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Today, we can no longer postpone the traumatic impact of the end of rising wages in the `70s by still more work or debt. We are at the end. Workers can’t work more. They physically can’t handle it. Families are stressed beyond words, largely because women left the household where they had been holding the emotional life of the family together. And families literally can’t carry the debt. Everything implodes. That is where we are.
Why did the real wage stop rising?
Four things. First came the 1970s US technological revolution, associated mostly with the computer. Humans were replaced by machines—30 to 40 people tracking inventory in a supermarket were replaced by a scanning system and one person watching a computer. This substitution happened everywhere and the number of jobs was greatly reduced. Next, jobs were cut by the worldwide revolution in telecommunications and the Internet, which made it more feasible to move production out of the US. Corporations increasingly chose to take advantage of cheaper workers, less stringent environmental regulations, lower taxes, and more bribable officials overseas. Then, two things produced more workers looking for these fewer jobs: the massive movement of American women into the paid labor market and waves of immigration—people wanting to participate in the 150-year rising real wage. This confluence produced labor market conditions that had US employers, for the first time, in the enviable situation of no longer being required to raise wages to acquire or keep employees. And they stopped doing so.
This is crazy, literally. For the last 30 years American workers have been delivering more goods and services per hour, productivity has been rising steadily, yet wages have not risen. We had a wild ride in the stock market and an explosion of profitability of the `80s and `90s because the corporations—the employers—were profiting more than they had ever dreamed of in their wildest fantasies as MBA students—getting ever more out of employees without having to pay them more. Not only producing trauma in workers, this produced a countertrauma in employers who had never seen this before and didn’t understand what was happening or why. So they made up self-flattering explanations, concluding (which is hysterically funny looking back at it) that this profit explosion was happening not because of the reasons mentioned, but because they had all suddenly become genius managers and brilliant entrepreneurs! Which justified the extraordinary explosion of pay packages given to top executives and completely crazy bonus systems: They have this immense pot of profit money, attribute it to their own prowess, and pay themselves accordingly. At the same time, workers were working harder, borrowing money, imagining there was no crisis, taking on sole responsibility for their financial stress, and were not able to face the situation or talk about it. But now that it has hit the fan, suddenly everybody’s outraged.
Goldman Sachs, which allocates roughly half its annual revenue for compensation, recently said it will bar most top executives from cash bonuses and instead give long-term stock, which could be enormously lucrative should their stock continue to do well. Huge corporations give out huge bonuses and severance packages to top executives. What are the “real” costs of these money grabs?
One kind of history sees a feeding of the economy: workers paid rising wages, sharing in the growing wealth that rising productivity makes available. Another history sees a starving of the economy: Wages stop rising and instead wealth emerging out of growing productivity is concentrated into the hands of a tiny number of people who get stratospheric incomes. Everything shifts. You can’t produce for a mass market because your mass market isn’t growing. This is what is happening today. Over the last 30 years, the staples of American retail life have disappeared. Sears, Roebuck is dead. Kmart is gone. All the middle retailers, stores, and production can’t find a market. The whole country divides into the boutique shops on Madison Avenue on one hand, and Walmart for everyone else. We increasingly replaced the middle of life, shopping, buying, and producing, and bifurcated our economic system into 1) a highly profitable, tiny group of people at the top who drive the fancy cars and live with the Cuisinart, and 2) the vast majority who go to Walmart.