INSKEEP: Okay. The economy is said to be growing. Unemployment is said to be low. How are workers' salaries doing?'
Mr. WESSEL: Well, the economy is growing, and unemployment is unusually low by historical standards. But for the typical worker, wages are not going up. The new census bureau numbers to which you refer said that for workers, male workers, who work full-time, year-round, the ones at the middle of the middle of the income distribution, their wages fell last year by 1.8 percent, after adjusting for inflation. And they were actually lower in 2005 than they were back in 1998.
INSKEEP: Why would somebody's wages be going down at the same time that company's are said to be more and more productive?
Mr. WESSEL: Well, that's one of the mysteries of our current economic situation. Productivity, the amount of stuff we make for each hour of work, is up. And it's growing very fast, by historical standards. But wages aren't.
So the question is - where's the money going? And the short answer is, a lot of it is going into profits. And the other is that it is going to workers but it's not going to all workers. The best-off workers, the ones with the most education or who have sweet contracts with baseball teams or CEOs, their wages actually are going up quite nicely. And they're getting a widening slice of the pie. The people in the middle, though, are not getting a widening slice of the pie.
I would submit that Mr. Wessel's hypothesis that the greater productivity is "going into profits" is only partly right. After all, in a free market, and in an economy that is as open as America's, shouldn't workers who have been able to produce more be able to bargain for more too? Shouldn't their wages have risen in tandem? The fact that they haven't points to something else, I think.
In a 5th March, 2010 article in the New York Times titled "Trading Away Productivity", Alan Tonelsona and Kevin Kearns, of the US Industry and Business Council have this to say:
FOR a quarter-century, American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.
...In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.
...Productivity measures how many worker hours are needed for a given unit of output during a given time period; when hours fall relative to output, labor productivity increases. In 2009, the data show, Americans needed 40 percent fewer hours to produce the same unit of output as in 1980.
But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.
The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.
The authors don't mention the Advent of the Internet or the rise in Computing Technology or the Advances in Crop and Human Genetics or any of the other amazing strides that we have made and which have contributed to increases in Productivity. So, although I disagree with them that outsourcing is the sole reason for its increase, I will grant that they have a valid point. Interestingly, their assertion would also provide an answer to the question I posed earlier - why American workers were unable to bargain for more even though they were being more productive.
But as far as outsourcing goes, the answer cannot lie in simply raising trade barriers since such actions would immediately induce retaliatory measures in other countries. In the coming decades, America needs to rebalance its economy by becoming a net exporter, and there are no better markets to export to than the rapidly growing BRICs. Alienating them would be unwise, to put it mildly. The Obama administration is fully aware of this, and at least in the short term, it creates a difficult quandry: how to protect US jobs while keeping open future export opportunities to the developing world.
The answer, I think, lies in retraining the American workforce and investing heavily in technology and innovation. With some of the world's best Universities, Research Facilities and Industries, America already has a huge head start. Difficult times now will, I am sure, ignite the spirit to change.
Rajnesh Domalpalli