Tag Archives: wages

The Market for Million Dollar Homes is Hot – the Rest? Not.

If you want to buy a million dollar home, then you better hustle out there and get one. The National Association of Realtors says that sales of homes costing $1 million or more rose 7.8 percent in March of 2014. With big bonuses back in style in the financial sector and stocks tripling their value since 2009, the wealthiest 10% of the population is living in style.

fancy houses

Oh yes, the number of transactions for $250,000 or less – about two-thirds of the housing market – fell by 12%. Slow wage growth, rapidly rising prices, and rising mortgage rates have put home ownership out of reach for many first-time homebuyers.

With demand so slow at the bottom of the market, many homebuilders are switching to larger, more expensive properties that appeal to wealthier buyers. For example, KB Home now builds about half of its houses for the upper tiers of the market. “With the mortgage headwinds and the lack of job growth and everything else that we dealt with through this housing cycle and now into the recovery, the typical first-time buyer got kneecapped,” said Jeff Mezger, company CEO.

Since the Federal Reserve Bank announced last May that it was going to begin cutting back on its $85 billion monthly purchases of housing bonds and treasury bonds, the average mortgage rate has risen by almost a full point. In addition, millions of Americans are still stuck in homes where they owe more on their mortgages than their houses will sell for. In March of 2014, nearly five years since the recession officially ended in the summer of 2009, 18.8% of homeowners – 9.7 million families – have mortgages that are “underwater.” Another 18% are all but underwater because their home won’t sell for enough to give them a down payment on a new house.

Let’s face it, there are winners and there are losers in 21st century America. As Bonnie Stone Sellers, CEO of Christie’s International put it, “The trends in luxury housing are similar to trends in other luxury goods. Whether you’re buying a third home in Manhattan as a pied-a-terre or another Picasso, these are acquisitions of passion, of lifestyle, and of experience.”

Wall Street Adrift

The erratic movements of the stock market since the beginning of 2014 reflect the sense of uncertainty that grips the wealthy investors and institutional buyers who dominate the market. (The 1% own 33% of all stock wealth.)

Trader Reacts to 1987Over time, stock prices reflect current corporate profits and expectations about future profits. Without the Federal Reserve pumping $85 billion each month (over $1 trillion in 2013) into the financial system, few investors believe corporate profits will continue to rise.

The irony is strong – signs that the American economy will grow more rapidly in 2014 and that unemployment will continue to decline actually reinforce the fears on Wall Street that corporate profits and stock prices are about to take a fall.

The current situation highlights the agonizing contradictions the U.S. economy has developed over the last 40 years. Without innovative policies emanating from Washington D.C., prosperity for the general population will continue to remain elusive. The profit squeeze scenario has three elements:

1) The main way in which corporations have increased their profits is by clamping down on worker salaries – that is, workers’ wages have actually fallen since the 1970s, with an acceleration in the decline since 2008, while worker productivity has increased. A 4% fall in wages along with a 2% rise in productivity means a 6% increase in profits, even with small increases in sales. Now, as the economy slowly picks up, business economists argue that a 6.5% unemployment rate will lead to a shortage of skilled labor and a resulting rise in wages. Their claim is that many of the 4 million long term unemployed and most of the 5 million people who have dropped out of the labor force since 2008 are no longer employable as skilled labor. If they are right, then wages for skilled workers will soon rise – squeezing corporate profits.

This is doubly threatening to stock prices because, after the internet bubble burst in 2000 and even more since 2008, corporations have used their profits to artificially push up the value of their stock by buying it back, thus increasing the value of the remaining securities left on the open market. For example, in 2013, corporations invested more than $600 billion buying back their own stocks. If profits go down, fewer companies will be able to carry out this strategy.

2) Another reason corporate profits have been very healthy since the Great Recession is because American businesses have become adept at “financial engineering.” Financial engineering is a business strategy designed to ensure that corporate profits are high and grow almost every quarter. With the great increase in financial speculation that began in the1980s and 1990s, Wall Street began severely punishing companies that don’t report higher profits every quarter. This is feat is almost impossible in an economy where demand and supply rise and fall in unpredictable ways.

However, corporations have discovered they can create steadily rising profits by borrowing money at low interest rates and investing those funds in short term financial products such as derivatives and commercial paper. Now, as the Fed cuts back on its $85 billion per month subsidy, the possibility of rising interest rates threatens the viability of this profit-making strategy.

