With Official Unemployment This Low, Why Are Wages Rising So Slowly?

By Servaas Storm, a Dutch economist and author who works on macroeconomics, technological progress, income distribution & economic growth, finance, development and structural change, and climate change. Originally published at the Institute for New Economic Thinking website

By pushing workers into precarious, part-time work, “Third Way” governments of the past 20 years helped to create the disturbing economic trend that’s vexing orthodox economists

Why Are Wages Increasing So Slowly in America?

When labor markets tighten, wages are expected to increase. However, until recently, wage growth was a key missing ingredient in the recovery of the U.S. economy. Nine years into the economic expansion wage growth remained low, even though the rate of U.S. unemployment declined to about 4 percent—the lowest rate of joblessness since the dotcom boom of two decades ago. Only now is U.S. wage growth starting to accelerate—in January the rise in average hourly earnings reached 2.9% on a year to year basis, while inflation during 2017 was 2.1%. With the Republican tax cuts and higher public spending by the Trump administration, observers including Lawrence Summers and Paul Krugman expect high wage growth to persist, and voice fears that inflation will finally pick up.

If this happens, the Fed will conclude that the U.S. economy has become strong enough to deal with further and faster increases in short-term interest rates—with the caveat that the “output gap” is becoming positive mostly because underlying potential output growth is abysmally low. Underlying potential growth of the U.S. economy has been less than 1.25%, writes Jason Furman, which he attributes mostly to an aging population. With historic rates of productivity growth, Furman thinks potential growth would be 2.1% at the most, well below the 3% growth target of the Trump administration. But Furman may be too pessimistic about productivity growth. For the last several years, a lack of demand, low rates of capacity utilization and high rates of un- and underemployment of workers made firms unwilling to invest in new machines, in hardware and software or in new ways of doing things that would raise output per hour of labor. But capital accumulation will pick up again, once wages and demand begin to increase, and then, as is argued in a recent McKinsey Global Institute (2018) report, an acceleration of growth in productivity is a real possibility indeed. The reason is that higher investment brings with it faster embodied technical progress which in turn must raise productivity. Arguing this, McKinsey has reinvented the wheel—because the exact relationship between (investment) demand growth and productivity growth is known in the literature as the Kaldor-Verdoorn relationship (see Storm and Naastepad 2012; Storm 2017). The stronger the Kaldor-Verdoorn relationship, the smaller will be the impact of higher wages and higher demand on inflation —which is another reason why it is better for the Fed to err on the side of caution and not start ramping up the interest rate too early.

The moot point in all this, however, is whether the recent acceleration in annual hourly earnings is really signaling (near) full employment and reliably predicting a looming rise in inflation. There are clear contrary signals of considerable slack in the labor market: most new jobs are temporary jobs, often precarious in nature; the number of discouraged workers not actively looking for a job is still high; and wage growth for rank-and-file production and supervisory employees—likely including proportionately many Trump voters—was considerably below the national average, showing no sign of accelerating (as yet) and, at 2.4%, running barely ahead of the increase in consumer prices (of 2.1%). In addition, a bigger proportion of production and non-supervisory wages are being paid in the form of bonuses, allowing firms to stay flexible and nimble. “I don’t believe we’ll see a long-term increase in real wage growth,” Ken Abosch, a partner at Aon Hewitt, the human resources consulting firm, said in the New York Times (February 10, 2018). The reasons for sluggish wage growth for the majority of U.S. employees are debated and argued to include declining unionization, the increasingly dual nature of U.S. employment, reluctant minimum-wage increases, globalization (greater import competition), and the slowdown of productivity growth (Storm 2017). But the problem is not just American.

