Falling wages amid economic growth
- From: "kingkong" <thumbdownnow@xxxxxxxxxxx>
- Date: Thu, 6 Apr 2006 08:31:57 +0800
By DAVID LEONHARDT
HENRY Ford was 50 years old, and not all that different from a lot of other
successful businessmen, when he summoned the Detroit press corps to his
company's offices on Jan 5, 1914. What he did that day made him a household
name.
Ford announced that he was doubling the pay of thousands of his employees,
to at least US$5 a day. With his company selling Model T's as fast as it
could make them, his workers deserved to share in the profits, he said.
His rivals were horrified. The Wall Street Journal accused him of injecting
'Biblical or spiritual principles into a field where they do not belong'.
The New York Times correspondent who travelled to Detroit to interview him
that week asked him if he was a socialist.
But the public loved it. The country was then suffering a deep recession,
and the Ford news seemed to offer hope.
The mythology around this story holds that Ford wanted to pay his workers
well enough so they could afford the products they were making. In fact,
that wasn't his original reasoning. But others made the point, and, in time,
it became part of Ford's rationale as well. The idea became a linchpin in an
industrial philosophy known as Fordism.
More production could lead to better wages, which in turn would lead to more
spending by the public, yet more production and eventually even higher
wages.
'One's own employees ought to be one's own best customers,' Ford said years
later. 'Paying high wages,' he concluded, 'is behind the prosperity of this
country.'
This was one pillar of 20th-century economic wisdom. It's time to ask,
though, whether Ford's big idea is as ill suited to this century as his car
company seems to be.
Pay cut
By any reasonable standard, the last few years have been bad ones for most
people's paychecks. The average hourly wage of rank-and file workers - a
group that makes up 80 per cent of the workforce - is slightly lower than it
was four years ago, once inflation is taken into account. That's right: most
Americans have taken a pay cut since 2002.
But you would never know it by looking at the headline numbers on economic
growth. From the standpoint of the broad national economy - the value of the
goods and services the country produces - the last few years have been
stellar. Despite two wars, soaring oil prices and business scandals, the
economy has been growing more than 3 per cent a year.
What was so comforting about Fordism was that it suggested that the economy
operated on a virtuous, self-reinforcing cycle. Only when the middle class
did well could the country do well. And as the country grew ever richer, so
would the middle class.
In the last few years, however, the economy has kept growing in large part
because high-income families - the top 20 per cent, roughly - have done so
well and have been such devoted spenders. In fact, well-off families, not
cash-short ones, have been the ones increasing their borrowing and cutting
their savings the most in recent years, according to the Federal Reserve. In
1992, the top fifth of households, as ranked by income, accounted for 42 per
cent of consumer spending. By 2000, the share had grown to almost 46 per
cent, and it is probably not much different today. That may sound like a
small change, but it's an enormous amount of money, a shift of US$300
billion a year in spending from the poor and middle class to the affluent.
Wages are likely to rise slightly in 2006, but stagnation seems to be the
norm over the long term. Except for a span of a few years in the late 1990s,
the hourly pay of most workers has done no better than inflation for the
last 30 years.
Even some Democrats, who have long embraced Fordism, are coming to the
conclusion that Ford's reassuring cycle is not the only thing that can keep
the American economy humming. 'You don't need an equitable distribution to
have a sustainable recovery,' said Jared Bernstein, a liberal economist in
Washington.
Upheavals
Politically, though, I'm not sure the current trends are sustainable. Before
the 1990s boom lifted wages, stagnating pay had helped cause a series of
upheavals: Clinton's election, the Perot and Buchanan phenomena, the
Republican takeover of Congress. Today, with the boom fading from memory,
protectionism is on the rise, and Bush's approval ratings are miserable.
So it seems as if now would be a good time to start talking about what to
do. There has never been a shortage of ideas: helping more teenagers to
finish college, training middle-age workers to switch careers, embarking on
audacious public projects like better highways and high-speed train lines.
Or we could pretend it's still 1914. - NYT
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