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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Friday, June 03, 2016

Why Workers Might Favor a Businessman for U.S. President

Back at the beginning of the Presidential primary elections, a friend sidled up to me and growled, “Can you explain Donald Trump to me?”  The gentleman thought that I, as a political conservative, might have some insight into this unusual candidate for high public office.

I think I might have some modest insight about this, but it’s my penchant for economic data, not my political views that might help us out.  Indeed, there's nothing politically motivated in what follows.

Many voters are frustrated in the lack of economic progress in recent years.  We hear all the time that incomes have stagnated and inequality has worsened.  Our latest wanderings around the website of the Bureau of Labor Statistics (BLS) yield some interesting information on how pervasive these conditions are.  We can thus understand better Trump’s appeal to working-class people who think this outspoken businessman might have some ideas for helping these conditions, for “making America great again.” 

Many comments about income inequality refer to total income, which, of course, includes dividends and investment capital gains, flows that favor the high-end.  Or comments about wages just talk about CEOs’ oversized compensation as a huge multiple of average workers’ wages.  There’s little mystery in these as causes of frustration among hard-working laborers.

Wage Stagnation and Inequality Pervade Labor Market
But what we found goes deeper.  First, workers’ compensation has indeed been stagnant overall.  Average wages and benefits were $21.50 an hour in 2014, down from $21.91 in 2007, just before the Great Recession started.[1]  This overall result comes from an annual survey of companies’ pay in some 800 different occupations, summarized in 19 “groups”, from management at the top ($59.93/hour in 2014) to food preparers and servers at the bottom ($8.88/hour).  Some groups near the middle include construction workers at $24.67/hour, production workers at $21.31 and office and administrative at $20.53.  Over the last seven years, averages increased for nine of the 19 groups, but they declined in ten of them.  Among the declines are ones you’d think: office workers, transportation workers and installation and repair people.  But hourly compensation also declined for higher-skilled occupations, including computer scientists, scientists and even a bit for healthcare professionals – really.[2]  So it’s hard to generalize, to make a simple statement about wage stagnation.

Further, and in some ways more irritating, inequality measures increased, even within these narrow pay categories.  While the overall 50% median compensation number went down 41 cents an hour over the seven-year period, the 90% level increased; so the top 10% of workers made $56.73 in 2014, up from $54.31 in 2007.  And seeming to add insult to injury, the degree of inequality went up within individual occupational groups: in eight occupations where the average went down, an inequality measure went up.   Thus, high-end positions in those eight occupations, including computer techs, healthcare professionals, social service workers, installers & repairers and transport workers continued to rise even as middle and low-end salaries struggled.  Workers may not see our data, of course, but they surely have a sense of the awkward pay relationships among their own colleagues. Workers in all kinds of jobs have reason to feel exasperated.

Possible Remedies: Reorient Education, Encourage Business
I don’t know a simple answer to these compensation issues.  The economist in me says, let’s encourage business investment and better skill-training so workers can do their jobs more easily.  As you can see from the variety of occupations we’ve mentioned, “skill training” is probably a better term than “education”.  Kids can learn coding for computer apps or they can become truck mechanics rather than heading for college to get a broader, but possibly less practical cultural background.  In fact, one brand-new book, Reskilling America, by sociologists Katherine Newman and Hella Winston[3], argues for renewed emphasis on vocational education over the recent “college for everyone” approach that often leaves graduates without a well-defined, real-world expertise, but plenty of debt.

Some of you might think greater government regulation is necessary to realign workers’ pay.  But that may well have the opposite effect of diluting business’ incentives to do better, thus worsening productivity, to say nothing of the cost of designing jobs to match government specifications.  It’s a very important economy question of the 2010’s.  In fact, the National Federation of Independent Business, a trade association representing small businesses, says that government regulation already adds to the cost of hiring workers, such that businesses are tending to favor temporary employees now rather than permanent ones.[4] This adds emphasis to our main immediate point about how frustrated workers might indeed want a new kind of leader in Washington who better understands the business world.

Further, the Dean of the Harvard Business School says in a recent Wall Street Journal [5], “solutions to problems like inequality and the lack of employment opportunities or wage growth aren’t going to come from government alone. They’re also going to require imaginative businesses that find new ways to employ people and create real value.”

Other Economic Policy Questions Add to the Quandary
We see that what we have here is a can of worms.  And this is just one issue, frustration over inadequate pay and lack of progress.  We have to mix this with all the other issues of the day.  An important Trump theme is immigration, for instance.  We thought to discuss this here, but it’s really a whole separate article on some recent information about the motivations of immigrants; these facts differ markedly from Mr. Trump’s usual arguments.  But it’s still an issue that middle-class workers of today care about.  Other issues that might give them headaches include national security and the protracted wars in the Middle East.  And while gasoline prices have at least come off their highest levels with the drop in oil prices, workers in North and South Dakota and Texas are being laid off as some oil production becomes unprofitable at the lower prices.  Apparently, we also have figure out how to deal with coal miners; coal is clearly an important climate-change issue, but the economies of West Virginia and other Appalachian regions depend on it.  We can’t just leave all those people out in cold – so to speak.  And on and on.