European Workers Need a Pay Raise as Well

The lack of association between tighter labor markets and wage growth is not just visible in the U.S. economy. It is a global phenomenon and there are lessons to be learned by the U.S. from the experiences of other nations. Consider the Eurozone where lower unemployment rates are also not leading to higher wage growth (Schulten and Luebker 2017; Buti and Turrini 2017). Bloomberg has called it the “mystery of missing wage growth;” the Financial Times writes about the “Eurozone’s strange low-wage employment boom” (Jones 2017), and the European Commission (2017, p. 24) has put forward the diagnosis of a “wage-poor recovery” in which private consumption remains depressed by stagnant wages. In a remarkable statement coming from the European Central Bank, Mario Draghi (2016) made “an indisputable case for the benefits of having higher wage growth” in the trade-surplus countries of the Eurozone. Draghi further suggested that the official unemployment rate is underestimating the true plight of joblessness:  broader measures of “slack” in the labor market which include ‘discouraged workers,” “underemployed part-time workers” and “workers marginally attached to the labor force,” point to a hidden reserve army of workers which is roughly two-thirds the size of the official unemployment rate. The European Commission (2017, p. ix) argues that “the outlook for wages has now moved center-stage for the sustainability of the recovery.” However, notwithstanding all this policy talk, actual wage growth stays poor, even in stronger (booming and trade-surplus) economies such as Germany and the Netherlands. Let me zoom in on the Dutch economy which grew by 3.1% in 2017, the strongest growth in more than a decade.

The Dutch Case: A Growing “Disposable” Workforce

Dutch unemployment declined to 4.1% in December 2017, and Eric Wiebes, the conservative Minister of Economic Affairs, stated that the “Dutch economy is in good shape.” This is unfortunately not showing up in Dutch nominal wage growth, which is neither high nor rising, equaling just 1.7% during 2017. Like the ECB, De Nederlandsche Bank (DNB)—the Dutch central bank—is worried by the stagnant wage growth and the consequent decline of the wage share in GDP.  In recent years, the DNB has repeatedly called for substantial nominal wage increases for workers in the so-called “sheltered” sector—which includes industries catering to domestic demand and not exposed to international competition (DNB 2016)—to the surprise of Dutch labor unions and the annoyance of employers’ associations.

While its call for higher wages already gives a new meaning to what is commonly referred to as “unconventional monetary policy,” the DNB went further and investigated the causes of the lack of Dutch wage growth. In a remarkable report published in its DNBulletin of February 1st, DNB researchers single out the incidence of temporary employment and alternative working arrangements (mostly in the form of self-employment) as a main driver of low wage growth and a declining wage share (DNB 2018). As is shown in Figure 1, the share of self-employed and temporary workers in total employment in the Netherlands has grown—steadily—from 16.6% in 1980 to 25% in 2000 and further to almost 38% in 2016. The proportion of temporary workers in the Netherlands in 2016 is almost ten percentage points higher than the average for all OECD countries. Self-employed and temporary workers enjoy (far) less legal employment protection than permanent employees. They are also less unionized and/or organized—only 10% of temporary, self-employed Dutch workers are union members, compared to 24% of permanent employees. The lack of job protection and lack of organization are factors weakening their position in the wage bargaining process.

In addition, the DNB argues (2018) that the growing prevalence of self-employed workers has also weakened the wage bargaining power of  “insider” permanent workers who have to compete with “more easily dismissible” workers who cost often only 60 percent of the wage cost of a permanent worker. Using data for eight major industries during 1996-2015, and controlling for the wage-impacts of (skill-biased) technological progress and greater import competition (or globalization), DNB finds a statistically significant negative association between the wage share and the incidence of temporary employment; specifically, an increase of 1% in the share of temporary employment is associated with a decline in the wage share of 0.23 percentage points.  Temporary employment in the Netherlands has increased by 15.8 percentage points during 1996 and 2015. Hence, DNB concludes that more than half of the decline in the wage share during these years has to be attributed to this fundamental long-term refashioning or “hollowing out” of the labor market during the previous two decades. The outcome is illustrated in Figure 1 (see also DNB 2017).

Figure 1
Self-Employment Plus Temporary Employment in the Netherlands, 1980-2016 (as a percentage of total employment)

Source: OECD Statistics

History Repeats Itself …. First as Tragedy, Then as Farce

It is important to note that labor market deregulation was not just a conservative political project. In the Netherlands, it had the active support of the social-democratic Labour Party, which in its “Third Way” incarnation prioritized “jobs” over wages, social and employment protection and the quality of jobs (Storm and Naastepad 2015). What is striking, perhaps even paradoxical, is that job growth was to be achieved not by means of traditional demand management by the state (for example, fiscal stimulus), or through the creation of public-sector jobs, but through activating labor market programs offering positive and negative (supply-side) incentives pushing (more) people into the labor market, for instance by shortening the duration of unemployment benefits, introducing job search obligations or cutting benefit entitlements (Bonoli and Powell 2004). Doing so involved the (sometimes drastic) deregulation of labor markets, pension and tax reforms, some tightening of access to social security systems, as well as (on average) real wage growth restraint. Dutch Social Democrats pioneered this strategy in Europe and tellingly, the motto of the two consecutive Dutch governments (1994-2002) led by Labour Party Prime Minister Wim Kok was “jobs, jobs, jobs”—a motto Mr. Kok also gave to the report of the Employment Taskforce (2003), which he chaired in 2003 on behalf of the European heads of state.

