Posts Tagged ‘wages’

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On Tuesday, I began a series on the unhealthy state of the U.S. healthcare system—starting with the fact that the United States spends far more on health than any other country, yet the life expectancy of the American population is actually shorter than in other countries that spend far less.

Today, I want to look at what U.S. workers are forced to pay to get access to the healthcare system.

According to the Kaiser Family Foundation, about half of the non-elderly population—147 million people in total—are covered by employer-sponsored insurance programs.* The average annual single coverage premium in 2015 was $6,251 and the average family coverage premium was $17,545. Each rose 4 percent over the 2014 average premiums. During the same period, workers’ wages increased only 1.9 percent while prices declined by 0.2 percent.

But the gap is even larger when looked at over the long run. Between 1999 and 2015, workers’ contributions to premiums increased by a whopping 221 percent, even more than the growth in health insurance premiums (203 percent), and far outpacing both inflation (42 percent) and workers’ earnings (56 percent).

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Most covered workers face additional out-of-pocket costs when they use health care services. Eighty-one percent of covered workers have a general annual deductible for single coverage that must be met before most services are paid for by the plan.** Since 2010, there has also been a sharp increase in both the percentage of workers on health plans with deductibles—which require members to pay a certain amount toward their care before the plan starts paying—and the size of those deductibles. The result has been a 67-percent rise in deductibles (for single coverage) since 2010, far outpacing not only the 24-percent growth in premiums, but also the 10-percent growth in workers’ wages and 9-percent rise in inflation.

In recent years, the increase in U..S. health costs has in fact slowed down. But the slowdown has been invisible to American workers, who have been forced to pay much higher premiums and deductibles in order to get access to healthcare for themselves and their families.

 

*Fifty-seven percent of firms offer health benefits to at least some of their employees, covering about 63 percent workers at those firms.

**Even workers without a general annual deductible often face other types of cost sharing when they use services, such as copayments or coinsurance for office visits and hospitalizations, and when they purchase prescription drugs.

Not so fast!

Posted: 18 August 2016 in Uncategorized
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Everyone has read or heard the story: the labor market has rebounded and workers, finally, are “getting a little bigger piece of the pie” (according to President Obama, back in June).

And that’s the way it looked—until the Bureau of Labor Statistics revised its data. What was originally reported as a 4.2 percent increase in the first quarter of 2016 now seems to be a 0.4 decline (a difference of 4.6 percentage points, in the wrong direction).

What’s more, real hourly compensation for the second quarter (in the nonfarm business sector) is down another 1.1 percent.

So, already in 2016, the decline in real wages has eaten up more than half the gain of 2.8 percent reported in 2015 (and after a mere 1.1 percent gain in 2014).

And, since 2009, real hourly wages have increased only 4 percent.

Workers may be getting a little bigger piece of the economic pie since the official end of the Great Recession but the emphasis should really be on “little.”

 

P.S. I’m not a conspiracy theorist by nature. And I don’t plan to start now. As far as I’m concerned, the revision in the real-wage data should not be understood as any kind of deliberate manipulation by the Bureau of Labor Statistics. But it does represent a cautionary tale about the precision of the numbers we use to understand what is going on in the U.S. economy—and about the willingness of some (like Paul Krugman) to dismiss workers’ anxiety about the state of the economy.

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We’re been through this before (e.g., here and here). But no matter. Let’s take it up again.

Even as the overwhelming evidence is U.S. corporate taxes have been decreasing and workers’ wages have also been falling (both, in the chart at top of the post, as a percentage of gross domestic income), there are still those who try to convince us corporate taxes should be lowered still further—and workers are the ones who will benefit.

Really?!

I know. It goes against all logic (and, as it turns out, the empirical evidence). But, according to Kevin Hassett and Aparna Mathur of the American Enterprise Institute, lowering corporate taxes is the only real cure for wage stagnation among American workers.

They’re right about wage stagnation (although they miss the declining share of national income going to workers). But lowering corporate taxes is not going to solve that problem. Raising workers’ wages will.

