Posts Tagged ‘wages’


No doubt, author Neal Gabler [ht: ja] has a pretty nice pot to piss in. But he doesn’t have enough money to pay for a $400 emergency.

That puts him in the same situation as 47 percent of Americans who, according to the most recent Board of Governors of the Federal Reserve System’s “Report on the Economic Well-Being of U.S. Households” (pdf), “say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.”

And there’s more:

  • Thirty-one percent of respondents report going without some form of medical care in the 12 months before the survey because they could not afford it.
  • Just under one-quarter of respondents indicate that they or a family member living with them experienced some form of financial hardship in the year prior to the survey.

It’s not that Gabler and almost half of all Americans are poor. But they’re stretched to (and, for many, beyond) the limit and find themselves in a situation of financial fragility.

They wouldn’t be able to cover an emergency expense costing $400! That’s a car repair, a new appliance, or a minor medical procedure. Or a trip to see an ailing relative.

In fact, according to a recent study by Payoff [ht: db], a financial wellness company, 23 percent of Americans—and 36 percent of Millennials—have experienced “a debilitating degree of stress surrounding their finances, resulting in pathological effects on their thoughts, feelings and behaviors that are most commonly associated with post-traumatic stress disorder.”

What the hell is going on?

Mainstream economists aren’t going to be a lot of help since, as Gabler notes, they’ve mostly ignored the situation.

They had unemployment statistics and income differentials and data on net worth, but none of these captured what was happening in households trying to make a go of it week to week, paycheck to paycheck, expense to expense.

What about psychologists? Here’s the best Brad Klontz, a financial psychologist (whatever that is) can come up with: “If you want to have financial security, it is 100 percent on you.”*

So, we’re back to real people like Gabler:

Life happens, and it happens to cost a lot—sometimes more than we can pay.

Yet even that is not the whole story. Life happens, yes, but shit happens, too—those unexpected expenses that are an unavoidable feature of life. Four-hundred-dollar emergencies are not mere hypotheticals, nor are $2,000 emergencies, nor are … well, pick a number. The fact is that emergencies always arise; they are an intrinsic part of our existence. Financial advisers suggest that we save at least 10 to 15 percent of our income for retirement and against such eventualities. But the primary reason many of us can’t save for a rainy day is that we live in an ongoing storm. Every day, it seems, there is some new, unanticipated expense—a stove that won’t light, a car that won’t start, a dog that limps, a faucet that leaks. And those are only the small things.

And when those financial emergencies arise, many of us don’t have the wherewithal to cover them.

As we know, those at the top are doing just fine. They continue to get their cut of the surplus—and to spend it on luxury cars and boats, apartments and houses, baubles and art. And put the rest in offshore accounts.

But many of the rest of are stretched by a combination of stagnant wages and salaries (going back decades now), escalating expenses (especially for healthcare and education), and barely regulated debt mechanisms (like credit cards). So, we live paycheck to paycheck, with barely any savings for eventualities (much less retirement), trying our best to keep it all together. . .

And then shit happens.


*Kontz is “co-founder of Your Mental Wealth™ and the Financial Psychology Institute, and a Partner of Occidental Asset Management, LLC.”



Posted: 29 April 2016 in Uncategorized
Tags: , , , , ,


Capitalism is, if anything, remarkably unstable.

Yesterday, the Dow Jones Industrial Average dropped more than 200 points (a bit more than 1 percent). And, today, it’s already down more than half that amount—and headed lower.


What’s going on?

Well, for one thing, corporate profits are declining.

U.S. corporate profits, weighed down by the energy slump and slowing global growth, are set to decline for the third straight quarter in the longest slide in earnings since the financial crisis.

Weakness was felt across the board, with executives from Apple Inc. to railroad Norfolk Southern Corp. and snack giant Mondelez International Inc. saying the current quarter remains tough. 3M Co., which makes tapes, filters and insulation for consumer electronics, forecast continued weak demand for that industry. Procter & Gamble Co.reported sales declines in its five business categories despite price increases.

And that’s exactly how capitalism works: corporations got exactly what they wanted in the early years of the recovery—with cheap financing, low wages, and foreign sales, which fueled high profits. And now those same conditions are coming back to bite them. And so they’re deciding to engage in less investment, which is further slowing growth and cutting into profits.

As we know, under capitalism, what goes up must come down—even for capitalists and their profits.

Fast Food Workers Protest For Increased Wages Ahead Of McDonald's Annual Shareholder Meeting

One week ago, the McDonald’s Corporation reported a 35-percent increase in profits (from $811.5 million in the period last year to $1.1 billion) in the quarter that ended 31 March. A few days later, former McDonald’s President and CEO Ed Rensi published an opinion piece in Forbes to explain why raising the minimum wage would be a huge mistake.

Let’s do the math: A typical franchisee sells about $2.6 million worth of burgers, fries, shakes and Happy Meals each year, leaving them with $156,000 in profit. If that franchisee has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirement eats up three-quarters of their profitability. (In reality, the costs will be much higher, as the company will have to fund raises further up the pay scale.) For some locations, a $15 minimum wage wipes out their entire profit.

Recouping those costs isn’t as simple as raising prices. If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases. (If you’re a McDonald’s regular, there’s a reason you gravitate towards an extra-value meal or the dollar menu.) Instead, franchisees can absorb the cost with a change that customers don’t mind: The substitution of a self-service computer kiosk for a a full-service employee.

What Rensi doesn’t mention is that U.S. taxpayers are subsidizing McDonald’s profits.

