Wage Expectations for 2013

The recovery from the 2008-2009 recession has been tepid at best, and has disappointed many.  Coming out of such deep recessions we have historically seen accelerated growth for several years, which has somewhat softened the pain of recessions and enabled businesses large and small to recover their losses.  This tepid recovery is projected to develop into slower growth long-term, as has been concluded in independent evaluations by a leading economist and a leading money manager, according to the WSJ article “U.S. Stocks: Look Out Below?”  While not the point of the WSJ article, this slower economic growth will directly and necessarily reduce the wealth creation of firms, which will directly and necessarily impact wage expectations for 2013 and beyond.

The first impact that this slower growth will have on wage expectations is through an increased gap between the income earned by the top tier wage-earner and rest of the workforce.  While not desirable for the economy, this will be the logical result of an economic environment that has less opportunity for growth.  This environment will increase the relative value of workers who are able to find opportunities for growth, especially those able to lead the implementation of expansion into new areas of business for company ownership.  The most critical of these will be the CEO’s and company leaders who are able to successfully implement these growth initiatives; the pay of these individuals will therefore increase due to this value that they are bringing to the ownership.

The rest of the workforce, meanwhile, will be pressured from two sides.  The flip side of the previous paragraph is that although the work they do is still important, it is not as critical because the Big Question will not be “How Can We Do This?” but more fundamentally “What Should We Do?”  On the other hand, the slower growth will reduce the availability of jobs and result in a higher unemployment rate.  As a simple matter of supply and demand, this slower demand will necessarily work against salary growth for the bulk of the workforce.

This raises the inevitable question of how wage negotiations must be managed especially with a unionized labor force.  Unionized labor forces in the long term have shown negative impacts to the profitability of a company, although they have been able to “negotiate” lucrative contracts in the short run.  This long-term negative impact has resulted in bankruptcies at GM and Chrysler, and most recently at Hostess.  A concept missed by the unionized labor force is the fact that if the growth in profit does not exceed the increase in value that the labor force provides such as through higher efficiency, the long-run viability of the business is at risk.  From the perspective of the labor force, the workers as a whole and every worker individually must pursue how he can add more value to his work for his employer, and this will be the only way to justify wage increases.

In a low-growth environment, what ideas are there to reduce the income gap?

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Manufacturing Taking a Turn for The Better

As I was growing up, as a kid in the early 90’s, I quickly learned that anything that said it was made in China was an inferior product to those that were made here in the USA.  However, even with this connotation of poor quality it seemed that every product that I came into contact with was made somewhere outside of the country.  Over these years, leading to this very day, the vision of these products has moved away from the poor quality of old.  Now it seems that what truly upsets us about products not made in with the USA is the fact that we have many of our own looking high and low for a job in the manufacturing industry.

In recent years it has seemed to have come nearly impossible to compete with markets like China, where it comes to manufacturing, with considerably low wages being received by their workers.  While wages in China are coming up, from an average of 58 cents per hour in 2001 and an estimated $6 per hour in 2015 http://www.csmonitor.com/Business/new-economy/2012/0510/As-Chinese-wages-rise-US-manufacturers-head-back-home, there is still a large gap compared to their American counterpart, at about $19 per hour http://www.trade.gov/mas/ian/MBU/index.html.  Even so, as stated in the Wall Street Journal article “Once Made in China: Jobs Trickle Back to U.S. Plants” manufacturing jobs are starting to make their way back to the good old USA.  The progress has been slow in the American manufacturing market after a 35% decline in jobs between 1998 and 2010 we have seen just a 4.3% increase since.  But, this increase that is expected to be about 3.2% this year compares to that of just 1.6% in all other fields.

These changes in the American manufacturing market have reasons that are not solely based on the increase in wages overseas.  It has been said that the American is more than 3 times more productive than that of their counterparts from China http://online.wsj.com/article/SB10001424052702304587704577333482423070376.html#project%3DSLIDESHOW08%26s%3DSB10001424052702304363104577390470454369272%26articleTabs%3Darticle.  Shipping costs are becoming increasingly more expensive and companies are coming out close to even, if not better off, manufacturing in America when these costs are put into play.  These factors and the fact that overseeing the physical production becomes worlds easier when it is taking place in your back yard are bringing manufacturing jobs, little by little, back to the USA.