I wrote above that it was against all logic. Actually, it is consistent with the logic of neoclassical economics, which goes as follows: capital moves to or stays in lower tax zones (states or countries), which boosts the productivity of workers (who are not as mobile), which in turn leads to higher wages (since the presumption is workers are paid according to their productivity). And, on the reverse side, if corporate taxes go up (as some, like me, have argued they should), corporations will shift the burden of the tax to workers, who will then be paid less.

The holes in the logic are, to use the current vernacular, HUUGE. Where corporations decide to realize their profits may shift according to tax rates but that doesn’t mean capital itself moves to those zones. Even if capital moves, it can often replace workers (or leading to the hiring of other, lower-waged workers). And, even if workers become more productive, they’re not necessarily paid more.

And then there’s the evidence—or lack thereof. As Kimberly Clausing explains, “a review of the prior empirical work in this area fails to reveal persuasive empirical evidence of adverse effects on labor.” And that’s because of globalization itself:

First, if corporations are mere intermediaries in global capital markets in which a wide assortment of investors with different tax treatments invest, tax policy changes could affect the ownership and financing patterns of assets more than they affect the aggregate level of investment in different countries. Second, since multinational firms have become increasingly adept at separating the reporting of income from the true location of the underlying economic activities, international tax avoidance itself comes with a silver lining. Mobile firms move profits without needing to substantially alter the underlying investments, whereas immobile firms do not respond like the open-economy actors of modern corporate tax incidence models. In both cases, workers in high-tax countries are relatively insulated from adverse wage effects due to capital reallocation toward low-tax countries.

So, if the logic is faulty and the empirical evidence questionable, what’s left? Merely one more attempt to lower the tax burden on corporations—and thus put private profits even more out of the reach of public claims on those profits.

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From the very beginning, one of the central claims on behalf of capitalism has been that it leads to increases in productivity—and, as a result, an increase in the wealth of nations. The idea is that, the more national wealth increases (the more commodities are produced per person hour worked), the higher living standards of ordinary people will be (i.e., real wages will increase).* We find that story in pretty much every text of mainstream economics, from Adam Smith to Deirdre McCloskey.

That’s why Karl Marx spent so much time (hundreds of pages, in fact) discussing productivity (along with machinery, mechanization, technical change, and so forth) in his critique of political economy. So, John Cassidy gets it wrong.

Marx (not to mention other nineteenth-century critics of capitalism) never denied that there was a connection between increases in productivity and a rise in workers’ wages. That would be silly, both theoretically and empirically. All he ever did was deny there’s an automatic or necessary relationship between them—and, perhaps more important, that increases in real wages didn’t mean workers weren’t being increasingly exploited.

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The first point (one even Cassidy, in a way, concedes) is easy to show: for a time (until 1973 or so, in the United States), workers’ real wages increased at roughly the same rate as productivity. Then (from 1973 onward), productivity continued to grow but workers’ wages stagnated.

One key question, for the pre-1973 period, is why productivity and workers’ real wages increased in tandem. Cassidy assumes that wages grew because of the increases in productivity. Nothing could be further from the truth. The explanation for the increases in productivity (having to do with the growth of manufacturing, capitalist competition, the role of U.S. corporations in the world economy, and so on) is separate from the change in wages (based on fast economic growth, unionization, a shortage of labor power, and so on). There’s simply no automatic relationship between increases in productivity and increases in real wages, which has been confirmed by their divergence after 1973.

The second point is, in my view, even more important. It’s possible for workers’ wages to increase (at or even above the rate of growth of productivity) and for capitalist exploitation to also be rising.

