Measured In Gold, The Story Of American Wages Is An Ugly One

[roo_ster]

http://www.forbes.com/sites/realspin/2013/10/09/measured-in-gold-the-story-of-american-wages-is-an-ugly-one/

There are some flaws in the argument, but he does strike pay dirt a few times.

Workers’ wages buy less and less. In fact, workers have lost purchasing power during the past half-century. Comparing prices to wages, the Consumer Price Index (CPI) rose more than six times from 1965 to 2011—while the minimum wage rose less than five times.

Professionals also suffered. According to the Engineering Workforce Commission, a senior engineer’s salary has gone up about five and a half times. In short, workers work longer to earn money to buy the same goods.

Today’s minimum wage employee works 12 percent longer to earn a gallon of milk compared to 1965, according to the Bureau of Labor Statistics. Today’s senior engineer works almost twice as long to buy a gallon of gasoline, according to the Department of Energy.

So, in real terms, wages have fallen. The drop is larger than it appears. Look at costs to see why.

The other side of the argument in why/how?

The following is not all-inclusive, but I would say they all contribute.
1. Federal Reserve inflationary monetary policy.  Erodes wages & savings.  Makes it more difficult to see if your wages are increasing or falling.  A tax on all that benefits gov't.
2. Doubling of the number of women in the workforce.  Simple supply/demand curve.  Increase the supply and the market price for labor lowers.
3. Immigration.  See above.
4. Free trade & outsourcing.  They go hand in hand.  Reduces the supply of employment.

Interesting times, this transition from a largely middle class society to a more feudal, more third-world society with a smaller middle class and larger lower/underclasses and a larger upper class.

[RoadKingLarry]

Not a bad piece but he leaves out some important issues.
Cost of compliance with unneeded (and some justifiable) government regulations being a major consideration. This adds cost to almost everything we do. Fuel, food, transportation, telecommunications, healthcare...
Kind of hard to think of anything that government has not added cost to by ay of over regulation or excess taxes.

[Scout26]

Not a bad piece but he leaves out some important issues.
Cost of compliance with unneeded (and some justifiable) government regulations being a major consideration. This adds cost to almost everything we do. Fuel, food, transportation, telecommunications, healthcare...
Kind of hard to think of anything that government has not added cost to by ay of over regulation or excess taxes.

Not only that but the amount of taxation.   Today more than 50% of the middle class families wages go to taxes (Income, Sales, Property, etc.)

[just Warren]

Yeah, this guy covers the increased tax bite issue.

If it wasn't for the relentless effects of capitalism making things better and cheaper we would be so much more screwed that we are.

[Tallpine]

Not only that but the amount of taxation.   Today more than 50% of the middle class families wages go to taxes (Income, Sales, Property, etc.)

Higher tax bracket because of inflated dollars 

[charby]

Not only that but the amount of taxation.   Today more than 50% of the middle class families wages go to taxes (Income, Sales, Property, etc.)

Wasn't income taxes higher back in the good old days?

[Tallpine]

Wasn't income taxes higher back in the good old days?

Yeah, on the highest income brackets.  But I think more of the "middle class" has moved up into the higher income brackets just due to inflation.

The IRS may have indexed the income brackets somewhat, but since the official inflation rate is way below reality I doubt that it makes up for wage inflation (which itself is generally lagging behind price inflation).

[Monkeyleg]

Wasn't income taxes higher back in the good old days?

Until Reagan, rates were higher, but there were a lot more deductions you could take. Credit card interest, certain types of insurance, home improvements, all sorts of stuff. Most middle class people did itemized deductions, even if their incomes weren't all that high.

Reagan lowered the rates, but eliminated nearly all deductions. One effect was to make filing a lot easier.

[HankB]

Today’s minimum wage employee works 12 percent longer to earn a gallon of milk compared to 1965, according to the Bureau of Labor Statistics. Today’s senior engineer works almost twice as long to buy a gallon of gasoline, according to the Department of Energy.

In 1965, we didn't have a welfare state the way we do now - which is sucking about $1,000,000,000,000.00 out of the economy every year in "means tested entitlement programs" which do NOT repeat NOT include Social Security.

Basically, the minimum wage employee AND the senior engineer are both working not just for themselves and their families, but for deadbeats, dopers, illegal aliens, and various other loafers and parasites as well.

[just Warren]

More on the issue from one of my favorite bloggers and writers: Is the gold standard bad for the middle class?

[charby]

What about the exponential growth in separation between upper management wages and everyone else in the company?

[Regolith]

What about the exponential growth in separation between upper management wages and everyone else in the company?

What about it? Sometimes CEOs get paid more than they ought to, sure, but let's say you halved, or even quartered their pay. Or hell, top out their pay to something ridiculous like $100,000 a year, and you used all the money you saved on raises for all of your employees.

Now, if you're a company like McDonald's, whose CEO makes $8.75 million a year, and has 1.7 million employees, you can now afford to pay all of your employees $5.09 more. Not per hour, per year.

CEO/upper management pay isn't the problem. They're on the small, pointy part of the pyramid, and taking their pay away from them isn't really going to help you afford to pay your employees more. It will make it hard to find good managers, though.

[charby]

What about it? Sometimes CEOs get paid more than they ought to, sure, but let's say you halved, or even quartered their pay. Or hell, top out their pay to something ridiculous like $100,000 a year, and you used all the money you saved on raises for all of your employees.