3. Finally, Wall Street knows there is a major flaw in the Keynesian argument that greater consumer spending will jump start the economy by triggering increases in sales that will improve corporate profits. The flaw is, without tariffs to balance out price differences, American consumers will use wage increases to buy huge quantities of less expensive or higher quality foreign products. Even in a slow growth economy, we continue to run huge trade imbalances with China, with Japan, with Germany, with South Korea, with Singapore, with Saudi Arabia, with Venezuela – the trade deficit with China alone was $440 billion in 2013.  Thus, pumping up our economy is like putting air into a leaky tire – there is lots of huffing and blowing, but the tire stays limp.

In the 1980s, the 1990s, and then the 2000s, the Federal Reserve and the Federal Government joined consumers in debt binges that together, blew hard enough to make our economic tire fill up. However, in the world of 2014, both Federal institutions are cutting back their stimulus efforts. This is why Wall Street investors are afraid; they believe we are headed for a brief period of prosperity, followed by a withering away of corporate profits and then of economic growth.

Wal-Mart Leads the Low Wage Economy

Wal-Mart not only exploits its 1,400,000 workers, its huge size and low prices force other companies – both its suppliers and its competitors to exploit their workers.  In the process, Wal-Mart is one of the major forces pulling down wages in the United States.

The cost of Wal-Mart’s persistent anti-worker policies extends to every taxpayer.  For example, half of Wal-Mart’s workers qualify for federal assistance through the food stamp program.

On Black Friday, I went to the Wal-Mart nearest to my home.  Not to shop, but to demonstrate against Wal-Mart’s employee policies.  The theme of the rally was Wal-Mart: Always Low Wages, Always.  It felt good to do a small thing to protest against hard working people being squeezed by the largest employer in the country.  It also felt good that many people in cars coming into the parking lot honked their horns in support of our protest.  This makes sense – the people most likely to shop at Wal-Mart are the millions of minimum or near minimum wage workers who seek low prices in order to stretch their household budgets.

In recent posts, I have outlined how we are becoming a low-wage economy, with the real wages of average families falling by almost 10% since the recession of 2000 – 2001.  Wal-Mart is the leader of the pack in holding wages down.  The average hourly wage of a Wal-Mart sales associate is $8.81.  That adds up to $1,527 per month or $18,325 per year if the person works full time – but, of course, no sales associate works full time.  That is why a new report from the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that each Wal-Mart store costs taxpayers an estimate $1 million in public assistance for its employees.

Oh, and the company reported profits of $17 billion in 2012.  If even half of those profits were distributed equally to its employees, each of them would make an extra $6,070 each year.

Unfortunately, Wal-Mart’s competitors are working just as hard to keep their wages down, too.  The nine other companies that employ the most low-wage workers should be very familiar – McDonalds, Starbucks, TJX (Marshalls & TX Max), Macy’s, Darden Restaurants (Olive Garden, Red Lobster), Sears, Yum Brands (Taco Bell, Pizza Hut, KFC), Target, and Kroger (Kroger, City Market, Dillons).  Together they have 3,021,000 employees and made $15.6 billion in profits last year.

Of course, these employees could unionize, but it is like rolling a boulder up hill.  First, the workers are scattered around the country in hundreds of retail or restaurant outlets.  Second, the turnover is tremendous because workers leave as soon as they can find anything even a little bit better in terms of hours and wages and benefits.  Finally, these employers are nasty.  According to the National Labor Relations Board, Wal-Mart has “unlawfully threatened, disciplined, and/or terminated employees” in 13 states for protesting their work conditions or attempting to organize a union.  In four states those charges also include “the surveillance, discipline, and or termination of employees in anticipation of” planned strikes.

That is why our citizen protest was important.  There is a rising tide of discontent among Wal-Mart workers and other low-wage employees.  Unions are trying to organize workers at many stores around the country.  When Wal-Mart workers get together and actually try to negotiate with management, we can expect a hostile reaction and the new union will have to strike to get any concessions.  That is when community support will be crucial and can tip the balance.  I urge you to adopt a local Wal-Mart and help the community committee forming to help its workers – some day soon it will be a vital service.

Labor Day Lament

News Item: economists are concerned that income from American wages and salaries fell by $21.8 billion in July of 2013, about -0.3%.  The decline was led by $7.7 billion lost because of forced furloughs for federal employees.  However, dividend income increased by 2.2 percent and rental income by 1.3 percent, so the category “income from assets” went up by 0.7%.  Consumer spending, boosted by increases in spending by upper income groups, rose 0.1 percent.

