Tuesday, April 7, 2009

Building a sustainable economic recovery

On Sunday, the Milwaukee Journal Sentinel ran a piece that I coauthored with Drs. Levine (UWM) and Maranto (Marquette) on how the Employee Free Choice Act will help build a sustainable recovery. It begins:

Judging from the recent competing editorials in The Wall Street Journal, the Milwaukee Journal Sentinel and other leading newspapers, and from the escalating rhetoric of business and labor, the nation is about to be put through another destructive, ideologically based battle over a labor law reform bill known as the Employee Free Choice Act. The Chamber of Commerce describes the coming battle as "Armageddon." This couldn't come at a worse time for the country. The deepening economic crisis needs business and labor working together with the new administration to build a sustainable economic recovery.

The rest of the piece is linked here.


Anonymous said...

This current economic crises has deep roots in the economic shifts that took place during the last thirty years and increased unionization will serve to stimulate economic growth. However, we need to develop a keen understanding of the root cause of today's economic crisis - that the problem is low wages, loss of purachsing power and underemployment, not just unemeployment.

The unemployment figures (whether you use BLS numbers or Real Unemployment figures) only show a small picture in terms how we as a nation need to address the economic crisis. Consider for moment the possibility that the real unemployment rate is close to 20%. What that means then is the real employment rate is 80%. So, while life is tough for the 20%, we still have a significant number of people working and doing well financially. Therefore, as a nation we should be doing o.k. economically. If that were the case, why isn't the economy, in terms of GDP, growing? Because the 80% are NOT doing well financially. In fact, a significant number of them are underemployed - working in menial jobs, for lousy wages and even worse benefits. The underemployed coupled with the unemployed means that a significant number of Americans (about 45% to 50% in my opinion) do not have enough money to keep the economy growing. This is a critical point to understand as the underemployment problem has been vexing America for over 30 years and it has been consistently swept under the carpet. The problem is not just lack of jobs, the bigger problem, in my opinion, is the 30 year loss in real income compared to cost of living for a majority of Americans.

Consider, for a moment that real wages, when figured for inflation, have not risen since 1979 for the bottom 60% of Americans. That is an astounding statistic. Simultaneously, wages for America's top 1% of have increased by a whopping 23% since 1979! Working class America addressed this loss of wages in three ways:

First, in the 1970's and 1980's we, as a nation, added all of our working age women into the economy. That bumped-up household earnings, but did not increase individual earnings. Today, as compared to the early 1970's, most working age women MUST work.

Two, we went back to school and got trained for the service economy. The mass lay-offs in the early 1980's forced a whole slug of workers back to school to get an AA or BS degree. These degrees were a base-line requirement to work in America's burgeoning service-based economy. So, we increased our education, but this strategy provided only nominal increases for the great majority of Americans. Most American got better educated only to maintain their wages, not significantly increase them over past earnings. Put another way, I made $16.34 per hour at A.O. Smith assembling automobile sub-components in 1984 as a high school graduate. My son, 25 years later makes $17.00 an hour, with an AA degree in HVAC. So, in real dollars, not figured for inflation, my son makes 0.66 cents more an hour than I did 25 years ago and he is college educated!

Third, we took out home equity loans to supplement the loss in wages and increases in cost of living that we were facing. These loans should have been used solely for home improvement purposes, but were used instead to off-set day-to-day living expenses. A significant problem is that the housing bubble has burst and left a whole lot of people with loans that are now greater than the values of their homes, couple that will declining wages, increasing health care costs, and job insecurity and we have a problem that is not directly related to unemployment.

Please do not misunderstand me here, unemployment is certainly a problem. I do not want to give the impression that it is unimportant. But, unemployment exasperates the underemployment problem, in my opinion, not the other way around. My concern is an over-focus on the unemployed while we continue to ignore the bigger problem which is underemployment, loss of wages and increased cost of living. If we really want to stimulate the economy, (growth in GDP) we need to get more dollars into the hands of working people. We can do that by reversing the trend of having only the top 30% of Americans realizing wage increases. There is plenty of money. It is just currently distributed in a fashion will not stimulate economic growth. Giving more money to the wealthy and hoping it will stimulate economic growth (the trickle down theory) has proven false. The wealthy have enough and they tend to tie-up their money in investments that will not promote the same GDP growth as putting these dollars into the hands of working people. Therefore, supporting wokers ability to collectivly bargain with their employers will aid in increasing wages and benefits for the botom 50% of the workforce.

Workers like me, who got hung-up in the lay-offs of the early 1980’s put our wives to work, we went back to school and took out home equity loans to improve our economic condition. Now that the housing bubble has popped, the economy is feeling the effects of a 30 year down-turn in workers wages all at once. Working people have no way currently to substantially improve their income. So, we need to put policies in place that will improve workers incomes if we are serious about stimulating economic growth.

Fred P. Schnook

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