Now, if you're a company like McDonald's, whose CEO makes $8.75 million a year, and has 1.7 million employees, you can now afford to pay all of your employees $5.09 more. Not per hour, per year.

CEO/upper management pay isn't the problem. They're on the small, pointy part of the pyramid, and taking their pay away from them isn't really going to help you afford to pay your employees more. It will make it hard to find good managers, though.

Is that the base pay or is that base pay plus bonuses?

[Regolith]

Is that the base pay or is that base pay plus bonuses?

Base pay, I think. I got the number from a quick web search. Doesn't really matter though; you'd have to throw in a LOT of bonuses before it starts adding up to anything significant in terms of being able to pay employees more by cutting it.

[sumpnz]

I think the optics of CEO pay matter a whole lot more than the the effect it has on the abilityvto pay employees.  E.g. at PACCAR, last year, the CEO got something like  $10mil bonus.  Us peons got an average 2.5% raise, 21 months after the previous raise.  Now, that $10mil spread around all the rest of us would have bought a sixer each.  But the fact that he got such a hiuge bonus while the rest of us see our incomes savaged by inflation with few and far between raises is upsetting.

[RoadKingLarry]

I know of a company wherein the CEO made a deal with another company in the same line of business, to buy the 2nd company. As part of the deal the 1st company/CEO signed an agreement to pay the 2nd company $4 BILLION dollars if the deal, which was subject to FCC oversight, fell through.
Surprise, Surprise the FCC said No No No.
1st CEO had his bonus cut back for the year.
 

[slingshot]

I think we're approaching the breaking point on wages and prices for normal people.  This is part of the reason for the surge in welfare or related payments to individuals; the other part is there is a lot of pure larceny.  Regular people simply can't keep up.  The ACA insurance is just another straw added to the pile of growing costs.

Wages simply have not kept up with retail pricing.  Car prices keep going up and the only recourse most people have is to finance longer.  Not so long ago two or three loans were not uncommon on cars.  Not any more....  4 (if you're pretty comfortable), but more typically 5, 6, 7 years...  Of course people rationalize it and say that cars last longer now.  They do, even American cars.  But that does not allow you to ever keep your head more than just slightly above water.

Most Americans blow their bonus if they get one unless they are high dollar amounts.  My nephew gets bonuses ranging from $50K to $100K... (and sometimes several times a year) and as a result he has no grasp for what normal people deal with on a day to day basis.  Regular people view their modest bonus as "free money" and spend it, often for Christmas or December/January expenses.  The bonus deal does not help you buy meat and potatoes on a weekly basis.  The "Christmas Vacation" movie with Chevy Chase is the exception rather than the rule, but he was going to blow it on a pool.

Taxes have been going up under the current Administration as I understand it.  Throw in inflation and bracket creep and you pay more.  The politicians make a big deal about reductions in tax rates, but you don't see SS rates dropping, and the government is projected to get record income from taxation this this.  Yet we still run a deficit.

[roo_ster]

Wasn't income taxes higher back in the good old days?

Higher tax bracket because of inflated dollars 

Also, Alternative Minimum Tax has never been indexed.  Even if you have enough deductions to make it worth while to itemize, more & more folk over time have been nabbed by the AMT.

Toss in higher property & sales taxes foisted on us by black robed thugs to support the broken gov't school systems and things start to look even uglier.

In Texas, the constant refrain is that we ned to raise taxes for more/better roads.  Bullhockey.  47% of the state's fuel taxes go to things other than road, most notable the gov't schools (25% or more).

[HankB]

I think the optics of CEO pay matter a whole lot more than the the effect it has on the abilityvto pay employees.  E.g. at PACCAR, last year, the CEO got something like  $10mil bonus.  Us peons got an average 2.5% raise, 21 months after the previous raise.  Now, that $10mil spread around all the rest of us would have bought a sixer each.  But the fact that he got such a hiuge bonus while the rest of us see our incomes savaged by inflation with few and far between raises is upsetting.

I think that's a good read on the situation. The CEO's pay, split among MANY employees, wouldn't amount to much. But CEOs who reap big personal rewards and increases while rank-and-file compensation is flat or nearly flat provoke anger and resentment - especially if fringe benefits are being curtailed at the same time. This has a corrosive effect on employee morale, productivity, and loyalty.

Hold employee pay raises to 2% - including executive compensation - and people have a sense that "we're all in this together." Increase executive pay 40% or more in a time of "salary austerity" and management credibility flies out the window.

Fringe benefits matter, too. For example, my company has an aging workforce - many of us were hired in the '70s and '80s - and are covered by a pension plan. BUT the company is lamenting the difficulty in retaining new hires - who are NOT covered by any pension plan. DUH! What incentive is there for a new hire to stay on any longer than it takes to find a better-paying job elsewhere?

[Ron]

The folks who are making the big bucks and the upper "middle class" need the increased immigration as well the large pool of poor/working poor uneducated citizens.

Their lifestyle depends on under-payed (in a relative sense) folks working to meet their "needs".

I dropped out of the rat race having never attaining more than the bottom rung of middle class and now work a retail job serving the very elite that are fundamentally destroying our country.

They salve their consciences by voting for folks like Obama or compassionate conservatives. I'd feel sorry for them and their lack of self awareness if it wasn't for their sense of entitlement.