In June 2022, American
workers made an average of $27.45 per hour. In 1972, the same workers
earned an average of $3.88 per hour. A chart like this
might make it seem like America has come a long way
in terms of wage growth. But when adjusted for
inflation, wages have remained virtually
unchanged over the last 50 years, with workers today
earning just $0.12 more than they did in 1972. When the average American is
not seeing his or her living standards increase over a
period of decades, that's something that should
concern us all. With inflation at its
highest since 1981, Americans are feeling the
pain of slow wage growth. Two thirds of American
workers said that inflation has outpaced any salary
gains made in the past year. Now, because of the
inflation, I can't even make the monthly payments. So I had to pick extra
hours with my elderly care job. But some economists argue
that the concept is merely a myth that politicians use
to promote their careers. Politicians win elections by
promising to fix something that is supposedly wrong in
people's lives. And so I think there is a
bit of a political cynicism and calculus involved in
the wage stagnation debate and promises to fix the
supposed problem. So just how real is wage
stagnation in America today and what does it mean for
American workers? Wages in America have
stagnated since the early 1970s. But it was 1979 when
the gap between workers productivity and wage began
to substantially increase. Between 1979 and 2020,
workers wages grew by 17.5%, while productivity grew
over three times as fast at 61.8%. It's not true that wages
haven't grown at all. They have, but they haven't
grown as quickly as they had in the past. Since the eighties, the
economy has changed a lot. We've gone really from an
industrial era to a tech era . When you have these big
changes to the economy, sometimes the gains are not
equally felt, but it really has an impact on everyone's
lifestyle and everyone's wages. Wage stagnation is worse for
lower and middle income earners. The bottom 90% of
American workers saw their annual wages increase by
28.2% from 1979 to 2020, while wages for the top 1%
increased by 179.3%. Meanwhile, the top 0.1% saw
an astonishing growth of 389.1%. Real wages, which means that
after we adjusted for inflation, is not the
reason that much since the late 1970s. We know that, on the other
hand, inequality did rise over most of this period. I've been working about
since the nineties when I came here. That's about 30
years on and off. And there was very little
raise for domestic workers in general. Now, after the 2020, with
the inflation, I feel like the income stayed the same. People lost some of the
jobs, like in my experience, and we have to
struggle to find different or secondary job or second
part time job just to maintain the monthly
expenses of our daily living. It's very hard. Despite causing severe
disruption to the U.S. labor market, the COVID
pandemic has led to surprising wage gains
across industries. COVID has actually seen a
significant acceleration in wage growth, particularly
for low wage earners. This reflects a really
serious tightness in the labor market due to
excessive U.S. demand, whether it's from
the Federal Reserve or through fiscal stimulus
payments, but also restrictions on labor
supply, immigration restrictions, early
retirements and, of course, illness or deaths. So that has driven
substantial wage gains. How to tell whether that's
the new reality? And that's why I want to be
cautious. Did it change our life
forever and maybe for the better in terms of labor
market and wages? We have to wait and see. Automation is one
explanation for wage stagnation in America. The McKinsey Global
Institute predicts that 45.3 million workers will lose
their jobs due to advancements in technology
by 2030. Automation has been a really
big factor so far in especially manufacturing
jobs. So before, you built a car,
you used machines, but there was a lot of sort of hands
on work with it. Now much more of that is
done with machines and you have to be a lot more
skilled to use those machines, which means that
a lot of the routine jobs have disappeared or they're
very poorly paid. Over the next two or three
decades, a lot of economists believe that there's going
to be a lot of disruption in the labor market because of
new automation. And even college-educated
workers, that financial assistance and accounting
and even some parts of medical diagnoses will be
done by machines with artificial intelligence, so
a lot more of us might be facing that competition
from these machines. Globalization is another
reason for wage stagnation, forcing domestic workers to
compete against unfair competition. And in a lot of countries,
workers are paid a lot less. So now, particularly if you
don't have a lot of very specialized skills, you're
competing in that market. And that means that a lot
of sort of routine office work and manufacturing work
is going to go overseas. But that isn't all bad news
for Americans. It's important to remember
that meant goods got a lot cheaper. It's one of the
reasons we had such low inflation since the
eighties. And everyone benefited from
that. But that said, I think
economists like me were a little cavalier that we saw
the economy growing and people doing better about
the people who were hurt. And we still don't really
have good solutions to help people like that. Economists suggest that
labor dynamism also played a bigger role than expected. American workers today are
changing jobs less frequently than before,
even though job switching leads to strong take-home
pay growth. While some Americans don't
switch their jobs out of a desire for stability,
others can't because there is nowhere else to go. In many local markets,
companies use the lack of competition to suppress
their workers wages. The notion of monopsony
power is that you have a local labor market. Let's say that you live in
a particular city or any particular town, and in
that town there is one employer, and given that
there is only one employer there, then they set the
wages in a way that's lower than what you would
otherwise expect them to pay. This was a fully
competitive market. 60% of U.S. labor markets are considered
highly concentrated, meaning a few employers are
competing for local workers. Just 10% more workers in an
area can lead to about a 1% reduction in posted wages. I've asked a couple of
