Friday, January 23, 2015

Low wages are not a structural problem

Yesterday, I just blew $881 on new tires and registration for my SUV. I was lucky to have the cash on hand. In our family, we've been saving money, looking out for unnecessary spending and avoiding credit. We don't eat out much, vacations are rare and my extended family plays Secret Santa so we don't go into debt for Christmas. We're part of the 38%. What?

A recent study shows that 62% of Americans can't cover an unexpected expense such as an emergency room visit or a $500 auto repair. 38% of  respondents in the survey said they can cover those bills with money on hand in savings or checking. More Americans are keeping a budget with an eye towards accumulating some funds for a rainy day. More Americans are avoiding credit cards.

This is good news. If enough people can do this, they can learn how to be cheap and keep their money instead of throwing it to the billionaire class. That is a big part of what it will take to turn things around. There are many millionaires and billionaires who started out with nothing (that's what they say, anyway). They were cheap, they scrimped and they didn't have much, but they did have a vision. Mind you, I'm not talking about the people who inherited their wealth. They're another kind.

This trend is evidence, a symptom of a far greater problem: an unwillingness on the part of employers to pay more money for their labor. Here is a case in point. Economist Dean Baker notes an article about a Denver businessman who complains that he's having trouble finding qualified candidates to fill the jobs he needs to fill. He complains that when he needs an accountant, he gets 700 resumes, but when it comes to tech, there are no takers. Baker is right in asserting that if Mr. Binder, the Denver businessman, offered more money, he might find it easier to fill his positions.

I've seen it myself. I used to work for a company where I happened to overhear a conversation between the the Chief Operations Officer and one of the owners. They had just put out an ad for an open position for a part time receptionist job that paid $9 an hour with no benefits. They got over 100 resumes. And they had a good laugh about it in the dark days of 2009. Yeah, that's real funny, right?

Maybe that was nervous laughter, like, "Jeez. I'm sure glad that's not me." Both of these men had college educations, both were well established in the top 1%. I know, I was there. But I didn't sense that much compassion from them about the situation.

Baker did make one final point in his article. There are many businessmen who complain that they can't get qualified candidates not because they're not out there, but because they fail to understand basic economics. If you offer enough money, you'll find your candidate. Rather than do that, these businessmen will claim it's a "structural problem". That's BS for, "I'm too cheap to pay for the talent I need."

But there is another way that business has gone cheap on America. They want their talent without having to pay for the education that talented people need to acquire the skills businesses demand. They'd rather go offshore. High tech companies do that for fun and profit.

During the State of the Union Address, President Obama announced a proposal to give every American two years of community college for free. I've done some searching on the costs of Obama's proposal and couldn't find any reliable tallies. Hmm. I found several estimates that place the cost of his plan at $60 billion. Here's one of them. That is a speck on the windshield of a $3.5 trillion budget. Besides, there are a few other industrialized countries that offer free education, some to anyone in the world. Finland, Sweden, Germany and Norway come to mind. Note that socialist countries do produce billionaires, despite very high income tax rates.

College is expensive in America, even community college. Here in Utah, a 3 unit course is (last time I checked) $400. If most people can't handle an unexpected expense, and they're having a hard time saving money for rainy day expenses, there are a few options. They could go to school on credit. Hey, that's cool. Someone in the billionaire class gets interest income. Or they could delay that education. Hey, that's cool. Someone in the millionaire class has another reason to keep wages low.

If there is a structural problem, as that Denver businessman put it, the structural problem is not with the labor market, it's with the access to education. But it would seem to me, that under the status quo, most people are being asked to do more with less and less. At the same time, people at the top are watching their incomes rise as they take 95% of all the economic growth before the people who created that growth can get to it.

That Denver businessman also seems to not know that when you pay people more, you generate more demand for your products. Yes, that's right, if you pay people more money, they may either buy your product, or generate demand for it indirectly. Henry Ford understood this. He was the guy who invented the assembly line to manufacture cars in the early 20th century. Most people in business today seem to have forgotten about him.

What we've been doing isn't working and we need to make some changes. Consider the economy like an ecosystem. In an ecosystem, if you give more, you will get more. If you're selfish, you will get less, unless you can get the government to intervene in the market for you. Which is exactly what has happened for the last 30 years. Instead of rooting for the employee, the source of economic demand, the government has sided nearly every time with the employer.

That's nice if you're a businessman, but given the state of the economy in the last 7 years, it's not so great for the source of demand: the consumer.
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