The Myth of Rising Wages

Whenever politicians use metrics that show how much their efforts are generating success, your very next question has to be whether the relevant measurement is an average (simply taking a total, however generated, and dividing it by the number of people in the class), mean (the measurement of those right smack in the middle) or some other calculation. To show you how screwed up averages can be, let me take an extreme example (beyond the above graphic). Assume nine people earn $10,000 a year and one person earns $1 million a year. That totals up to $1,090,000, which works out to an average annual pay per worker of $109,000, a spectacular average but hardly a successful actual wage to 90% of the class of ten people.

Gross domestic product (GDP) is likewise an average number but given the extraordinary earning power of the one percenters, the actual performance in the United States is almost entirely at the top of the food chain and nowhere else. So when Donald Trump touts real hourly wage growth of 2.9% during his first year in office, that is precisely one of those misleading “averages.” It is one of those totally top-weighted toward the highest wage earners in the land.

Second, as Trump’s policies increase the price of necessities like healthcare – where his slashing of the Affordable Care Act has caused premiums for the rest of us to soar – and storms, droughts (global warming consequences) and the dearth of farmworkers who are being deported in droves as part of the Trump administration’s immigration policies are pushing up food costs at an alarming rate, and as the one percenters’ impact on the real estate market has forced housing costs to skyrocket in major cities, you also have to factor in that these new costs effectively negate whatever pay increases might exist.

For those who claim his tax cuts benefit the middle class, not only are these cuts temporary, but if you happen to live in a high personal income tax state, you just might find the new rules that severely limit state and local tax deductions in the calculation of your federal taxes might have actually significantly increased your federal taxes. And remember, the massive deficit that arises because of the huge corporate tax cut (a) carries an annual interest carry and (b) has to be paid back someday. The piper is waiting!

Here’s how the February 24th Los Angeles Times looks at these numbers: “[Wage] gains thus far have been very uneven, according to detailed Labor Department statistics. They’re concentrated at the higher end of the pay scale and the lower — well-paid executives at one end, [ordinary blue collar workers – like truck drivers – on the other].

“By and large, the broad middle of the labor force has not seen much of a raise, mirroring a long-running trend of income polarization and a shrinking middle class in America.

“Even with unemployment at a 17-year low of 4.1%, the proverbial rising tide has not lifted all boats: The fancy yachts have gotten most of the lift.

“Take the finance sector, which has led the pack in the recent wage increases... Some 8.5 million people work in banking, insurance and real estate; their average hourly pay jumped 4.2% in January from a year earlier, to just a penny under $34 an hour.

“But for ordinary nonsupervisory employees in finance — about 4 out of 5 financial-industry workers — the average increase was just 1.6%, to $26.75 an hour.

“A similar, though smaller, gap can be seen in other industries, including healthcare, retail trade, information and professional services such as computer systems designs.

“‘It’s a pulling apart at the top,’ said Elise Gould, a senior economist at the Economic Policy Institute, a liberal-oriented group, noting that if the latest trend continues, it will exacerbate the country’s already large income inequality.

“The Republican tax overhaul that passed in December is expected to stimulate economic growth, and Trump administration officials say that will lead to broad-based wage gains as companies will have more cash to give to their workers… Many economists, however, doubt the $1.5-trillion tax overhaul will prove to be a windfall for most workers. History and recent surveys suggest that companies are more likely to use most of the tax savings to buy back shares, reward stockholders and make acquisitions.

“Stronger economic growth probably will push the jobless rate down further. Already, unemployment has fallen to a level that in the past has generated wage gains of around 3.5% to 4%... Some analysts think wage increases are on the cusp of moving up to that range again. After several years of spending a constant 3% more for salaries, U.S. companies now appear to be budgeting a little more for pay, said Sue Holloway, a director at WorldatWork, a nonprofit group that studies compensation and benefit trends.”

If you are a Trump supporter, you just might look at your little tax cut combined with the unemployment and wage growth statistics, added to a soaring stock market that mostly reflects the value of the GOP tax cut, and use that to believe that you and everyone else are vastly better off under his leadership. If you are a hard numbers person, and you drill down on the “net reality,” you will realize real, inflation-adjusted, disposable income for the vast majority of Americans has not budged in three decades.

“For the majority of workers in the U.S., the American Dream is unraveling in the face of unstable contract work, rolled-back benefits, and grueling labor conditions… and the attendant widening [income] inequities in the country… The economy has technically crawled its way out of the recession of 2008; the stock market, this year, is at an all-time high.

“While the latter point has become the favorite fodder for Donald Trump’s claims of economic stability, soaring stocks have little impact on the livelihood of most Americans. Only 18% of people own shares, and the majority of those are among the wealthiest in the country. People on the lower end of the economic spectrum–and people in the middle–rely chiefly on income for their wealth, and that situation is becoming untenable.

“The connection between having a job and making a living is quickly unraveling. In 2015, almost a quarter of working adults in the U.S. made poverty-level wages, and full-time, in-house jobs are being outsourced to contracting agencies, for whom people perform the same labor but at greatly reduced wages and often with no benefits. On top of that, the power of unions has dissolved in recent years, leaving workers with no outlet for organizing and collective bargaining, and we’re beginning to confront the fact that automation will make many low-wage jobs, like food preparation and service, obsolete.

“What has resulted from all of this is that the ‘American Dream’–the idea that any child born in the U.S. has a chance to grow up to be at least as successful, if not more so, than the generation that preceded them–is becoming more  and more like a tormenting nightmare. In the 1940s and ’50s, around 90% of American children grew up to have more financial resources and better jobs than their parents. ‘If you fast-forward to the present, a current American adult has only around a 50% chance of doing better than their parents,’ [says Lawrence Katz, Harvard professor of economics].” FastCompany.com, February 26th.

Politicians from both parties are expert at spinning statistics to suit their “successes,” but since it happens to be Trump and the GOP who are in power now, the current acceleration of income polarization, lack of any real wage growth for the vast majority of Americas for decades and the vicious costs spirals all around us have to be laid squarely in their lap. And if Americans don’t have more discretionary income, once the glory of the tax cuts fades, to justify their share price corporate America is simply going to have find a way to generate genuine top-line revenue growth or that stock market bubble economists fear will simply pop… and pop hard, probably taking real estate prices with it.

As jobs are lost to automation and artificial intelligence, likewise, the owners of the machines will make more money… but the folks whose jobs are displaced will no longer be consumers able to buy those more-efficiently-produced products and services. It’s a house of cards, waiting for a brisk wind to send the pile into hopeless disarray. So wake up and look more carefully at numbers touted by a man whose braggadocio is legendary. Understand the real from the salesmanship, and brace yourself for the ultimate consequences of playing with numbers to hide painful underlying realities. We may have to wait a year or two to see the fall… or we could be unpleasantly surprised earlier. One way or the other, that brisk wind seems to be picking up.

I’m Peter Dekom, and unless you are at the top of the economic ladder, you are probably going be slammed hard by the economic realities that politicians are trying to mask with misleading statistics.