent high in January 2004. So Berner doesn't get off the hook there. But as it turns out, Berner isn't all that interested in inequality anyway.
Production and nonsupervisory workers represent 81% of the workforce, but account for only about 50% of total nonfarm private wages and salaries. So with nonproduction worker and supervisory pay rates growing significantly faster than those for lower-ranking occupations, AHE [average hourly earnings] misses income growth. For example, ECI data show that professional wages and salaries rose by 3.3% over the year ending in March, while blue collar pay rates rose 2.3% and wages and salaries in service occupations rose by 1.8% over the same period.
Well this is a no brainer. As the General pointed out a while back, overall real wages are down 1.4% since November while wages for production workers are down 2.5%. It doesn't take a genius to figure out that if the overall number is down, and the bottom 80% is way down, then the top 20% has to be up.

Then Berner chants the old liberal mantra:
The growing wage gap between high- and low-paying jobs highlighted in different wage measures is a real phenomenon, reflecting the mismatch in our labor force between skills available and skills needed. It thus reflects one of America�s major long-term challenges: How to improve educational outcomes for a more complex society and to reflect the new skills demanded in ever-changing labor markets.
We all know that every economy requires low-skill low-wage labor. Does Berner really think we're going to live in a society without security guards, retail clerks and nurses aides? We're all going to be "knowledge workers"? Give me a break. Dignity and fair wages to all forms of work, not neoliberal fantasies, please.


At 2:23 AM, Anonymous Anonymous said...

In a more forgiving way of thinking, you may think that his assessment is not driven by disinterest in inequality, but the belief that it is not majority wages, but average wages that matter.

But even so, higher wage/salary earners (or should we use the less suggestive term "receivers"?) eat only as much as low-wage people (maybe they pay a bit more for more healthy food, but then who knows), commute the same distances and pay the same for gas, get their hair cut as often, etc. You get the general idea; they may have somewhat higher daily expenditures, but presumably the rest of their disposable income goes into asset markets. That while lower-income people are trying to scrape by.

And then we have to listen to this kind of stuff, "weighting" people by how much they "earn" in proportion. As in "you are worth what you are paid".


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