Prime Minister Kok openly threw off Labour’s ideological feathers (in a public lecture in 1995), accepting the logic of and constraints imposed by financial markets within which “modern” social democracy must operate. The biggest of those constraints is the one Andrew Glyn (2007) called the “Nasty Trade-Off”: the supposedly ineluctable choice between less inequality (at the cost of higher unemployment and lower growth) and higher employment (only achievable at the price of greater inequality). Third Way social democrats across Europe chose the latter—and Kok’s Labour Party led the way. Dutch wage moderation created (temporary and part-time) jobs but did so as a result of a secular slowdown of labor productivity growth, not higher economic growth (Naastepad and Kleinknecht 2004; Naastepad 2006; Storm and Naastepad 2012, 2015). The Dutch “miracle” of low unemployment, praised by the international business press including The Economist and endorsed by economists including Oliver Blanchard (2000), subsequently inspired the German Social Democrat-led government of Gerhard Schröder to implement the so-called Hartz reforms of 2004-06—a set of labor market reforms which put an end to Germany’s social market economy and pushed millions of workers into insecure, flexible, low-waged jobs (Storm and Naastepad 2015; Odendahl 2017). Both the German and Dutch social democrats operated in the—neoclassical—belief that fuller employment is possible only if one reduces the cost of labor and allows for low-wage flexible services jobs—in one blow discarding decades of continental European social democratic thought in favor of the narrow Anglo-Saxon logic of the non-accelerating inflation rate of employment (NAIRU), in which the “Nasty Trade-Off” takes center stage (see Storm and Naastepad 2012). No wonder that when Margaret Thatcher was asked what she regarded as her greatest achievement, she is said to have replied: “New Labour”. And now French President Emmanuel Macron is trying to copy-paste the Hartz reforms in his country in an attempt to break up France’s supposedly “rigid” labor markets. “There is no alternative” or TINA, as Thatcher once said.

Back to the U.S.A.

What the findings of DNB confirm is that decades of labor market deregulation have created what Alan Greenspan (speaking about the U.S. economy) called workers “traumatized” by job insecurity and afraid or simply unable to press for wage increases (Storm and Naastepad 2012; Weil 2014; Storm 2017). Deregulated and increasingly dualistic labor markets filled with precarious part-time work (Temin 2017; Storm 2017), along with restrictive fiscal policies, created the preconditions for the structurally low inflation and low interest rates during the much-hyped “Great Moderation” of the mid 1980’s-mid 2000’s—which as I have argued elsewhere (Storm 2018a, 2018b) directly propelled asset price inflation, the growth of shadow banking and financial fragility. Coming back to wages and recognizing that the bargaining power of flexible workers has, if anything, not improved, it is difficult to see how economic growth and lower unemployment lead to structurally higher wage growth and higher inflation.

The findings by DNB are already remarkable in and of themselves, coming from the monetary authority and not from the labor unions or some left-leaning economist. But these findings have a bearing on monetary policy discussions in the U.S. as well. The tightening of the labor market no longer automatically results in higher nominal wage growth, because the employment relation has fundamentally changed—as a result of labor market deregulation, the fissuring of the workplace (Weil 2014), outsourcing and the financialization of corporations (Lazonick 2017). The fact that a much higher proportion of workers is working in such flexible “alternative work arrangements” must also contribute to the greater “elasticity” of the labor force itself. In the U.S., millions of discouraged workers who, because of weak job opportunities or due to the opioid crisis, gave up searching for a job, dropped out of the statistics and are not reflected in the official unemployment rate. The number of “missing workers” reached a peak of 3.9 million people in September 2015 according to the Economic Policy Institute, and even now more than one million workers are no longer recorded.