1.  Kristen Monaco and Brooks Pearce.  “Compensation Inequality: Evidence from the National Compensation Survey”, Monthly Labor Review.  July 2015.   U.S. Bureau of Labor Statistics. .  The numbers quoted are adjusted for inflation, so we’re talking about constant purchasing power.  Also, they are median averages, in the middle; half of workers make more and half make less.

2.  Ibid.  Note that while average pay for healthcare professionals decreased somewhat, the number of those workers, including doctors and nurses, rose markedly.  We still were startled that median pay and benefits in that profession did not go up.

3.  Katherine S. Newman and Hella Winston.  Reskilling America: Learning to Labor in the Twenty-First Century.  New York:  Metropolitan Books (Henry Holt and Company).  2016.

4.  Juanita Kuggan, quoted in NFIB Small Business Jobs Report, May 2016.  Ms. Kuggan is President and CEO of the National Federation of Independent Business. .

5.  Nitin Nohria.  “Imagine an Economy Without Wall Street.”  The Wall Street Journal. June 2, 2016, page A12.  Also online:

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Blogger Chris said...

Thank you for this article. I used to facilitate a job search group. From this group I learned that the recession led to lay offs which increased volume of work and hours (12 hour days) for those who remained. There was a culture of "you're lucky to have this job at all, so shut up and work." Temps became the permanent work force of many employers. Technology of smart phones led to the expectation to be available 24/7 leading to burn out and exhaustion. There were no regulations to prevent the off-shoring of work. Walmart required vendors to come to Benton AK to learn how to do business in China. Small towns lost their factories when a new vendor with a lower price was found for their product (ex Rubber Maid). There was nothing to prevent companies from merging with a foreign competitor and moving their HQ to that country, thus avoiding US taxes. Major brands such as Bayer and Budweiser are no longer American companies, but I am not sure most consumers know this. The Affordable Care Act helped people with no insurance, but many companies took the chance to just give employees a fixed amount for insurance and tell them "go shop on the exchange." They could not find insurance that was affordable. Business will be business. I hope there will be a "business insider" movement to do something about all this, but I am not optimistic...thanks for bringing this broad view to the subject.

6/03/2016 5:29 PM  
Blogger Carol S. said...

To Chris:

It’s easy to be critical of business, and they often do treat their employees with less respect than is desirable. We would offer a couple of factors in their defense, at least at the present time. First, this so-called “recovery” has been sluggish, pressuring their sales and resulting revenue. Profits of domestic companies are not strong; in the first quarter of this year, they totaled just over $1.05 trillion (annual rate); this is very slightly higher than the previous quarter, but continues a down-drift from a recent peak of $1.22 trillion in the third quarter of 2014. Profits, in fact, have been decreasing as a share of total income in the domestic economy since late 2011.

Second, your comments do indicate that we need to talk in some detail about globalization. Very simply – and perhaps oversimplified – while that appears to hurt American workers, it does provide a variety of merchandise at much lower cost than if it were produced domestically – and it helps relieve global poverty.

Third, corporate income tax rates in the U.S. are high compared to other countries. Several presidential candidates have talked about corporate tax reform in which the basic rate would be reduced from its current 35%, while closing some loopholes and deductions. We’re not sure of Mr. Trump’s views on this at the moment, but we certainly heard a lot about it earlier in the primaries from several people. This would help the practice you describe of moving the corporate “home” to some other, low-tax country.

Finally, we do have to discuss the Affordable Care Act as well, and at the moment, while we have heard about the practice you describe, we don’t know enough detail to give much color on it. Healthcare costs need to be reformed. Some of that is happening in various ways. We’ll come back to it.

Thanks, Chris, for your interest and your comments. You’ve outline our work for the next few months, haven’t you?!

6/03/2016 11:59 PM  
Blogger Chris said...

Dear Carol, do not feel that you need to defend businesses. In my 55-year career I have worked in every level of government from city-county-state to federal. I worked in the non-profit sector and then in the for profit sector before going back to school to change careers and become a chaplain. I have always been very interested in how organizations work and how they respond to the pressures to perform within the expectations set for them as well as considering the resources allocated. Now at age 74, retired and caring for grandchildren, I am currently enjoying reading Margaret Benefiel's books, SOUL AT WORK and THE SOUL OF A LEADER. I loved your article and I love your response. I appreciate that you have such a broad view of the situation, you are taking into account the global picture. This is not a simple situation for sure, and no sound bite from any candidate does it justice. Thanks again for this discussion.

6/04/2016 9:49 AM  

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