Marketplace, July 14, 2004
The American economic pie is growing at a solid pace. The odd thing is howthe pie is now sliced between the portion going to profits and the portiongoing to wages. According to the Commerce Department, the wage slice is nowsmaller than it's been in 38 years, while the slice going to after-taxcorporate profits is bigger than it's been since the government begantracking profits back in 1947. This wage squeeze is hurting middle-classfamilies who, even if they own shares of stock, depend mainly on wages.
What's going on? One possibility is that this lopsidedness is just thelingering - and temporary -- effect of an unusually long jobs recession. Somany Americans have been unemployed or underemployed so long they've lost alot of bargaining power. As we come out of the jobs recession and the demandfor employees returns to normal levels, workers will get raises, and theslice of the pie going to wages will grow to a more normal portion.
But there's another, more disturbing possibility -- and it seems somewhatmore likely. The wage slice will stay historically low, and the profit slicehigh, because employees have permanently lost bargaining power. Unions nowrepresent fewer than 8 percent of private-sector workers, a figure that'sbeen dropping steadily for many years.
Meanwhile, advances in telecommunications now enable many more companies tooutsource to places like India and China, where wages are far lower. Or theycan easily substitute computers and software for employees who mightotherwise expect a raise. If these trends weren't enough to keep wages down,consider that big corporations are bigger and more powerful than ever. Thinkof Wal-Mart, now employing more Americans than the entire U.S. autoindustry. Employers with this kind of clout can keep wages low just byrefusing to raise them.
If I'm right, and the current lopsided apportioning of the Americaneconomic pie between wages and profits is permanent, mark my words: It'sonly a matter of time before the vast American middle class demands a fairportion of the pie. That may mean, at the least, higher taxes on profits andlower taxes on wages.
