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October 19, 2015


Classic economic theory holds that when employers have no problem filling positions they have no incentive to raise wages. It’s a simple supply and demand tenet applied to labor markets just as it applies to other markets for goods and services. However, what if the labor supply is tightening and wages are not only stagnant, but falling? How does that present-day reality accord with the economic iron rule of supply and demand in the labor marketplace? How do we explain this mystery (if it is one)?

The Washington Post: “An odd thing has happened” to the U.S. economy. The unemployment rate fell to 5.1 percent in August, one of its lowest levels in 40 years. But pay has barely budged since the end of the recession, with wages rising only half as quickly as they did throughout much of the 1980s and ‘90s. “Never before has the nation’s unemployment rate plunged so low – a point when companies should be competing aggressively for workers – while wages have stayed so flat.” The cause of this salary slump remains something of a puzzle. It could be that paychecks are being “pushed down by fundamental changes in the way companies treat workers, or by a decline in union membership.”

I think it not to be merely “fundamental changes in the way companies treat workers or by a decline in union membership” but rather both along with the sure knowledge that we Pavlovian targets have been so conditioned to corporate control of our economy that there is no PR price to pay and that they “can get away with it.” Employees through no fault of their own are constantly in danger of losing their jobs to corporate business plans gone awry, plans such employees had no hand in making (unlike in Germany, for instance, where law requires labor presence on corporate boards to represent corporate employees’ interests in corporate decision-making, a law we should enact here).

Thus the Financial Times writes that Carly Fiorina isn’t the only CEO with a failed track record at Hewlett-Packard. The piece sets out other H-P CEOs who tried to buy growth by gobbling up competitors via merger and acquisition, spending an aggregate of more than $70 billion in such attempts. All failed to promote growth, so what is the current CEO Meg Whitman doing to promote growth? She is out of the merger and acquisition business. She has instead laid off tens of thousands of employees over the past 4 years. Per the Financial Times in approving this executive choice, “she (Meg Whitman) understands what her predecessors didn’t: Shrinking is often the key to survival” – but I say survival for whom?

I have a question relative to this “shrinking for growth” for survival as a business plan and it is this: What about the “survival” of the “tens of thousands” of employees she laid off and the havoc it caused in their lives? What about their house payments, kids’ tuition and perhaps Chapter 7 bankruptcies? Why must people who work for a living and their families who had nothing to do with the executive decisions that brought them to ruin suffer the catastrophic consequences of someone else’s conduct (and in some cases, notably that of the big Wall Street banks – misconduct)? Can we dismiss it as just the luck of the draw, the way the cookie crumbles, life in the big city, the way it goes? I hope not.

Historically corporations had more stakeholders in their success than just their shareholders; other stakeholders included the community in which they were sited, the people who worked for them, local merchants, vendors who supplied certain of their needs etc. All of their interests were (or were thought to be) at one time considered in decisions made by corporate boards and their executives. Their employees and those of their vendors were treated as human beings, not widgets, and their vital concerns as well as business concerns were considered in corporate decision-making. No more.

“Growth,” “rate of shareholder return,” “success at cost cutting” and other such financial euphemisms have ended this “Norman Rockwell” era in a sea of new definitions of business success based upon the principle of greed and profit in which community and employee interests have been ignored in favor of scoring points with quarterly reports of analysts, investors and the Dow et al., all undergirded by the ongoing excuse that such corporate antics of layoffs and cost-cutting are necessary in the interests of the ultimate arbiter of success, i.e., the holy grail of “shareholder return.” (I here note that in most cases corporate executives have neither been “laid off” nor their bonuses reduced while they in the aggregate sent hundreds of thousands if not millions of their employees to the unemployment lines as those who caused the problem are rewarded while those who did not are without a job.)

So what is the evidence that paychecks are withering while corporate profits are doing nicely (see the Dow)? The evidence is in the numbers. The Fiscal Times reports that inflation-adjusted wages have actually dropped since the recession ended. The report shows that low-income workers have taken the biggest hit, especially restaurant workers. Cooks’ pay has fallen 8.9 percent, and food preparation workers’ 7.7 percent. Janitors, home health aides, retail salespersons, and maids have also experienced deeper than average cuts. The declines get worse the further you move down the income scale. Millions of wage-earners are involved, but I hear nothing from Wall Street pundits and apologists on the negative and deflating effects of such cuts on aggregate demand. Workers are also would-be consumers, and they have to have money or access to it when they go to market to buy corporate goods and services.

Joseph E. Stiglitz, one of my favorite economists, points out in The Guardian (U.K.) that the notion that the economy has returned to normal would be met with “derision” in most households and he is right, as usual. The New York Times also points out one of my pet peeves in this connection, writing that the fruits of rising labor productivity have flowed disproportionately to “corporate profits, executive compensation, and shareholder returns rather than worker pay.” (This is nothing new. As I have blogged repeatedly, corporations have been skimming off marginal productivity of labor gains for their own pockets since 1974, a theft in plain view that helps account for much of the 40-year wage stagnation of American workers.) Corporations have found that they can “get away with it” and now consider it an entitlement even though it is not their increased productivity but rather that of their workers that accounts for increased corporate profits which they pocket and refuse to share as they did until 1974.

So how is it that employment is up and wages are down? Lack of unions? Yes. Fundamental changes in the way companies treat workers? Yes. Because they know the public has been conditioned to accept that they can “get away with it” with no PR price to pay? Yes, and among other reasons, they have purchased the political class with its labor-busting right to work laws, Republican resistance to a raise in the minimum wage and general hostility to working people as though we live in a feudalistic state rather than in a democracy and market economy. “Iron laws of economics” such as supply and demand in the labor market are trumped by such devious political “arrangements” made by our corporate culture.

What to do? Change such political “arrangements” by changing political personnel in 2016.   GERALD   E

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