The Decline of American Wages & Job GrowthAt some point, either Democrats or Republicans are going to have to address declining employment and wage growth--along with the factors that are causing this decline.
And stop regurgitating the "lack of education/lack of training" fantasy.
The decline is very simple to understand in terms of macroeconomic supply-and-demand dynamics. Unfortunately, the supply-and-demand explanation doesn't jibe with the interests of rich campaign contributors. The rich would rather espouse false, pseudo-supply side sound-bites such as: "investment creates jobs," "reducing taxes increases investment," "increased wages reduce 'competitiveness', " "lack of education and job skills is the main cause," "excessive regulatory burdens are a major factor," "lower tax rates increase total tax collection," etc.
None of these have been major factors. Most aren't even true. But those sound-bites do provide convenient campaign slogans, especially when raising money from rich Corporate donors. Again, however, it's the macroeconomic supply-and-demand picture that's hurting workers and the middle class, especially when applied to the labor market.
Demand for LaborIncreased
demand for workers increases employment and wages. If the production of goods for American consumers is shipped overseas, it reduces demand for American workers. It eliminates the American employment and wages that were derived from that production. It causes an aggregate reduction in labor income-- by reducing both the number of workers earning wages, and the wages of those still employed. The lower aggregate income of American workers reduces buying power and spending, and demand for production that spending created. This becomes a self-perpetuating feedback loop.
Lower employment & wages-->lower buying power/spending-->lower production demand-->lower labor demand-->still lower employment & wages-->repeating this cycle until American wages sink to 3rd world levels (making American wages competitive with Chinese and North Korean wages).
But even the above wage-decline cycle is too optimistic. American consumer spending is over 20% of world GDP. As American consumer spending declines, so will demand for production--which includes ALL global production. This includes production demand from China, North Korea, Mexico, and any other cheap labor country. This will even reduce wages for semi-slave labor in 3rd world countries, necessitating an even greater decline in American wages to reach equilibrium. In other words, American workers will no longer be competing with $4/day Chinese workers, or $1/day North Korean slave labor. Instead, they'll be competing with even lower waged workers--workers making less than $1/day, maybe less than 50 cents/day.
Supply of LaborAn increased
supply of workers reduces wages, reduces the employment-to-population ratio, and reduces total employment in the longer-run.
Total employment is determined by labor demand. Workers are hired only when needed to produce goods and provide services--not because there are more available, and not because they are more affordable. Even a low-wage worker costs money. If there is no demand for his production, he won't be hired. It reduces profit to hire an unneeded worker, even if his cost is low.
More workers do
not increase employment. An increased supply of a good or service does not increase its sale--unless it also reduces the price (which it usually does). But consumers & buyers have little awareness (or concern) about the supply of an constant-priced item. If the price is unchanged, they'll "purchase" the same amount. The same is true for workers. If wages are constant, employers will "purchase" the same amount of labor, especially when there is huge surplus. And there is ALWAYS an aggregate surplus of labor in the U.S. (
232 million working age Americans with only 146 million employed is a surplus of 86 million working age Americans.). And as with consumer goods, increasing this labor excess, without changing the "price", has no effect whatsoever on quantity of labor "purchased" (i.e., employment.) At constant wages, with an existing 86 million surplus, no employment increase results from increasing the surplus further. The point here is that, by itself, increasing the number of workers has no effect on employment. It simply results in more "not-employed" Americans.
In reality, however, increasing the supply does reduce the price of labor. And with a constant labor demand, this may temporarily increase employment. But not over the long-term. In fact, the exact opposite occurs, since increasing the labor supply reduces labor price, while having no immediate effect on labor demand. But over the long-term, increasing the (surplus) supply of labor
reduces both wages AND employment. By itself, decreased wages reduce wage-financed spending, reducing the demand for production created by spending, reducing the number of workers needed to provide production. Thus, the result of increasing the surplus labor supply is a reduction in both employment AND wages. The longer-term macroeconomic effect of an increased the labor supply is a reduced demand for labor.
The effects of outsourcing and increased illegal immigration are ultimately the same. The shorter-term effect of outsourcing is a decrease in American labor demand. The longer-term effect of illegal immigration is also reduced labor demand. Though short-term effects may benefit a small number of the wealthy Corporate elite, the long-term effects are bad for almost everyone.
When capital flows to cheapest labor markets, and when cheap labor flows into high-wage labor markets and suppresses wages, it reduces aggregate world labor income. Many high-wage workers are replaced by low-wage workers. For the high-wage workers not replaced, their wages are suppressed by illegal competition and an illegal supply increase--from illegal hiring of illegal immigrants. And when the government is forced to deal with the illegal supply increase, government's "solution" is to convert the "illegal" supply into a "legal" supply. And if "legalization" of the "illegal" can't be accomplished, then enforcement and prosecution of this "illegality" is blocked.
Rich campaign contributors
love all laws protecting their profits--such as patent protection, intellectual property right protection, and "protection" from profit-reducing laws of local and foreign governments.
But they abhor laws protecting American consumers, workers, and the middle class. They encourage the repeal or roll-back of all profit-reducing legislation. If the law can't be changed or repealed, they encourage non-enforcement.
Instead of investing in capital equipment, Corporate America invests in legislative control. This is the major investment "vehicle" for their record profits--payment to lobbyists and contributions to legislators--to pass profit-friendly laws, while repealing or not enforcing profit-reducing laws.
No wonder there's so much Corporate debt, despite record profits. No wonder they've spent so little on capital equipment investment. They spent all their money on Leveraged Buy-Outs of the government and the media. Instead of investment to increase production, they've invested in legislation and media disinformation. They've done a bang-up job until most recently. Slowly but surely, however, the public is starting to understand the downside to both globalization and unrestricted immigration. Americans are becoming aware that there are winners and losers from globalization and open borders. And Americans are beginning to see who the losers actually are--the American people themselves. Middle class Americans and workers have become the real losers in the new one-world, borderless, globalized economy. The winnings of those at the top have been at the expense of most Americans-- the expense of declining living standards. These living standards are often worse than that of our parents. And the living standards our children may be worse still.
Both parties should return to representing their voters, not just their rich campaign contributors. Legislation should reflect the needs of all Americans, not just affluent campaign contributors. Legislation should reflect the "one-
person, one-vote" philosophy of our forefathers, instead of the "one-
dollar, one vote" philosophy of our current government.