E Stagnant Wages: Americans Can’t Or Won’t Compete?

For most Americans, wages simply aren’t rising quickly enough and that’s blamed for holding back consumer spending and economic growth.

Jobs growth has hardly been robust, and that limits workers’ bargaining power. Since the recession ended, employment has increased 187,000 a month, whereas for the Reagan recovery the pace was 251,000 in a much smaller economy.

President Reagan cut taxes, deregulated business and engineered the 1985 Plaza Accord, which resulted in a 50 percent reduction in the exchange rate for dollar against the yen and other major currencies. In those days, Japanese, not Chinese, imports aided by a cheap currency were waxing the ears of American workers.

The Obama Administration admits the trade deficit is holding back jobs creation and growth and has chided China and others about currency manipulation and other aggressive trade practices, but Americans have a lot of bucking up to do if they are to compete effectively and reverse a $4000 decline in family incomes in this century.

International supply chain companies, like Li and Fung in apparel and household items and Wipro in electronics and IT, specialize in outsourcing products designed and services managed by American companies.

Asian workers often do not enjoy the kinds of health care and income guarantees federal and state programs provide Americans. They are simply more willing to accept alternating periods of unemployment and intense overtime work—for example, churning out millions of garments and computer games for the holiday rush.

American trade diplomats can’t force all of Asia to replicate the U.S. social safety net. That makes essential reforming qualifications for Medicaid, Obamacare subsidies and income support programs to encourage seasonal employment and re-entry into the job market.

Moving up the jobs market, many Americans often don’t have the skills to do the jobs that are left.

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Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster ...

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Gerald Rothford 4 years ago Member's comment

Nice article.

Bradley Lewis 4 years ago Member's comment

So the irony is that as productivity is predicted to soar--so much so that it will take much less labor to create more goods--we will claim that we have to cut benefits for much of the population in the face of increased abundance? Of course, we seem to be talking mostly about the private goods, at a time when we have major issues with infrastructure, education, health care, and the like. Maintaining or expanding those programs would provide a significant number of jobs, and maintaining income levels for the retired population would facilitate a significant transfer of wealth to the younger generation in the form of jobs. We should stand back from this and ask ourselves why it is that somehow we have decided to ignore the extent to which these kinds of changes are also a function of network externalities and infrastructure. (The military started the internet and government groups had major roles: there's that d**ned government again, right? The same government that built the interstates and established public health standards?) Why would we assume that all the rents from those private productivity gains should be captured by an ever-smaller group? Time for more fiscal stimulus. Our problem is not a lack of saving. It's a lack of broad-based purchasing power. And the very forecasts that predict rapid cheapening via machines of a variety of goods and services tell us why this should not lead to inflation: our problem has been too much deflationary pressure.

Dick Kaplan 4 years ago Member's comment

Well said.