Tag Archives: wages

To Fix The Economy Raise Wages

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
To fix the economy we have to fix wages. Increased wages will restore demand. The changes that will increase wages will help restore democracy.
The social contract used to be that citizens in our democracy share the benefits of our economy through increased wages that come from increases in productivity. This broke down and working people’s incomes have been stagnant since the Reagan Revolution. (Yes, I’m telling the same story again. It needs to be told, over and over so people can understand what is happening to us. We are feeling the effects of the Reagan Revolution coming home to roost.)
Reagan and the conservatives weakened the government and broke the unions. Government and organized labor were the forces in our society that had stood up for the interests of regular people against the “moneyed interests” and weakening them fundamentally changed the fairness equation of our economy. After the Reagan Revolution working people’s share of the benefits from increased productivity turned down:


All of the benefits of improvements in our economy now flow to a few at the top. This results in intense concentration of wealth:

With more and more of the income and wealth going to a top few, We, the People are thought of less and less as citizens and more and more as “the help.” But who is our economy for, anyway? Our economy can operate for the benefit of We, the People, or it can operate for the benefit of a wealthy few at the expense of the rest of us. This is the ongoing battle. And history has shown over and over that when economies operate for the few, they don’t work.
This is not just about sharing the economy, it is about sharing the decision-making power. In our form of government We, the People are supposed to make the decisions. When Reagan said, “Government is the problem” he was really saying that decision-making by We, the People is a bad thing. When conservatives complain about “big government” they are complaining about We, the People having a big share in decision-making. When they call for “less government” they are calling for less of a share of the decisions-making by us. This means the wealthy and powerful have more of a share — of everything.
With the income, wealth and benefits of the economy increasingly flowing to a top few, working families tried to compensate for the loss in various ways. Women entered the workforce. Former Labor Secretary Robert Reich explains, “By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).” (Please read his whole post if you have time.)
Then, still not getting by on stagnant wages with rising prices, people worked more hours or added second jobs. Then they started using up their savings.

Finally they resorted to adding debt.

This all finally broke down, demand slowed, and the economy has slowed to a crawl. The 90s financialization and “dot com” bubbles obscured the way things were headed, and then the housing bubble of the 2000s continued the illusion. But debt just kept rising people kept working longer and harder to get by, while the richest few kept getting richer. Finally it all crashed and current attempts to prop it up by helping the wealthy and big businesses are not succeeding. Bailing out big banks and their executives and shareholders and not holding anyone accountable, while letting predatory corporations continue their economy-draining practices has not only kept the worst parts of the “share of the wealth” problem in place, it has undermined people’s faith in government and demcoracy. Changes need to be made.
Most people pay for things with income from jobs. If we want demand to rise, then we need to raise incomes. But things are still going in the wrong direction. As CAF’s Robert Borosage writes today,

“Over the last decade, we lost one in three manufacturing jobs. Inequality reached Gilded Age extremes. CEOs and bankers pocketed million dollar bonuses while cooking the books and gambling on exotic securities, inflating the housing bubble until it burst. Health insurance companies kept a strangle hold on a health care system that costs twice as much as those in other industrial countries, leaves millions uninsured and provides worse health care.”