Let me explain. In Marxian theory, the rate of exploitation (s/v) is the ratio of surplus-value (s) to the value of labor power (v). The value of labor power is, in turn, equal to the exchange-value per unit use-value (e), or price, of the commodities in the wage bundle (q), or the real wage. So, we have v = e*q and, in terms of rates of change, Δv/v = Δe/e + Δq/q. Mathematically, exploitation can increase (Marx referred to it as relative surplus-value) if the value of labor power is decreasing (Δv/v is negative) even if real wages are going up (Δq/q is positive) as along as the change in the price of wage commodities is negative (Δe/e) and its absolute value is greater than the change in real wages (|Δe/e| > |Δq/q|).

For example, in terms of numbers: if real wages increase by 10 percent (workers are buying more things) but the prices of the items in the wage bundle (food, clothing, shelter) decrease by 20 percent, then the value of labor power (what capitalists have to pay to get access to the commodity labor power) will decrease by 10 percent. Voilà! Higher real wages can be (and, throughout much of the history of U.S. capitalism, have been) accompanied by rising exploitation.

And that’s precisely one of the effects of increasing productivity: it lowers the exchange-value per unit use-value of wage commodities.** Less labor is embodied in each unit of bread, shirts, and housing. The fact that workers are able to purchase more of those commodities (say, at the same rate as productivity is increasing) doesn’t mean exploitation is not also increasing.

That’s even more the case when real wages are stagnant (Δq/q is equal to zero). Then, the decline in the price of wage goods (again,  decreasing by 20 percent) is translated directly into an increase in exploitation (via a 20 percent decrease in v).

But what if rate of growth of domestic productivity begins to decline (as it did after 1973, and even more so in recent years)? Then, the domestic contribution to the decline in the price of wage commodities would fall (say, to 10 percent). But, at the same time, if jobs are offshored and cheaper wage goods are imported from abroad (think Walmart), that also leads to a decline in the price of wage goods (say, by another 10 percent). So, even with declining domestic productivity growth, the combination of domestic production and imported goods can lead to a decline in the price of wage goods (for a total, as before, of 20 percent) that, with constant real wages, decreases the value of labor power (by 20 percent) and increases the rate of exploitation.

So, while Cassidy and many others are worried about a slowdown in productivity growth (linking it to workers’ wages and living standards), workers know that increases in productivity don’t automatically lead to increases in real wages. And even if real wages do rise, it’s still likely they’ll be more exploited than before.

Their employers, not they, will be ones to benefit.

 

*It is merely presumed that the standard of living of those at the top, the capitalists and other members of the 1 percent, would be just fine.

**Another, separate issue is why productivity itself might increase. The Marxian argument is that, during the course of competing over “super-profits,” that is distributions of the surplus-value among and between capitalist enterprises, capitalists will engage in technical change, which in turn leads to increases in productivity and a decline in the value of the commodities they produce. An interesting question, then, is why productivity in the United States and other advanced countries has slowed down. One reason may be a decline in competitive pressures among enterprises that produce goods and services.

Wrong track

Posted: 11 August 2016 in Uncategorized
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According to Gallup, only 17 percent of Americans are satisfied with the way things are going in the United States, which means more than 80 percent are dissatisfied. (That’s similar to other polls, such as the latest by Wall Street Journal/NBC News, which shows only 18 percent saying the nation is headed in the right direction.)

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That perplexes the folks at the Wall Street Journal, who cite rising real wages and median incomes. So, in their view, “For many voters there are very serious and grim issues in this election, but it isn’t really about pocketbooks anymore.”

And while I don’t want to reduce citizen dissatisfaction to their incomes (because, I agree, there are plenty of other “serious and grim issues in this election”), the writers at the nation’s premier business newspaper might want to consider what the folks at Sentier Research (pdf), the source of their household income data, observe:

The June 2016 median is not significantly different than [sic] the median of $57,147 in December 2007, the beginning month of the recession that occurred more than eight years ago. And the June 2016 median is now 1.1 percent lower than the median of $57,826 in January 2000, the beginning of this statistical series. These comparisons demonstrate that despite the gains in income in recent months, we are still at a level of median annual household income that is about the same as the level that existed at the beginning of the great recession more than eight years ago and lower than the level at the start of the last decade more than sixteen years ago.

