Monday, July 03, 2006


Workers' Wages Down, Corporate Profits Up [Political Affairs Archives]
By Thomas Riggins

The economic news from last year points out again that working people, under this capitalist economic system, are having their living standards cut down while the corporate ruling class continues to live high on the hog. Steven Greenhouse ["Falling Fortunes of the Wage Earner: Average Pay Dipped Last Year for First First Time in Nearly a Decade", New York Times "Business Day" 3-12-05] reports that in 2004 the wages of the working class fell while at the same time corporate profits had a strong growth.
What’s going on here?

It seems that since the middle of the 1990s workers wages had been keeping pace with inflation, actually being a wee bit ahead of the inflationary spiral. Last year, however, wages fell behind inflation. The workers produced more wealth than ever for the ruling class but got paid less. Is this a fluke, as many bourgeois economists suggest, or the normal operating of the capitalist system which, by its nature, seeks to depress wages to the lowest possible point? Was the last decade actually the fluke and what we are seeing is a resumption of normalcy?

The Times says that the drop is the result of globalization and the cost of health insurance (along with "other" unnamed factors.) Stephen Roach (a Morgan Stanley economist) is quoted as saying, "We’re in for a long period where inflation-adjusted wages will be under acute pressure. That’s a most unusual development in a period of high productivity growth. Normally, real wages track productivity."

This doesn’t mean that wages "normally" keep up with productivity. It means that wages increase a little bit when inflation increases but the increases are behind the inflationary increases. The capitalists are always the big winners when productivity goes up. Last year saw a big productivity increase but the workers didn’t even get any wage boost vis a vis inflation--they took a hit and their wages went down.

Realizing that this could stir up some class warfare attitudes amongst the workers, establishment economists are rushing to explain what’s happening as an anomaly. Here is Allan Meltzer at Carnegie Mellon University: "What we are seeing now is not atypical; employers can’t pay the wage bill to keep up with the oil price increase. I think the long-term trend will be that wages will right themselves and look like productivity growth on average."

The message to the workers is, don’t get excited, in the "long term" [how long?] everything will work out. Did oil company workers, at least, get a big pay boost with the oil prices? Are oil prices going to fall way down in the future? Just how will "wages right themselves"?

The Bureau of Labor Statistics reported that in 2004 for 80% of the workforce, that is workers in the private sector who are not supervisors, there was a 0.5% reduction in real wages. Greenhouse says that if another index is used, the employment cost index, which includes supervisors and government employees, the reduction is 0.9% There are two trends, Greenhouse, writes that are "perplexing" economists-- namely wage growth "is far behind" productivity for the last four years [normally its just behind, not far behind] and "the share of national income going to employee compensation is low by historic standards." I wonder if having an anti-labor Republican administration in Washington is a factor?

Roach, back at Morgan Stanley, listed four factors that are working to keep worker's wages depressed-- foreign competition, outsourcing of jobs, worries about future demand, and labor saving devices to replace the need for workers. Roach concludes that "These factors aren’t going to go away. The competitive pressures for companies to hold the line on labor costs are intense and the alternatives they have-- technological substitution and offshoring labor-- are growing." In other words, that "long term", mentioned above, is going to be very long indeed.

Here are some more interesting statistics from the article so that workers can see just what is happening. Since 2001 productivity has gone up, per year, 4.1%, wages and other benefits only went up 1.5%. This is a really big discrepancy. Greenhouse says the figures, respectively, for the last "seven business cycles" were 2.5% to 1.8%.

This led Jared Bernstein of the Policy Institute, to remark that "The question is not whether corporations are seeking higher profits; the question is how come they’re getting them to such a degree at the expense of compensation. I’m struck at how successful they’ve been at restraining labor costs."

So, what’s the up shot of all this? Greenhouse speculates we may be going back to a period such as that of 1973 to 1996-- with wages stagnating or only rising "glacially."

This is not a problem that can be solved under capitalism. American workers are going to be more and more in competition with the working people of China and India and other parts of the world. It is the nature of capitalism to pit working people against each other and to profit at their expense and their suffering. Greenhouse reports the prediction of Harvard economist Richard Freeman to the effect that "new competition in the form of millions of skilled Chinese, Indian and other Asian workers entering the global labor market will increasingly pull down American wages." American workers are gong to have to face the fact that the capitalist economic system cannot provide for their long term interests, or even now for their short term ones.

Freeman concludes, "Globalization is going to make it harder for wage increases and the benefits that we might have expected."

How much longer will the working people put up with this dysfunctional economic system before they turn to the socialist alternative as the only realistic way they can improve their lives and those of their children?

--Thomas Riggins is the book review editor of PA and can be reached at

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