Wages losing ground in U.S.
Low-pay rivals winning
Milwaukee Journal Sentinel
Competition from China and other low-wage rivals, coupled with fallout from the 2007-’09 financial crisis, has put American wages under such unprecedented strain that they have shifted into reverse — not merely stagnating, but falling.
“It’s happening so fast on a global scale that it’s scary,” said Jeff Joerres, chief executive of staffing giant Manpower Group Inc.
Joerres refers to the wage loss as “global labor arbitrage.” Across the United States, it is not limited to isolated and vulnerable sectors, such as manufacturing.
Rather, wages have fallen across the entire national economy — down 1.1 percent in the 12-month period from September 2011 to September 2012, the most recent comparisons available.
“Average weekly wages declined in every industry except for information,” the U. S. Bureau of Labor Statistics reported in its latest economic census.
That quarterly report has shown year-over-year declines only six times since the data collection began in 1978 — and four of those have occurred since 2009.
Nor is the United States the only advanced economy in the world affected. The average of wages in western Europe, Japan and the U.S. fell in a “double dip,” declining in both 2008 and 2011, according to the Swiss-based International Labor Organization.
In China, meanwhile, wages have roughly tripled in the past decade, leading a trend of rising wages among developing economies such as Brazil, Peru and Eastern Europe, the ILO said.
“This is not a rosy path, folks,” said Joerres, of Mil--
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The viselike pay squeeze promises to become more common as global economies become more connected — “the new normal,” according to Joerres.
Wage competition was a familiar if slower-moving dynamic of the pre-global age, but it took place almost exclusively within national confines, as when a new auto works in the 1980s bypassed unionized Detroit in favor of nonunion states in the American South, which in turn kept Detroit wages under pressure.
To be sure, pressure on U.S. wages these days comes from multiple economic forces, not just from cheaper foreign labor.
“We have gone through the worst recession that we have seen since the 1930s,” said William Strauss, a senior economist who studies the Midwest at the Chicago branch of the Federal Reserve Bank.
Unemployment has remained high throughout the achingly slow recovery. The U. S. recession ended, at least statistically, only to find Europe mired in a renewed slowdown, keeping pressure on wages on both sides of the Atlantic.
On both continents, putting people back to work means falling wages are preferable to the alternative, which all too often is no paycheck at all.
“This is the normal adjustment process that takes place when you have such extreme unemployment rates,” Strauss said.
No one disputes, however, that wages are in upheaval around the globe and that leveling pressure from low-wage rivals only accelerates the trend.
“There is a movement toward convergence,” said Patrick Belser, a senior economist in Geneva at the International Labor Organization.
In its latest Global Wage Report, the ILO warned that wage competition between nations could trig- ger a “race to the bottom,” with nations desperate to undercut each other with cheap labor only to end up shrinking their own economies.
In the manufacturing sector, wages have been under pressure for years, government data show. In some years, factory pay has not even kept pace with inflation. More recently, however, there’s evidence that wage weakness has spilled over into management ranks as well.
The Hay Group, a global management consultancy, recently studied pay increases for senior management jobs and department heads in multiple nations. Looking at the full decade from 2001-’ 11, it found heady gains in emerging market economies such as Brazil (181 percent in the period); Turkey (190 percent); South Africa (241 percent); and China (247 percent).
But in the U. S., the equivalent increase over the decade was 38 percent, a figure that would be much lower if adjusted for inflation, said Tom McMullen, a Hay analyst based in Chicago.
“The U.S. employee has been running in place” compared to counterparts in other parts of the world, McMullen said. “The easiest place to make a buck is in the developing markets.”
The global trend, with wages in developing nations making impressive percentage gains while those in developed nations are under pressure, has by no means led to level pay across the globe. In fact, there is far more room for convergence: In China, an average worker makes the equivalent of $8,700 a year, compared with $47,000 for a U.S. counterpart.
But the move toward a more level playing field is clear — and statistics are only now beginning to catch up with the phenomenon, Joerres noted.
It is not known if wages have fallen simultaneously in advanced nations previously, because the systematic study of wage dynamics among nations is a new discipline. The ILO’s data only goes back to 2000.
And like all statistics, wage data can be sliced and diced in multiple ways: adjusted for inflation or not; adjusted for seasonal factors or not; hourly or weekly; one-month increments or 12-month increments.
In the U. S., the most complete and accurate wage data come from the U.S. Quarterly Census on Employment and Wages, which canvasses 96 percent of the nation’s employers in both the public and private sectors.
It reflects the entire economy, managers and chief executives to janitors. It includes bonuses but excludes benefits, meaning that any changes in health insurance or pensions are not reflected.
The Quarterly Census dates back to 1978, which predates the emergence of the Internet and the borderless global economy.
And it shows that before the latest recession and its aftermath, average weekly wages in the U.S. had only one previous period of declines, in the wake of the recession of the early 1990s.
As U.S. pay has slipped, President Barack Obama earlier this year began to press for an increase in the federal minimum wage from $7.25 an hour to $9 by 2015.
Whether Obama succeeds or not, Joerres said he expects the pace of global wage-flattening to accelerate.
“If you are sitting in Asia, right now you’d be having a very heated discussion about labor arbitrage: Who’s got it? Who doesn’t?”
Already, China’s wages are looking pricey to some, compelling global conglomerates to bypass it and look elsewhere. Even Vietnam is becoming passe, Joerres said. Central African nations are fast becoming the new frontier.
China Motor Corp. recently invested $1 billion to establish a manufacturing plant in South Africa. Canada’s Bombardier Aerospace invested $200 million in a production facility in Morocco. Nestle SA opened a new plant in Nigeria.
Joerres foresees a time when international wage rates will be tracked in real time like stock quotes.