News Item: To the delight of many consumers, Twinkies and other Hostess products are back on the shelves.  When the company went bankrupt in the fall of 2012, 15,000 union workers lost their jobs.  The new company emerged from bankruptcy with no union workers and a whittled down wage and benefits package – for example, former employee pensions have been reduced from $1,800 per month to $500 per month.

Since the 1970s, fierce competition from foreign imports has pushed many companies to reduce wages to maintain profit rates that will keep their Wall Street investors happy.  Since then, there have been a series of campaigns led by Republicans, think tanks, and right-wing talk shows to reduce the wages of “undeserving” groups of workers.  Democrats have responded to these campaigns by gradually increasing funding for federal job training programs.

One by one, groups that had middle class wages and benefits have been targeted and subdued.  So, on Labor Day, 2013, with real salaries and wages at approximately the same level as they were in 1973, I publish this lament, with acknowledgements to Pastor Martin Niemoller:

In the 1970s they said regulated industries were fueling inflation, and the process of de-regulation led to slashed wages in the airline and trucking industries,

But I did not speak out because I didn’t work in transportation;

Then, in the 1980s they said the wages and pensions of blue-collar manufacturing workers were making America uncompetitive in world markets, and crushed the Air Traffic Controllers union and many other unions,

But I did not speak out because I didn’t work in manufacturing;

Then they said that middle managers were useless bureaucrats who were making American companies uncompetitive, and those workers were forced into early retirement,

But I did not speak out because I didn’t work in middle management;

Then they said in the 1990s that retail workers were unproductive and inefficient, and they computerized stores and gave people part-time shifts without benefits,

But I did not speak out because I didn’t work in the retail trade;

Then they said that teachers were lazy and inefficient and laid the blame for poor children’s lack of educational attainment on teachers unions, companies like Apple got better at avoiding local taxes and hard-pressed tax-payers supported laws that restricted teacher salaries and benefits,

But I did not speak out because I wasn’t a teacher;

Then they said in the 2000s that technical assistance people were inefficient and spent too much time helping people over the telephone, and they replaced them with telephone systems with recorded voices and endless choices or with technical workers from other countries,

But I did not speak out because I did not provide services over the phone;

Then they said that the post office was out-dated and postal delivery people were inefficient, and they passed laws forcing the post office to forward fund its pensions so it began losing money and had to close post offices and lay off employees,

But I did not speak out because I didn’t work at the post office;

Then they said that I was inefficient, my health care benefits were too generous, and I was not competitive in the world economy,

And everyone else was scrambling to get by on their low wages and had no time to speak for me.

This Economy isn’t Working

Full time jobs are hard to come by and many people have stopped working all together. Feeble economic growth is imposing hardships on people of all ages.

Millions of people may never work again.

Here are three charts that dramatically demonstrate our jobs problem. The first shows that the percentage of the population working in full-time jobs is at its lowest levels since the 1950s. In 2007, just as the housing bubble was bursting, more than 52% of the adult population had a full time job. By 2009, six million of those jobs were gone – and we have not gained any of them back during the economic “recovery” that began in 2009. Just 47% of the adult population had a full time job in February of 2013.

What are those six million people without full time work doing? The next chart shows there has been an increase of about 400,000 part time jobs since the recession ended. The next chart shows that the drop in the unemployment rate is largely the result of people leaving the workforce. In 2007, before Bear Stearns collapsed and started the financial crisis, 66% of the working-age population was employed or seeking employment. Today, just five years later, a little over 63% of that group of people is in the labor force and the trend line is almost straight down – about five million people have retired prematurely, work entirely in the underground economy, live at home with mom and dad and watch television, became homeless, or do chores at home while a partner works.

This is frightening, because we know that most of these individuals will never work again, or at least not in regular, full-time jobs. I remember the fear I felt in 2009 and 2010 that if I, as a worker over the age of 55, lost my job, I might never find a steady job again – I would be left to wander on the fringe of society. Keep in mind how much a person’s sense of self-worth, pride, and energy is wrapped up in feeling like a useful, paid participant in society. At least five million Americans don’t feel that way anymore.

So far, theirs is a quiet desperation. Since the late 1960s, women have been entering the labor force in large numbers. Note on the last chart how the labor participation rate rose steadily after 1966, from 59% to a high of 67% in 2000. That means two-thirds of households used to have two wage earners and the five million lost Americans are, in most cases, being supported by other members of the household and by programs like food stamps. In fact, food stamp participation has soared from 28,223,000 in 2008 to 47,791,996 in December of 2012.

