You don't have to be a U.S. Department of Labor statistician to know the trend in the United States regarding wages and salaries: they're heading lower, in many job categories. And the reasons are complex: globalization, automation, and lack of unionization have driven real wages and salaries for many job segments down to decade-long lows, and in some cases to levels not seen in more than a generation.
Globalization, automation, non-unionization
What's more New York Times (NYSE: NYT) Columnist and Nobel Prize-winning economist Paul Krugman argues that the main reason is lack of unionization/declining union membership in the United States. I take an opposite view, arguing that all three factors have contributed roughly an equal amount to the trend. (By the way, I don't recommend that one make a habit of trying to argue against economist Krugman.) In any event, in a half-decade or so we'll have a better idea of the wage loss trend's causation, and/or if it has reversed, and why.
In the meantime, investors and workforce adults can concentrate on this little-discussed aspect of free markets: there is a way, at least in theory, that wage stagnation/declines will not necessarily lead to a decline in U.S. living standards, and that's if prices and costs also fall, in a sustained or permanent way.
We're too early in the globalization era in the U.S. to get a telling reading on prices and costs, but so far, we are seeing some downward movement. The next key event regarding prices and costs: taxes at the state level. Structurally lower wages means - you guessed it - structurally lower revenue for states, and that means tax cuts and spending cuts at the state level. And for those who argue that state taxes won't fall, ask them this: in the globalization era, who in the United States is going to pay them?
Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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Reader Comments (Page 1 of 1)
8-07-2009 @ 3:20PM
Ernest said...
It will never become less expensive to live in the US the reason: GREED