Your Patriotic Duty? Ask for a Raise
While the Great Recession started only a few years ago, journalist and playwright Barbara Garson argues that “the trouble actually started decades earlier.”
In a piece for the Los Angeles Times , Garson tells America's workers to do their patriotic duty and ask for a raise.
After interviewing people all over the country for her new book, Down the Up Escalator , which was featured in the AFL-CIO book club last week , she arrives at two conclusions:
First, that declining wages were a significant cause of the Great Recession; and second, that raising wages now could help stave off the next downturn and keep America strong.
Garson describes the fundamental imbalances in the U.S. economy, with workers’ wages stagnating while banks and CEOs stockpile money like squirrels hoard nuts before winter. This has resulted in workers having less money to spend consuming the products they make while bankers make more money by extending “ever-larger loans to people with ever-smaller incomes,” rather than give workers more of the value they create or invest in public goods like infrastructure and schools:
Between 1971 and 2007, U.S. hourly wages, adjusted for inflation, rose by 4%. (That's not 4% a year; it's 4% over 36 years.) During those same decades, productivity increased by 99%—that is, it nearly doubled. In other words, the average worker's productivity rose 25 times more than his pay. But we Americans sell more than 70% of what we produce to one another. If the majority was earning less and producing more, who was going to buy all the stuff?
The investors who profited from the high productivity and low wages found themselves with a lot of money piling up in brokerage and bank accounts. Meanwhile, working people, also known as consumers, didn't earn quite enough to maintain their lifestyles. So the 99% had a great need to borrow at a time when the 1% had excess money to lend.
For two seconds, that may seem like perfect synergy. But think about it for six seconds. If I don't have $10 this year, and my wages aren't going up, how will I have $15 next year to pay you back with interest? Take out more loans?
The policy of lending consumers more and more money to make up for what they weren’t being paid resulted in a debt bubble with nothing to hold up the economy when that bubble burst. Exacerbating the recession were changed employer practices. In past recessions, the share of income going to workers and employers had taken a “temporary Robin Hood turn,” while employers try to maintain plants and retain core workers. This time, though:
This time has been different. Corporate profits were 25% to 30% higher at the official end of the Great Recession than they were before it started. Meanwhile, wages as a share of national income fell to 58%. That's the lowest the wage share had been since it began to be recorded after World War II.
The Financial Times …calculated that "if wages were at their postwar average share of 63%, U.S. workers would earn an extra $740 [billion] this year [2012] or about $5,000 per worker." That's a lot of consuming power.
But none of that money has reverted to wages this time. All of it and more is crammed into those already distended sacks of capital, where it's once again exerting unbearable pressure to be loaned. But that course would only hasten the next debt bubble.
But, Garson points out, we cannot allow that to happen. Rather, we must redistribute the money, starting with a “generous increase of the minimum wage." Garson writes:
Patriotic employers will come forth on their own, I'm sure, to offer the rest of us big raises once they realize it's for the common good. In the few cases where they don't volunteer, you may have to ask, perhaps through unions.
This, she says, is simply the most efficient way to stabilize and grow the American economy.