Tragically, the sequestration budget cuts will chop away at some of the public supports for these families. The general attitude toward these individuals now on the fringe is similar to that of the Lawrence mill owner talking about the immigrants who worked 14 hour days in his textile factories, “they don’t suffer, they can’t even speak English.”

Are Those February Jobs any Good?

236,000 new jobs in February is great news; but many of those newly hired employees will be receiving lower pay and fewer benefits than they did in their last positions.

This is a classic good news – bad news story.

Adding more than 200,000 jobs in one month is enough to drive down the unemployment rate and contains the promise of more hiring in future months. Five long years since Bear Stearns collapsed in the early days of the financial crisis, it is good to have some optimism.

Unfortunately, these new jobs are unlikely to alter the frightening slide in the standard of living of the average American. A 2012 study by the National Employment Law Project found that about 60% of the jobs lost during the economic downturn were mid-wage occupations such as billing clerks and electricians. In contrast, more than half of the new jobs (58%) created since the recovery are what the study classifies as low-wage positions such as retail clerks, food preparers, and home care aides.

This lop-sided job growth, along with high unemployment and employers refusing to offer significant wage increases, have combined to pole axe family incomes. The U.S. Census Bureau reports that between 2007 and 2011, the median U.S. household income, “adjusted for inflation,” fell 8% from $54,489 to $50,054. That drop means that people are struggling to pay growing food costs, the soaring cost of college, and the steady increase in health care premiums and deductions.

We need more than new jobs; we need a whole new re-definition of the financial relationship between employers and workers. For that to happen, we need a social movement that makes the declining standard of living for ordinary people the principal political issue in the United States.

The Slowly Sinking Middle Class

In my book, Perils of Empire, I devote some time in Chapter 8 to a discussion of the growing conflict in the Roman Republic between the small number of families who grew rich as the Republic acquired an empire and the vast majority of the population whose standard of living deteriorated.  I later suggested that the angry mob that burned down the Senate’s meeting hall in 52 B.C.E. when their champion, Publius Clodius Pulcher was murdered, was expressing the rage felt by the world’s first impoverished proletariat.

I also contrasted the situation in Rome with the last four decades of the American experience.  In Chapter 8, I point out that between 1973 and 2001, correcting for inflation, household income for the bottom 90% of the population rose at a rate of barely more than 1% per year.  This week I found more detailed information that helps explain why income grew so slowly.  A recent report by the Census Bureau shows that the average yearly wage for men has actually declined since 1973.  That year, just before the recession of 1974, men, as a group, earned an average of $48,452 (measured in 2008 dollars).  The average wage for men declined gradually, with a few brief upward swings, until 2000, when wages began to fall steadily.  By 2008, the average male earned $46,367 – more than $2,000 less than males earned in 1973.

Why has household income gone up?  Women in the household went to work.  Starting in 1965, there has been a steady rise in the workforce participation rate of women and a gradual increase in the average wage for women workers.  In 1965, a little less than 40% of the adult female population worked, but that figure grew to 58% in 2000.  The wage information reported by the Census Bureau shows that women earned an average of $22,881 in 1965 (in 2008 dollars), $29,815 in 1985, and peaked at $36,148 in 2001, just as the stock market boom was going bust.   With women earning more and more women out working, household income was able to creep ahead between 1973 and 2001.  This fits with my general impression since the 1980s that households or families where two adults work are more prosperous than households or families where only one person works.

Unfortunately, since 2001 the average woman’s wage has stagnated, falling slightly to $35,745 in 2008, and the workforce participation rate for women declined to 54% that year.  Unlike in the 1970s, 1980s, and 1990s, female household members have not been able to bring in more income to compensate as men’s wages declined during the last decade.  Consumer purchasing power jumped during the 2003 – 2006 period when people took equity out of their homes by refinancing, but that option is gone for a very long time.

We are left with a population that, in general, has had to run very hard while gradually losing ground since the crash of 2001.  In addition, most households have no significant income gains from previous decades to fall back on.  The result, in 2010, is a general rage, running straight through the once secure American middle class.  Everywhere, people who are either laid off, working part-time, or re-employed at a job with less pay have a sense that it is all slipping away.  To understand American politics in 2010, we need to remember that this nasty recession has fallen upon a population whose standard of living has stagnated since the early 1970s – a whole generation.  They have a right to be angry.