One of my pet peeves is that economics as a discipline needs to import the entirety of learning theory from psychology, not just parlor tricks like the endowment effect. For example, learning from models.
To wit, once Jack Welch was successful in using a pay scheme at GE that ensured that a given percentage of employees would not get a raise in any given year, it was inevitable that other employers who adopt the idea until it spread throughout corporate America. And it not giving raises to a certain percentage of employees was successful, why not implement it across the board with *all* employees?
Monkey see, monkey do.
As I noted several weeks ago, even though we are at least closing in on full employment, the percentage of employers not raising wages at all has gone up in the last year:
And now, cue Atrios about how big companies, fat with their new tax cut $$$, aren’t planning on raising wages at all:
[E]xecutives of big U.S. companies suggest that the days of most people getting a pay raise are over …. [In] rare, candid and bracing talk from executives atop corporate America, made at a conference Thursday at the Dallas Fed[, t]he message [wa]s that Americans should stop waiting for across-the-board pay hikes coinciding with higher corporate profit …. to cash in, workers will need to shift to higher-skilled jobs that command more income.
….The moderator asked the panel whether there would be broad-based wage gains again. “It’s just not going to happen,” [Troy] Taylor, [CEO of the Coke franchise for Florida,] said. The gains would go mostly to technically-skilled employees, he said. As for a general raise? “Absolutely not in my business,” he said.
This is putting even more deflationary pressure on wages. Since the refinancing spigot has been turned off due to the end of the secular decline in interest rates, if wages don’t increase, exactly where do employers think increased demand is going to come from? Further, if companies freeze wages even during good times, what is going to happen when, inevitably, times turn bad?
Here again are two graphs I have run a number of times already, showing that the YoY% decline in wage growth averages over -2% during recessions:
Currently wage growth for nonsupervisory workers is running at 2.6% YoY. Wage freezes are likely to be endemic in the next recession, and even worse, outright wage cuts, potentially leading to a deflationary wage-price spiral, are a significant possibility for the first time in over 80 years.
Traditional time of layoff used to be December. “Merry Christmas you are laid off and have a great New Year to start again!
We have a Republican president and the Republicans control both houses of Congress. Of course, we are going to have a recession. That is Republican policy. The Fed will help with its no wage increases i.e. anti-inflation policy. I expect it to become obvious in late 2018 or early 2019, after the elections.
One way of increasing your individual wages is to apply for another job that pays more. I realize this is radical, even in a full employment economy, but I learned long ago that employers value more highly employees they have to hire than employees already in the fold, because they have to get the potential hire to “yes”. We see this in the NFL, where free agents are given massive contracts because they are seen as filling a specific urgent need of that team, whereas even excellent players are rarely having their contracts extended until just before it expires.
The problem is finding another job to apply for that pays more and that one is qualified to do.
Not to mention the expense involved in relocating which may be required.
And the social disruption of leaving one’s community and friends.
All of those issues must be weighed when deciding whether to pursue a job that pays more. But these issues are also faced when pursuing your first job, so it’s not like you never have to face these issues.
While the Civilian Non-Institutional Population grew 21.3% between April 2000 and April 2018, full-time jobs grew only 11.7%. The gap between what is and what should be is about 11 million missing full-time jobs. So where’s the surprise that employers feel little urge to raise wages? And with all the other data not fitting the low top-line unemployment figure, how can we possibly imagine we are “closing in” on full employment?
How? To justify not paying higher wages and to turn the Fed on to interest rates. Rhetorical question, I am sure. We can see what is happening.
Urban Legend makes a great point. Another point to consider is that of the 223,000 new jobs in May, only 661 were actual new jobs with flesh and blood people filling them. The other 222,339 jobs were “seasonal adjustments.”
implied point not clearly stated:
all this “higher skilled” jobs is essentially a fraud that enables employers to keep wages low under a guise of reasonableness, leading employees to blame themselves for lower wages.
also it tends to make higher wage employees congratulate themselves on their higher skills, harder work, better education, and all around natural superiority. this is mostly self decpetion, but it serves the employer’s interests.
we need people to think in terms of human time. any job that requires eight hours of your life every day deserves to be paid a wage that enables living at an achievable decent standard. the cleaning lady that cleans a lawyer’s office or house, enabling him to spend an extra hour earning 300 dollars deserves at least a reasonable percent of that 300 dollars… not the five, ten, or even twenty dollars she can get because that is what the job is “worth.” it is only worth that little because there is always someone hungrier who will take it at that wage. that is not “economics” it is exploitation.
yes, there are workers who are “worth” less than others. some may indeed be less “capable” that others. but many are merely in a state of learned helplessness because there is nothing they can do to better their lot. going to computer school is not really an option, and even where it is, it might not turn out to be such a good bet.
we had a great experiment in unpaid labor in this country. we called it slavery. it was notoriously inefficient. and led to the social problems we now experience, which are inefficient on a grand scale.
employers are no more capable of understanding this than slave owners were capable of seeing the waste in their system. it will take something like political force to change things. and that will mean that those of us who have “high skilled” jobs will have to recognize our role as the white trash that stabilized the slavery system.
I see no one has pushed back against your arguments, so i will. Let’s say you want your house cleaned and the worker says well I need health insurance and a pension, money for my childrens’ education etc etc ok I’ll do it for $400 an hour, because I have to travel 90 minutes across town etc etc. As an individual, YOU might say thanks but no thanks, but somehow you want a society where when a lawyer has it done different rules apply, and they won’t be ABLE to hire someone for less than some high amount. Where’s the cutoff? What if the lawyer works for himself on contingency and you don’t know what his income, if any, will be until a case is resolved?
I’m not sure you even know what you’re specifically proposing. While I was always happy to get a pay raise, I knew if I ever became unhappy with my pay it was up to me to change jobs, not accuse my employer of withholding more money they would otherwise be willing to pay me if I would only cause a scene. Many jobs are literally impossible to know what the going rate is, but once you accept a job at that rate, the company is not generally willing to raise your income severely just because you’re doing an excellent job – that’s what they expected when they hired.you.
thanks for replying, but i don’t think you got my point at all. there is nothing holy or scientific about the wage structure we or any other economy has. there is a natural tendency for wages to be something like that as long as either no one gives a damn about the poor, or workers have no power to bargain fairly for wages.
the lawyer and his cleaning lady example was meant only to suggest that the lawyer benefits by the hour the cleaning lady saves him to the tune of about 300 dollars he can make doing something else. there is no moral reason (sorry, economists talk about the “market” as though it were a moral arbiter) for her wages to be set as low as possible “because someone else will always work for less.”
in a society as rich as ours, we should certainly expect “the least of these” to get paid for their TIME as though the time of a computer programer was worth as much as the time of a toilet cleaner. certainly the PEOPLE have equal worth.
i would not expect (or even desire) that wages should be “equal” as some people sound like they are calling for.
I did want to suggest that the role of higher paid workers in the economy is more or less the same as the role of poor whites in a black slave economy. and we should not preen ourselves on our superior “worth” as human beings. or even as contributors to the economy.
anyway. thanks for the reply. i really wasn’t suggesting anything like you seem to think i was suggesting.
“Jack Welch was successful”? Current state of GE?