Middle class wage stagnation

Recent economic reports indicate what many of us have already experienced – middle class wage stagnation. A recent article entitled That Raise Might Take 4 Years to Earn as Well discusses trends that confirm my own personal observations on the recent job market.

Earnings for workers with four-year degrees fell 5.2% from 2000 to 2004 when adjusted for inflation, according to White House economists ….

Offshoring, which has shifted manufacturing and call-center jobs to such nations as Mexico and India, is increasingly affecting white-collar sectors such as engineering and software design.

And companies have continued their long effort to replace salaried positions with lower-paid, nonsalaried jobs, including part-time and freelance positions without benefits. Those contingent positions make up nearly half of the 6.5 million jobs created since 2001, said Paul Harrington, a labor economist at Northeastern University in Boston.

Harrington said the number of salaried jobs increased an average of 11.5% during the last five economic recoveries, compared with 2.5% during the current recovery.

"There's clear deterioration in the college labor market," he said. "The American economy just does not generate jobs the way it has historically."

…wage erosion is likely only to intensify as the number of college graduates rises in China, India and other offshoring hubs. China alone expects the number of college graduates to increase by 22% this year, with 4.13 million job candidates entering a domestic market with only 1.66 million jobs available, according to a Chinese government report released in May.

The Bush advisor’s comments on the trend, as usual, make no sense to me.

Bush's advisors say graduates are earning less because their ranks are swelling and they face tougher competition for better-paying jobs.

But the advisors say it is a good sign that productivity is increasing, because a rise in wages tends to follow.

"Whether or not new college graduates are making more than they were five years ago, we do know the same people will be making more five years from now," said White House spokesman Ken Lisaius.

They state a defense that increased productivity of corporations will drive a rise in wages. But in my experience skilled worker wages are driven by 1. revenue and profit margins which allow employers to invest in more projects and workers 2. Supply of available workers with skills to do the job. While increased productivity can drive revenue and profit, there are many other factors that contribute to profitability, such as competitive pressures, and cost of goods. It is unlikely in the short term that any productivity increases could offset increased costs of energy. The White House expresses optimism that college graduates will have wage increases over the next 5 years. Yet the statistics indicate the average college educated worker experienced a decrease in wages over the past 4 years.

I am not an isolationist, and I do not think that we can somehow stop the offshoring of jobs. But we do need to create incentives to companies to employ US workers, and make sure that we are not subsidizing offshoring through granting tax breaks to companies who are locating workers elsewhere.

Here is the actual economic report if you wish to read more.
Economic Report