Why does anyone think American voters should be satisfied with a “median annual household income that is about the same as the level that existed at the beginning of the great recession more than eight years ago and lower than the level at the start of the last decade more than sixteen years ago”?

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Greg Ip would like us to believe that, right now, in labor versus capital, labor is winning.

Really?!

That’s certainly not the case if we actually look at the official data on the wage share of U.S. national income.* As it turns out, the share of income going to workers has fallen from a high of 51.5 percent (in both 1953 and 1970) to a low of 42.2 percent (in 2013), with a slight uptick to 42.9 percent (in 2015).

Clearly, even with recent increases in real wages, labor has not been winning in its war with capital.

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So, how does Ip get his result, showing very little trend in labor’s share of national income? Well, by changing the facts. First, he subtracts capital depreciation from national income (and calls that, incorrectly, net national income).**

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OK, let’s do that—and much the same result as at the top of the post emerges: a long-term decline in the wage share (from 69 percent in 1982 to a low of 60 percent in 2012-14).

That means Ip’s surprising (and ultimately deceptive) result actually relies on his second modification: taking out rental income. Clearly here he is on shakier ground: rental income is mostly another form of the return on capital, distributed not to “households,” but to the owners of most of the buildings and land (both residential and corporate) in the U.S. economy. It’s just another distribution of the surplus to those at the top, which is a key component of both national income and capital’s share.

So, no, labor’s share is not back to where it was prior to the crash of 2007-08. And even if it’s moving in that direction, it’s well below its postwar peaks.

Capital is still winning its war against labor.

 

*And, remember, my preference is to subtract CEO and other 1-percent “wages” (and add them to capital’s share) to get the real wage share.

**By rights, he should subtract all capital expenditures (not just depreciation) to obtain net national income, that is, new value added. Then, we’d be left with the three components of the infamous Trinity Formula—wages, profit, and rent—all of which are created by the labor of the working-class.

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Last week, Alan Blinder (a professor of economics at Princeton University, former vice chairman of the Federal Reserve, and informal policy adviser to the Hillary Clinton campaign) made the case that Hillary Clinton’s policy package is more likely to raise workers’ wages than anything Donald Trump has come up with.

He’s right—but only because, like much else in the current presidential campaign, the bar has been set so low.

Consider Trump who, over the course of the past year, has argued pretty much every side of the wage debate. First, he was in favor of a low minimum wage, then he stated that wages are too high, then he considered the federal minimum wage too low, then he wanted to abolish the federal minimum wage, then states should decide what the minimum wage should be, and finally he’d like to see a $10 an hour federal minimum wage (and states should be able to legislate any increases above that). Phew!

And Clinton? As Blinder explains, her package includes a higher federal minimum wage, tax-deductible profit-sharing, increased vocational education and apprenticeships, pre-kindergarten education for all, and a more generous Earned Income Tax Credit.

They’re all better than anything Trump has offered—although we should keep in mind that, aside from the minimum wage (to $15 an hour, at least in the party’s platform, thanks to Bernie Sanders, and only “over time”), they’re all tax-financed subsidies to employers.

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And they’re all steps forward only because of how far workers’ wages have fallen (even worse than Blinder himself admits).

As I showed back in July,

throughout the entire period of the so-called recovery (from June 2009 through May 2016), real wages for non-managerial labor have risen only 3.8 percent (from $20.48 an hour to $21.25)—and only 4.8 percent above their recessionary low (of $20.27 in October 2012)—and, in both cases, that’s mostly because inflation has been so slow.

If we take a longer view, things look even worse. Real hourly wages (in 2015 dollars) remain less than what they were in April 1978 ($21.48) and even further below their post-1964 peak ($22.37 in January 1973).

So, even though workers’ wages have been climbing, unevenly, from their absolute low (of $18.07 in August 1994), they still remain below what they were more than five decades ago.

So, yes, Clinton’s plan is a lot better than Trump’s bluster—but only because, in the United States, the political and economic bars have been set so low.