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Workers still feeling the pain in paychecks
Lagging wages delay recovery
Question of the Day
The downward trend in wages is feeding inequality and a polarization between the highest- and lowest-earning workers like nothing else seen in the United States since the Gilded Age of the late 19th century, according to the IMF.
That is because people at the top who manage the corporations and those with the greatest skills and education — particularly the top 1 percent of earners — have been able to maintain and even raise their share of income while most everyone else’s was dwindling.
Government figures show that nearly 60 percent of all income growth since 1989, or nearly $1 trillion, has been accrued by the top 1 percent of U.S. earners.
The highest-paid workers also have benefited the most from the recent increase in corporate profits — which usually are passed on to shareholders through increased earnings and dividends and company stock buybacks funded by growing mountains of corporate cash.
While wage gains have been limping in the past two years, income from dividends soared at double-digit rates of 20 percent in 2010 and 10.3 percent in 2011, according to the Commerce Department.
Russ Koesterich, global chief investment strategist at iShares, said the result has been satisfying from an investor’s point of view. Workers who have pension plans invested in stocks have shared in some of the gains.
“U.S. corporations have remained remarkably resilient and unusually profitable, with historically high margins despite anemic growth,” he said, attributing the boom to today’s remarkably tame wage growth and low interest rates.
“The corporate sector deserves some kudos for its discipline and adaptability,” he said, but he expects that when economic growth picks up, wages eventually will start to grow more normally again.
New jobs pay less
Corporations have kept a lid on wage costs by withholding raises and by replacing laid-off workers with people who accept lower pay.
Tom Porcelli, chief U.S. economist at RBC Capital Markets, noted that the average wage at jobs created since the recession has been 8 percent lower than the wages of workers who were laid off.
“This shift represents an 8 percent wage cut for the 3.7 million people that have been hired since the downturn ended,” he said.
While the job market has been slowly improving, with millions more jobs created and lower unemployment in the past three years, “the sheer number of job gains is not the only variable that matters,” he said. “Wages are the critical source of ammunition from a spending perspective.”
In one recent example, Caterpillar Inc., which manufactures heavy equipment, told workers at a locomotive factory that they would have to accept a pay cut of 50 percent or the company would move the jobs to factories where workers made much less — $12 an hour. That move shocked the workers.
“With bills to pay, workers wouldn’t be able to live taking a 50 percent pay cut without a drastic change in life,” said Ray Joseph Cormier, comparing the decision to the austerity imposed on workers in Greece. “Global corporations have workers either afraid of losing their jobs or those without one willing to do almost anything cheaper.”
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