Who Gets What For What?
This bad economy situation is going to drag on until we make real changes in the structure of who gets what for what in this country. Every incentive in the economy is to try to reduce wages, cut benefits and eliminate jobs. Think about that. People get bonuses and raises and owners get richer if they eliminate YOUR job or at least cut back your pay and benefits. For example, by replacing a worker with a machine, the owner of the machine gets more money, the worker gets nothing. But in the larger economy each time this happens it means there are fewer people in a position to buy whatever goods or services the same companies that eliminated the jobs are in business to provide. And it means that a few wealthy people become more wealthy and powerful.
This is where government comes in. Government is supposed to be the force that speaks for and protects the interests of the people, empowers people through education and rules, set conditions to keep wages high, lay down the infrastructure in which businesses thrive, and coordinates the international competition for industries and jobs. But the Reagan Revolution broke that. We need to restore it.
There are so many things that government could be doing to get the economy working again for working people, small and medium businesses and big corporations that want to make an honest living. Boost the minimum wage, modernize the infrastructure, provide health care, provide free education through graduate level, increase Social Security, help unions organize, impose a democracy tariff so imports don’t get around the protections provided by our democracy, and return to taxing the rich who reap the dividends and payout of all the past investment that We, the People made to make business thrive.
And there are larger structural changes we can make. Just brainstorming but what if workers replaced by machines directly got some of the income generated by the machine. Workers laid off this way several times might then have enough income to get by without working! Or what if we cut the workweek from 40 hours to, say, 35 before overtime kicks in. Maybe that would increase hiring, while giving regular people more leisure time. (And keep cutting the workweek as machines and computers do more of the work.)
And, of course, to have wages at all people have to have jobs. One would think this would go without saying but these days it seems there is a need to point out that people are hurting for jobs, because the DC elite seem to have moved on from that. We badly need government programs to directly hire people to do things that help the people of the country. We would have all of this if the Reagan Revolution hadn’t weakened government of, by and for We, the People.
Other posts in the Reagan Revolution Home To Roost series:
Tax Cuts Are Theft
Reagan Revolution Home To Roost — In Charts
Reagan Revolution Home To Roost: America Drowning In Debt
Reagan Revolution Home To Roost: America Is Crumbling
Finance, Mine, Oil & Debt Disasters: THIS Is Deregulation
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Pressure On Wages As Well As Jobs

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
Our economy is not structured to produce enough jobs. Tomorrow’s jobs report is expected to show as many as 200,000 jobs created in March, but a lot of that is temporary Census hires, and even 200,000 jobs created is still 2-300,000 fewer jobs than number of new entrants into the job market each month! So even a “good” report of 200,000 will be just another “economy still getting worse more slowly” story.
We need jobs, jobs, jobs and jobs, and we need them to pay people enough.
It’s not just trade pressures that are keeping job growth from occurring, but trade pressures are a very big and very immediate part of the problem. Fixing the trade imbalances will be a great start and will give us a small bit of breathing room in which we will hopefully address larger structural problems.
Those trade pressures are not just destroying jobs, they are destroying wages and benefits, too. It’s the way of the world; a business owner can’t help but look at the legacy wages that built up and up and up during the competitive good times, and wonder why they’re still paying those high wages during the bad times. If you have a company full of people making $80,000 or $100,000 and you see people accepting work in similar positions for $40,000 you are going to wonder how to reduce the amount you are paying people. One way is to make them work more for the same pay.
In yesterday’s Washington Post, Holding back job growth? Workers’ awesome output,

One of the great surprises of the economic downturn that began 27 months ago is this: Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.
That means high-level gains in productivity — which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment. So long as employers can squeeze dramatically higher output from every worker, they won’t need to hire again despite the growing economy.
[. . .] Fearful of losing their jobs, people seem to have become more willing to stretch themselves to the limit to get more done in any given hour of work. And they have been tolerant of furloughs and cutbacks in hours, which in better times would drive them to find a new employer. This has given companies the leeway to cut back without the fear of losing valuable employees for good.

It’s not “awesome output” it is workers being squeezed to death. And it’s the way our system is designed.
In Fixing Jobs: Normal Isn’t An Option I wrote that the way our current system is structured employers have every incentive to figure out how to eliminate your job or at least cut your pay,

The core of what needs to be restructured is that we have a system where people with power and wealth benefit when they figure out how to cause other people to receive lower pay and benefits — or just lose their jobs. The incentives come down to this: if someone can figure out how to cut your pay and benefits or just get rid of you (“eliminate your position”) they get to pocket what you were making, and you get nothing. If you don’t own the company you’re out of luck.

Returning to “normal” is not an option now and it just isn’t going to happen. We have hit the wall of the old economic paradigm. We need to start looking at new models for a sustainable, people-friendly economy that works for all of us, not just a lucky few.
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