But it is crucial to recognize that the flexibilization of the employment relationship is not recent and not just confined to the growth of the “gig economy” and Uber jobs. This is what the DNB study brings out. It has been a steady and persistent process which started in the 1980s and has been going on for two generations, has continued more or less without interruption until now and may accelerate in the (near) future with robotization and AI. In this decades-long process of structural transformation, millions of workers have been pushed out of permanent employment into often non-standard, precarious forms of self-employment in service sector jobs in technologically stagnant activities (as explained further in Storm 2017). Recognizing what was happening, Paul Samuelson (1998) told a conference sponsored by the Federal Reserve Bank of Boston that “America’s labor force surprised us with a new flexibility and a new tolerance for accepting mediocre jobs.” Anthropologist David Graeber (2013) has called these jobs “bullshit jobs,” writing that “[h]uge swaths of people [….] spend their entire working lives performing tasks they secretly believe do not really need to be performed. The moral and spiritual damage that comes from that situation is profound. It is a scar across our collective soul.”

This brings me to my final point. The most important ramifications of the ongoing flexibilization of work and the fissuring of the workplace are not just stagnant wage growth and rising (wage) inequality, but also job and income insecurity and greater social and individual anxieties arising out of “the grinding reality of continuing, unyielding low pay over many years” (Ferguson, Jorgenson and Chen 2018, p. 28). In the recent U.S. Presidential elections, the “many pressures that had been squeezing voters increased to a point where, quite literally, daily existence for many had become close to unlivable” and “the reality of the Hunger Games was just too obvious” (ibid.). This led enraged voters to express their discontent with the establishment and its mainstream economics policies by voting for two political outsiders, Senator Bernie Sanders and Donald Trump. In other words, macroeconomic mismanagement has huge political costs, and ignoring the political fallout of workers traumatized by decades of labor market deregulation comes at our own peril. The Democratic Party, when it decides to ignore the lessons of the successful Sanders campaign, should contemplate the fate of its “Third Way” companions in Europe. As can be seen from Figure 2, voter support for the Dutch Labour Party has gradually but steady imploded from 1981 to 2017—from earning one-third or more of the voter share in the 1980s to a measly 5.7% share of voter in 2017. Similar catastrophic declines can be observed for the Socialist Party in France, and can perhaps be predicted for the German Social Democrats. The tragedy is that Figure 2 exposes a case of self-destruction. The U.S. Democrats should learn from these experiences—and quickly so.

Figure 2
Percentage of votes for the Labor Party: The Netherlands, 1981-2017

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  1. jefemt

    Living the Dream!

    I had forgotten that term, precariat. It is a gem. Precariats in the Anthropocene…

    From wiki:

    In sociology and economics, the precariat is a social class formed by people suffering from precarity, which is a condition of existence without predictability or security, affecting material or psychological welfare. The term is a portmanteau obtained by merging precarious with proletariat.[1] Unlike the proletariat class of industrial workers in the 20th century who lacked their own means of production and hence sold their labour to live, members of the precariat are only partially involved in labour and must undertake extensive “unremunerated activities that are essential if they are to retain access to jobs and to decent earnings”. Specifically, it is the condition of lack of job security, including intermittent employment or underemployment and the resultant precarious existence.[2] The emergence of this class has been ascribed to the entrenchment of neoliberal capitalism.[3][4]

    1. GrkStav

      The “precariat” is almost a perfect rendition of what Marx (& Engels) argued the operation of (basically) unconstrained capitalism would produce re the majority (increasing, at that) of ‘direct producers’. There’s no “emergence” of this class. It’s the re-appearance, on ‘steroids’, of classical proletarianized workers.

  2. rd

    I think we have a generation of business leaders trained from the ground up (starting with LBOs in 80s) to cut costs in the main-stream economy. In the new tech industries, this is not the case and we see fairly high employee pay and benefits because they need to grow their work force and want to compete for workers. However, in many areas of the economy, the companies are focused on quarterly earnings and the easiest way to juice them is to cut quarterly costs. Investment paybacks are measured over years. Employee cost cuts cuts can generally show up by the next quarter.

    Stock buybacks cut the number of shares and raise EPS. So you don’t need to grow revenue (which would require increasing the number of employees) if you can reduce your costs and the number of shares outstanding. So you get the stupid demands from executives to increase sales per person (Wells Fargo “Eight is Great” new account program) just to maintain revenue after cutting their employee costs.