families over the years, that was still before
Corona, for $10 raise and they just declined. They said they'll find
somebody cheaper and we practically lost the job. In case after case, you see
that government policies were implemented to
discourage labor dynamism and to discourage workers
from moving to a better job or moving to a better town
or city to improve their job prospects. And this
inevitably will weigh on wage growth over time. Companies can also play a
direct role in stifling the competition with methods
like non-compete agreements. Roughly half of private
sector U.S. businesses that responded to
the EPI's survey said at least some of their
employees are in non-compete agreements, meaning some 36
to 60 million private sector workers in America are
subject to non-compete agreements. The non-compete clause would
lead you to stay with your current employer, not to
move, because the consequences would be that
it would be more difficult for you to find employment. And if you are less likely
to leave the job, you'll be tied in or locked in to the
current employer, which means that the likelihood
that that employee would keep getting his or her
lower earning is much higher. There's rationale
for it at the very high end of the income distribution
of the skill set, but I don't see much of a reason
to have it for rank and file employees. Meanwhile, unions that
originally fought for higher compensation have
drastically lost its power over the years. Union membership in the
U.S. fell from 20% of American
workers in 1983 to just 10.3% in 2021. Workers in unions typically
earn higher wages, about 10.2% more compared to
similar non-union workers, thanks to methods such as
collective bargaining. In those industries where
unionization stayed somewhat high, the effect of market
power or monopsony of the employer on wages was
muted. So the unions were able to
bargain on behalf of the employees even when they
were dealing with large employers. So wages were
less stagnant or didn't decline as much. But some suggest that wage
stagnation is an issue blown way out of proportion. The issue we have in the
wage stagnation debate is that a lot of researchers
have been using a certain inflation metric, the
consumer price index, that really dramatically
overstates inflation over time. So if you look at two
periods, you see that those expenses per CPI have gone
up far more than they actually have. That means it makes it seem
like your wage increase is much smaller than it really
actually is. You're actually able to buy
a lot more with your nominal wage than these researchers
say you can. So that's why most
researchers, including the Federal Reserve, like to
use a different measure of inflation: the personal
consumption expenditures or PCE. The PCE shows a much
more moderate inflation over the last several decades. When you apply PCE to
nominal wage growth, you discover much higher wage
growth for middle income workers. In other words, no
wage stagnation at all. And in fact, a pretty nice
gain over the last 30 years. Focusing on broad national
data over individual experiences can create
another issue. They see, Ah, the percentage
of low wage professions has increased. Therefore, we
have wage stagnation or decline. What they don't do
is they don't actually look at the people in those
professions and what their wages have done over time. So for example, you can
have someone who is a janitor who works for 30
years and actually made substantial increases in
wages and earnings over that time. That would be lost. If you just look at
janitors overall. I think it is technically a
myth and I think it is overblown to say that
people aren't better off than they were in the
seventies. It's just patently absurd. I think everything about
our lifestyle and our living standards are higher. And even our real wages are
technically higher. But I think there is
something to the fact that wages aren't growing as
fast as they used to for most people. So people
don't feel like they're equally sharing the same
prosperity. And I think that that is a problem that's
leading to a lot of social unrest. Legislation could help solve
some of the biggest issues causing wage stagnation in
America. There is a limited amount
that we can do through policy when you have big
changes in technology, globalization, forces like
that. But policy can matter a
lot. For instance, things like
those non-competes, I think that's adding to wage
stagnation and you shouldn't have non-competes,
particularly for low-skilled jobs. We could pass legislation to
make it easier for workers to unionize. There is a bill called the
PRO Act, Protect Our Right to Organize, that the House
of Representatives has already passed. It's dead
in the water in the Senate. I think we also really need
to embrace more of the gig market, which, so far, I
feel like we're trying to pretend doesn't exist and
making it sort of a lower tier part of the labor
market. But is it if we sort of allow those platforms to
offer health insurance, then I think it could become
better quality jobs that are more dynamic and let people
get more the upside risk and not just the downsides. The rise of remote work
could also be beneficial to wage growth in local
markets. Some employers are very
happy to have their employees working remotely. In a way, if you can work
remotely, at least you know when you think about
monopsony power, you are diminishing the monopsony
power of an employer because if you are a
talented person, even if you are in a small town where
there's only one or two large employers, you can
work for a global firm that can be based in any other
part of the world or the U.S . and work remotely and earn
a higher wage. Achieving a fair wage for
all Americans is vital in ensuring the success of the
American economy. There's a basic, not just a
basic sense of fairness, there is something
historically we have called the American Dream. It attracts immigrants to
our shores. It motivates all kinds of
people to innovate and make the economy productive. And wages really, in some
ways, are a reflection of the productivity and skills
of American workers. So if wages are stagnating
for a whole bunch of people, that means that we are not
becoming as productive a country as we can be. That means the whole
economy is not working as well as it can be.
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I don’t like CNBC since they aren’t critical of the bullshit