Stalled wages hurt consumer spending

Bill Knight column for Mon., Tues. or Wed., Feb. 16, 17 or 18

Americans can’t spend what we’re not paid, an increasing number of economists, politicians and news media have discovered after the strongest job growth in 15 years and the best unemployment rate since the Great Recession combined with disappointing consumer spending this winter.

The U.S. economy added 257,000 jobs in January, according to the Labor Department, and the jobless rate held steady at 5.7 percent, just 0.1 more than December.

However, another drop – in weekly pay – reminds us that no economy that depends on consumer spending is really prospering when consumers’ wages aren't keeping up.

The Bureau of Labor Statistics’ most recent report set Usual Weekly Earnings at $796, but in “constant dollars” reflecting inflation, pay is the same as the 3rd quarter of 2007.

A year-to-year comparison to December 2013 shows wages up just 1.7 percent, compared to the Consumer Price Index’s increase of 1.3 percent, showing little wiggle room in household budgeting.

The last time a jobs report was this promising, in 1999, wages also improved – 3.6 percent.

But the bad news – stagnating wages – is dampening enthusiasm.

“The one indicator that hasn’t improved is nominal wages,” said analyst Elise Gould with the Economic Policy Institute (EPI). “Nominal wage growth has been consistently below target over the last five years.”

Lackluster improvements in pay limit working families’ ability to spend, of course.

“Paltry wage gains help keep overall inflation in check but also limit household budgets and blunt consumer spending,” wrote Jeffrey Sparshott in the Wall Street Journal.

The Center for American Progress, a think tank allied with Democrats, this winter released a report from its Commission on Inclusive Prosperity.

“The ability of free-market democracies to deliver widely shared increases in prosperity is in question as never before,” says the report, co-written by Lawrence Summers, former director of President Obama’s National Economic Council.

“The primary challenge democracies face is neither military nor philosophical,” it says. “Rather, for the first time since the Great Depression, many industrial democracies are failing to raise living standards and provide opportunities for social mobility to a large share of their people.”

“Economists typically expect a rapidly falling unemployment to deplete the pool of existing workers and spur competition among employers, reflected in higher wages,” Sparshott said. “But a robust year of job growth has yet to deliver that result.”

And, again, wage stagnation is adversely affecting consumer spending.

As for the causes of wage stagnation, economists cite several factors.

Kenneth Quinnell of EPI listed five reasons: The abandonment of full employment (policymakers instead focus on keeping inflation low); declining union density (as pro-business interests pushed policies that lowered union membership); changes in labor market policies and business practices (such as the lowering of the value of the minimum wage, the decrease in overtime eligibility for workers, misclassification of workers as independent contractors, and declining budgets and staff for government agencies that enforce labor standards); deregulation of the finance industry and the unleashing of CEOs (shifting compensation toward the upper end of the spectrum, the financial sector’s increasing political power, falling top tax rates, and deregulating finance); and globalization policies (prioritizing corporate interests over worker interests).

Ex-Labor Secretary Robert Reich, now a professor, author and filmmaker (“Inequality for All”) lists similar concerns: outsourcing jobs; technologies taking over jobs; millions of workers dropping out of the labor force (so employers can more easily draw applicants to low-paying or part-time work); Americans’ lack of savings (meaning they live paycheck to paycheck and feel desperate for jobs); and the war on organized labor.

“None of these changes has been accidental,” Reich wrote. “The growing use of outsourcing abroad and of labor-replacing technologies, the large reserve of hidden unemployed, the mounting economic insecurities, and the demise of labor unions have been actively pursued by corporations and encouraged by Wall Street. Payrolls are the single biggest cost of business. Lower payrolls mean higher profits.

“Big corporations and Wall Street are calling the shots,” he continued. “From the limited viewpoint of the CEO of a single large firm, or of an investment banker or fund manager on Wall Street, it’s worked out just fine.”


[PICTURED: Illustration from oldamericancentury.org.]