    1. visitor

      In the new tech industries, this is not the case and we see fairly high employee pay and benefits because they need to grow their work force and want to compete for workers.

      There were a few articles a couple of years ago that showed that those “new tech” players rely heavily on lowly-paid, easily dismissed subcontractors. Controllers of videos at Google and Facebook, for instance.

      1. jrs

        +1 yes and those are the big players, one only needs to actually look at tech job ads and tell me how many of them are full time rather than contract, an awful lot are contract. It’s a gig dominated market too, just generally pays better than Uber is all, and there is some full time work.

      2. user

        Yes, they do. From Ars Technica last year, The secret lives of Google raters (hired through a subcontractor, of course), followed by them quickly firing one of the workers for speaking to Ars.

        But, believe it or not, federal law makes it illegal to fire employees (in most cases) for getting together as a group and speaking to the media about their work conditions — which is what that worker did. So it’s not surprising that he received a settlement after filing a charge with the National Labor Relations Board.

      3. visitor

        Before I forget: a few years ago there was the scandal about “new tech” firms colluding on hiring practices. Google, Adobe, Intel, Apple were subsequently condemned for those illegal, secret non-poaching agreements.

        So much for “growing their work force and wanting to compete for workers”.

        1. jsn

          Yes, and it was the sainted Steve Jobs that started this collusion with a (sociopath’s) gentleman’s agreement to not “poach ” talent.

    2. jrs

      I don’t think that generalization is actually true of tech, yes for some in the tech industry who can find full time employment in some parts of the country, life is good. But tech is actually RIFE with contract work, at least half if not more of tech jobs are contract work and often 6 months or less.

  3. LyonNightroad

    “Why should we increase wages when nobody else is?” – Almost Every Corporation Today.

    My employer uses market based analysis to determine wages. This begs the question, if every other employer also uses market based analysis to fully determine their wages and sets it at the midpoint, why would wages ever change?

      1. ambrit

        Down here in the American Deep South, we append; “Se habla espanol.”
        I see local craigslist job postings in Spanish now, for Mississippi.

          1. ambrit

            I would advise against it Ignacio. “La Layenda Negra” is now equal opportunity. No one gets out of here alive.

    1. lyman alpha blob

      Back when I worked at WAMU bank around 2000-2001, we had a fairly generous monthly bonus incentive package and if our branch hit certain benchmarks, the bonus would be equivalent to a 3rd paycheck every month which is the only thing that made the job affordable – base pay was not really enough to cover the cost of living in Seattle.

      We hit the benchmarks just about every month since one of the big ones was mortgage origination and the mortgage market was booming at the time (turns out many of those mortgages were fraudulent, but we know that story already). WAMU made record profits that year despite paying out all the extra in bonuses (fraud is quite profitable!).

      The next year WAMU decided to cap the monthly bonuses no matter how much revenue the branches created. IIRC the capped bonus was about 1/3 to 1/2 of what we’d previously received. The reason given by one of the corporate VPs was that every year bank execs from different companies get together and compare notes and it was determined that WAMU was paying more than the industry average, so bonuses had to be cut to get back in line with the competition.

      That is collusion pure and simple and they admitted it explicitly. Last I checked this was also very illegal but industries do it all the time to keep wages down and nobody gives a damn.

      Adam Smith recognized this tendency centuries ago –

      “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

      – and yet here we are 200+ years later still putting up with the same crap.

      1. HotFlash

        Indeed! Wages went up when workers organized, and went down when employers organize. That economists and economic writers find this a ‘mystery’ is either pathetic or preposterous. Would the moral of this story for us plebes be, “Organize, organize, organize!”

    2. Jack

      These market analyses are selectively applied: at the senior management level they’re used to support higher and higher salaries and bonuses to support their claim of being uniquely adept at their jobs.

      For everyone else: canon fodder

  4. Pelham

    In this context it will be fascinating to see whether the rank-and-file of Germany’s SPD vote to join in another proposed coalition with Angela Merkel this weekend. If they approve, the thinking seems to be, they may as well consign the party to the ash heap.

    As for our Democrats, we should keep in mind their top priority — which is not winning elections but rather excluding the possibility of any humane solutions for the working class and the development of any true left-wing party while maintaining their access to the big money spigot.