As Ken Jacobs reports,

Workers like Terrence Wise, a 35-year-old father who works part-time at McDonald’s and Burger King in Kansas City, Mo., and his fiancée Myosha Johnson, a home care worker, are among millions of families in the U.S. who work an average of 38 hours per week but still rely on public assistance. Wise is paid $8.50 an hour at his McDonald’s job and $9 an hour at Burger King. Johnson is paid just above $10 an hour, even after a decade in her field. Wise and Johnson together rely on $240 a month in food stamps to feed their three kids, a cost borne by taxpayers.


In fact, according to a study by Jacobs, Ian Perry, and Jenifer MacGillvary (pdf) for the UC Berkeley Labor Center, 52 percent of fast-food workers make so little that they’re are on some form of public assistance.*

That’s the social cost of McDonald’s (and other fast-food corporations’) private profits.


*Note also in the chart above the following observation about nominally non-profit higher education in the United States: “high reliance on public assistance programs among workers isn’t found only in service occupations. Fully one-quarter of part-time college faculty and their families are enrolled in at least one of the public assistance programs analyzed in this report.”


Special mention

jpgImageApril 22, 2016

Politics 0333

Capitalism is an economic system in which most people receive a wage or salary working in corporations for a small number of people who run those corporations and appropriate the resulting surplus in the form of profits.

That’s not a definition you’ll find in mainstream economics textbooks or most political debates these days. But it does capture what is distinctive about capitalism compared to other economic systems.

In particular, it focuses our attention on the tension between profits and workers’ compensation, and therefore on the relationship between capital and wage-labor.

And, it’s clear, capital is winning.



They dipped in 2105 but, over the long haul (especially since the mid-1980s), corporate profits in the United States have continued to climb to record levels.


And, as a share of national income, corporate profits have more than doubled—from about 7 percent in 1986 to 14.7 percent in 2015. Capital’s share of the economic pie has clearly been growing.

In other words, capital has been gaining during the current recovery and, with some short-term downturns, it’s been gaining for decades. (As an aside, when capital is not gaining, when the profit share does fall, as it has done periodically over the course of capitalism’s history, we get recessions and depressions—which persist until the conditions for corporate profitability are restored.)


Capital has been gaining—and workers have been losing. Labor’s share of the economic pie has been declining for decades, falling from about 59 percent in 1970 to just under 50 percent in 2014.

The fact that capital is winning actually has some commentators worried. Larry Summers is concerned that high corporate profitability is incompatible with his secular stagnation thesis. The best he can do, though, is focus on “increased monopoly power” to account for the divergence between the profit rate and the behavior of real interest rates and investment.

Justin Fox, in contrast, is looking in the right direction:

Starting in the early 1990s, then, employees lost ground to corporations and, to a lesser extent, sole proprietors and landlords. In other words, capital gained at labor’s expense. In the high-growth 1990s one could argue that this was still a good deal, because everybody was making more money. After 2000, though, slow economic growth and a declining share of that growth going to workers combined to put much of the country in a long funk. . .

Faster economic growth would make this question less pressing — as in the 1990s, a growing pie would make the relative size of one’s slice less important. But if continued slowish growth is what the future has in store for us, and lots of economists think it is, it seems clear that it would be better for the country — if not necessarily its investors — for corporations and other capitalists to ease up and let employees have more of the pie. It’s less clear that the capitalists would do this voluntarily.

Capital has indeed gained at labor’s expense. But, within capitalism, there are simply no mechanisms that can resolve the tension between profits and wages.

The fact is, the conflict between capital and wage-labor can only be eliminated by moving beyond capitalism.



Yes, American workers are angry. But not just for one reason—for many reasons.

It took a long time for U.S. political and economic elites (and their friends in economics) to understand that the American working-class has been squeezed far beyond what it can take. Even now, it’s not clear they understand, although the campaigns of Donald Trump and Bernie Sanders have given clear indications that the establishment is out of touch.

Even then, the anxieties and frustrations of U.S. workers can’t be put down to one thing.

MM and SK on Voter Anger - Manufacturing Employment Decline.xlsx

Sure, as Mark Muro and Siddharth Kulkarni explain, the American working-class is angry about the loss of manufacturing jobs.


But let’s also remember that the share of manufacturing jobs in the United States has been on a steady decline since its peak of 39 percent in 1943.

Still, the drop in the number of U.S. manufacturing jobs accelerated in the new millennium, coinciding with a rise in the offshoring of jobs to and the rise of imports from Mexico, China, and other countries in the process of capitalist development. That’s certainly one key factor.*


But American workers are angry for other reasons—such as the fact that, as Jared Bernstein explains, their wages, which had doubled from the 1940s to the 1970s, have flat-lined since.


Even more: only wages at the top—above the 90th and 95th percentiles (which, as I have explained before, aren’t really like other wages but, instead, represent cuts of the surplus)—have seen any appreciable increase since the start of the Second Great Depression.


Meanwhile, even with slow growth, corporate profits (both financial and nonfinancial) continue to rise to record levels.

Thus, workers are falling further and further behind, while the tiny group at the top continues to pull away from everyone else.

Figure-1-e1455723650211 Figure-2-e1455723827815

What this means is that every indicator we have—such as average incomes and the share of income captured by the top 1 percent—shows grotesque and growing levels of inequality within the United States.

So, yes, American workers are angry—at the loss of jobs, their stagnant wages, their employers’ record profits, and the obscene and still-increasing levels of inequality they witness every day.


*Daron Acemoglu et al. (pdf) estimate that, considering both the direct and indirect effects, import growth from China between 1999 and 2011 led to an employment reduction of 2.4 million workers—and thus about 40 percent of the decline in manufacturing employment during that period.