Wage stagnation: Short-term profitability, long-term woes

Zachary Krivine, Contributing Writer

The August 2016 jobs report issued by the Bureau of Labor Statistics states the unemployment rate stands at 4.9 percent, indicating, in theory, that the United States’ economy is expanding. Yet the Economic Confidence Index issued by Gallup has almost consistently maintained a negative value since the financial crisis at the end of 2007. Why has economic anxiety persisted despite an apparent economic recovery? For many, stagnating wages are to blame.

But wage stagnation is nothing new to the American economy. With the exception of a brief couple of years in the 1990s, real wages (wages when adjusted for inflation) have not grown since 1973. This trend is in contrast to the decades of the 1950s and 1960s. Termed “the Golden Age of Capitalism,” the United States fostered the wealthiest economy in the world, seeing a rise in wages and the emergence of the robust middle-class we know today.

Intellectuals have long debated the cause of wage stagnation. Some have pointed to increased economic competition from abroad and the shipping of jobs overseas. Others have pointed to the decline in union membership for failing to promote rises in wages. These problems may be inexorable. Globalization and the spread of capitalism within developing nations does not seem to be slowing. Even if we were to bring back manufacturing jobs from overseas, the result would be a rise in the price of goods, thereby hurting the consumer. Unions are not nearly as popular as they were in the early 1970s. Although a comeback in labor union membership is not inconceivable, it is unlikely they will return to their levels during the ’50s and ’60s.

Is it possible to once again foster a robust American economy that works for everyone? This past summer, the “Oracle of Omaha,” Warren Buffett, weighed in. During an appearance on CNBC’s “Squawk Box,” Buffett made the case to do away with quarterly earnings reports for publicly traded companies. Although this idea is nothing new, when Buffet speaks, people listen. Buffett argued that quarterly earnings reports encouraged corporate malpractice, placing short-term profitability over long-term viability and growth.

To Buffett, and many others, by solely using earnings to valuate a company’s health and growth potential, companies refrain from making investments and raising wages to encourage productivity. If you were on the Board of Directors of ExxonMobil, why would you push to hire more workers if cutting 2,000 jobs boosts your share price 10 percent? Simply put, when profitability is sought out for by companies on the micro level, the macroeconomy pays the price.

Figuring out how to boost American wages is no small task, and the reality is that there is no single solution. That should not stop us from proposing policy changes that would help millions of Americans.

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