    1. HotFlash

      I would rate ‘maintaining their access to the big money’ as number one, the others naturally follow on from that.

  5. Invy

    Fissioning opens up a business to management loss,as they learn what little knowledge/skills are necessary to run the core of the business and farm everything else out and can then go form a conpeting business (absent any contractual no compete clauses)

    This is probably why most of the wage gains are being realized in management positions as referenced by Richard wolff in his recent economic update. It is likely to lead to heightened antagonism between the laborers that remain within the business and management

    1. ambrit

      My informant at the Chicken Palace said recently that the store manager tried to call back some floor workers for closing down the store related labour. My informant says that every one contacted declined the offer. One was heard to be yelling at the store manager over the phone just before he hurriedly hung up.
      An older woman I keep up with who ran a register there has encountered nothing but part time hours on offer in her job searches.
      I’m warning my children now to build up serious cash reserves. The future looks dark indeed.

  6. Left in Wisconsin

    the disturbing economic trend that’s vexing orthodox economists

    It’s only vexing them because they really, really want to raise interest rates but the absence of inflation is taking away their best excuse for doing so. It’s not really vexing them in any kind of moral sense.

    Storm seems like a very bright guy. But he is falling into a bit of a rut with these posts. He knows that orthodox economics is pure BS yet he sets these posts up the same way: orthodox econ says this should happen but it doesn’t, why not? But then he uses the trope “no longer,” to suggest that perhaps the orthodox model did have some validity at some unspecified point in the past.
    The tightening of the labor market no longer automatically results in higher nominal wage growth

    He needs to drop this. There is no evidence ever that wages rise when unemployment is low because (a mass of) individual, isolated working people go to their bosses and pressure them for raises. You can argue that low UE makes it easier for workers to quit, and so forces firms to raise salaries for new hires (both experienced and not), but that is not at all the same thing as individual workers bargaining with their employers for raises (and generally only shows up in the data as slightly higher wages at the very bottom of the labor market). Yes, a handful of upper-middle and high earners can do this, but it completely ignores the power disparity that is at the heart of the capitalist employment relationship. Ever and always, wages increase for working people when strong unions make it so.

    There is another problem with the Dutch FRB call for higher wages in the non-export sector. If wages were actually to rise there above wages in the export sector, that would only make it harder for export-sector firms to hold onto workers (yes, workers do quit for higher pay elsewhere) and/or pressure them to raise wages, which would only make them less export-competitive (even if not in terms of profitability, in terms of pressure to relocate export-sector work to lower wage locations).

    1. Livius Drusus

      This is a point I try to make with the anti-union people that I know. I don’t think there has ever been broad prosperity in a capitalist society without strong unions. Some tiny countries might be exceptions but they are unrepresentative.

      Many people like to wax nostalgic about the social conditions of the period from the 1950s-1970s (relatively stable jobs, defined-benefit pensions, good pay for jobs that didn’t require a college degree, etc.) but they forget that the lifestyles of the era were enabled by powerful unions. Even non-union workers received a premium in pay and benefits as employers made concessions to their workers in order to forestall unionization. No wonder they don’t teach labor history in schools. The elites don’t want the truth to be known.

      1. Di Modica's Dumb Steer

        So essentially, unions are a vaccination against egregious employer bulls—. However, very much like vaccines, if the overall number falls below a certain point, the benefits of herd immunity are lost. I wonder what kind of workplace malady will have to befall before people start organizing again.

        To those who say that their state makes organization difficult, that’s why it’s important to have as many people behind you as possible – when they refuse to talk, you refuse to work. No need for a Brazil-esque bureaucracy for this tack to work. Enough people go for this option, and they’ll have to open up their larders. Unfortunately, this is the nuclear option, but I feel we might need it.

    2. Stephen Gardner

      Yes, whenever I hear people talking about Economists being puzzled by what is happening in the economy I think of witch doctors being puzzled about why the patient is dying. Modern economics is ideology masquerading as science. The Soviets had TD Lysenko we have Milton Friedman. No real difference in my book.

    1. Lord Koos

      Typo, it should have read: “Official” unemployment is very likely different than actual unemployment.

    2. FluffytheObeseCat

      The massive increase in ‘1099ers’ has reduced unemployment claims and dampened the apparent unemployment rate among the willing-to-work. In the U.S., contract professional and para-professionals are largely excluded from filing unemployment claims when a contract ends.

      It’s hard for me to understand how finance/business publications can front page the “rise of the gig economy!” one day, and follow the next day with an article about a “50-year low!” in the unemployment rate. Are their editors all Barbie dolls who find “math hard”? I believe the unemployment situation is greatly improved compared to ~4 years ago, but the best-in-decades assertions are ridiculous in light of our reduced access to unemployment coverage.

      1. Odysseus

        In the U.S., contract professional and para-professionals are largely excluded from filing unemployment claims when a contract ends.

        This has not been my experience in either Illinois or Texas.

        1. GrkStav

          Wait, contract employees (‘independent contractors’?) are eligible to file for U.I. benefits? On what basis?

  7. Ape

    Isn’t financialization equivalent to the Dutch disease? It acts like profits from a natural resource… you get just from being there. Thus you don’t invest, thus you essentially end up with a feudal economy.

  8. perpetualPOOR

    If I look at my wages (or lack thereof) they peaked in late 90’s and I’ve been now competing with younger employees with no experience coming directly out of school with massive student debt. They will work for peanuts. Hence, the corps look at my experience and think, “meh, we can teach this young buck to produce what you are.” And I either adapt to crap wages or must relinquish my job to a younger candidate.

  9. TG

    Obviously the official unemployment rate is rubbish. That’s nothing new.

    But U.S. Democrats must learn from this experience? What? This is be design. They are doing what they are paid to do. If the fake-Democratic party does indeed collapse, so what? The individuals who are part of it will have gotten theirs, and the oligarchs will simply use some other false front to advance their interests. No, I don’t think the Democrats HAVE to do anything at all…

    1. John k

      Granted, the dems have been circling the drain for decades, just now decline arrested by lesser evil argument… they will continue down as more and more recognize they are worse than useless as they continue obstructing real benefits for workers.

  10. Livius Drusus

    It is good to see some realistic economic reporting for once. It is always jarring to hear about how great the economy is yet when you talk to most people they aren’t really feeling the boom very much. Sure things aren’t as bad as they were in the depths of the recession but I don’t know anyone who thinks we are in some great boom period.

    As the article notes, a lot of the unhappiness we see today is a result of the quality of the jobs that people have. Job instability is major factor here as is the quality of the benefits you receive (if any) and also the conditions of work (whether you have to put up with vicious managers and other nastiness). Of course pay is also a factor. Trying to juggle multiple low-paying precariat jobs is very stressful.

    I wish more liberals would take an impressionistic approach to economics and politics. There is way too much emphasis on Big Data. Data is great but you need to do some work on the qualitative end of things to understand why people feel the way they do. I have seen partisan Democrats attack Thomas Frank for his book Listen, Liberal claiming that it was too impressionistic and not data-heavy enough. But as the outcome of the 2016 election proved, Frank had a much better grasp on the mood of the country than the whiz kids running the Clinton campaign.

  11. jerry

    There is a large pool of surplus labor that has dropped out of the workforce entirely (as seen in labor force participation rate and employment-population ratio) as well as not nearly as many retired boomers as we once imagined – not to mention foreign competition for everything from call center jobs to web design to factory work. As long as those factors remain in place workers will not have the leverage to regain any serious ground in regard to wages.

    And, with the economy “decent”, and no viable alternative economic model put forth by the “left”, the Republicans should have no problem maintaining control and perhaps a Trump second term down the line in 2020.

    At least the serfs in the middle ages were given a home and land to work for their lords, and in some instances granted *gasp* freedom! We work for the right to be homeless or eternally indebted.

    1. J.Fever

      “Hear, Hear”.
      I would like to see the explanation for all the US citizens that are still living in a tent by the side of creek,(if lucky), or highway.
      It’s not by choice believe me. I’ve been there, it’s a brutal existence.

    2. Stephen Gardner

      You say: “no viable alternative economic model put forth by the “left”” that presumes there is a viable left in the US to put forth such an economic model. The group that is most identified with the “left” by the mainstream press is the Democratic Party but they are not at all left leaning in economic terms. They go by a neoliberal economic model just like the Republican Party. Sadly nothing that is not neoliberal in ideology is considered “viable” by any of the powerful voices in society. That may be changing however. People are catching on to the false dichotomy of D/R = LEFT/RIGHT.

  12. Dw

    I read some weeks back that another explanation of low wage growth is local employment monopolizes, basically there is just one employer in that location for those job types, an example could just one hospital in 200 miles, leading to lower nurse and doctor pay.

  13. David Carl Grimes

    One thing I’ve noticed is that some Third World countries have more legal protections for workers. The laws are there but enforcement is poor. For instance, in some Southeast Asian countries, companies have to prove economic hardship (such as losses) to conduct wholesale mass layoffs. They can only fire workers for cause or poor performance and not at will. Companies do not have extractive practices done by the private equity. They cannot dividend out more than the retained earnings of the company, for instance. In some ways, the U.S. is slipping even below Third World status.

  14. Altandmain

    I’m especially critical of the rise of the MBA culture. There is an obsession with short term profits over long term prosperity. In many cases, companies are looted outright to maximize CEO compensation.

    That’s how you end up with companies like this: http://www.theamericanconservative.com/articles/boeing-goes-to-pieces/

    Oh and in a few decades, if Japan, China, the Europeans, or someone else overtake the US in aerospace, you will have a far better understanding of why it happened. Whatever their other flaws, East Asians are long term thinkers, more so than the Western world.

    Here’s another fascinating article: http://content.time.com/time/magazine/article/0,9171,2081930,00.html

    Working in the automotive industry, I don’t agree with Lutz on everything he’s ever said, but he’s got a point here.

    The Democratic Party, when it decides to ignore the lessons of the successful Sanders campaign, should contemplate the fate of its “Third Way” companions in Europe. As can be seen from Figure 2, voter support for the Dutch Labour Party has gradually but steady imploded from 1981 to 2017—from earning one-third or more of the voter share in the 1980s to a measly 5.7% share of voter in 2017. Similar catastrophic declines can be observed for the Socialist Party in France, and can perhaps be predicted for the German Social Democrats. The tragedy is that Figure 2 exposes a case of self-destruction. The U.S. Democrats should learn from these experiences—and quickly so.

    It is because modern centre-left political parties are no longer the pro-worker parties they once were. They are neoliberal parties, often bought and paid for by the very rich, waging class warfare on the worker’s cause they once championed. More and more people are waking up to this betrayal.

    It’s especially appalling to see Democrats claim to be the party of the people, while prominent Democrats like Hillary CLinton shamelessly accept money from companies like Goldman Sachs and other Wall Street firms, the very source of our economic problems.

    I am not saying that other parties have all the solutions (the traditional conservative parties are even worse), but the status quo is untenable for an increasing number in the population.

  15. The Rev Kev

    Thanks for those two links, especially the Boeing one. They had it all but this generation cashed it all in to take the money and run. In the end they will manufacture nothing but will outsource any work until the day comes when they find themselves unneeded.
    I have a story you might like along these lines. Back in the early 1950s a bunch of Japanese engineers toured American plants to learn how to do heavy duty manufacturing and then returned to Japan to apply what they had learned. America was the big kid on the block and they wanted to learn from the best.
    A few decades later, these same Japanese engineers now at the end of their careers and about to retire, decided to go on a nostalgia tour of all the places that they had visited as young men in America as they had enjoyed it so much. They could not believe their eyes. The plants that they visited were exactly the same as they had been in the early 1950s. Nothing had changed. If it was not the same workers that they saw it was their kids now working at the same plant with the same machinery.
    In Japan through the process of Kaizen everything was being continuously upgrading or being refined but for the plant that they saw time had stopped. And so eventually did they.

  16. Ignacio

    We are now in the middle of the following step after job crapification: doing the same with social services. TINA.

  17. Steve Ruis

    To answer the question embedded in the title, after 40 years or more of wage suppression through Democrats and Republicans alike, why would the plutocrats just let wages grow naturally? You don’t invest all of that time and effort to get on the gravy train and jump off at the first opportunity.

    When Mr. Obama was first elected, the unions had a piece of pending legislation they thought would now pass easily, the right to have a card election (get 51% of workers in a business to sign cards and voila, you are their representative), which of course was the law of the land before the plutocrats axed it. And what did they get from Mr. Obama and the Corporate Democrats? Same was true for all other legislative help through the entire Obama administration.


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