Wages, Profits and Frustrations

July 31, 1995

'TC "WAGES" was the big black headline on Business Week magazine in its July 17 issue. "They're stagnant while profits are soaring. Are we headed for trouble?"

Sure enough, the latest report last week from the Bureau of Labor Statistics confirms that increases in wages and benefits in private industry, only 2.8 percent in the past year, the lowest since record-keeping began in 1981, are failing to keep pace with a low inflation rate of 3 percent. This trend -- the result of world competition, technological advance, health-care cost containment, a weak labor movement, payroll downsizing and the scrapping of traditional compensation structures -- is taking place at the same time productivity, corporate profits and Wall Street prices are soaring.

The result is increasing frustration among working Americans, many of whom are just treading water or falling behind. While most corporate bosses are concentrating on the bottom line, some worry that the downhold on worker compensation is translating into chronically soft demand that could send the economy into a downward spiral.

The Business Week article presented graphs showing that the current economic recovery is lagging its predecessors in per capita consumer spending and per capita growth of gross domestic product as a result of below-average growth in hourly wages and benefits and per capita personal income. This raises the question of whether the traditional link between higher profits and higher wages is eroding under the pressure of global economic changes. Henry Ford, the magazine noted, used to raise the wages of his employees so they could buy his cars. But in the last decade, the price of autos has jumped 70 percent while incomes have climbed only 40 percent.

The political impact of this situation stretches from left to right, from Labor Secretary Robert B. Reich's attacks on "corporate welfare" to GOP presidential hopeful Patrick Buchanan's protectionist onslaught on the loss of jobs overseas. Last election, it was Ross Perot who cashed in on worker frustration. Next year, the issue is up for grabs. But neither Bill Clinton's Democrats nor Newt Gingrich's Republicans can be sure how it will cut.

In the long run, increased U.S. productivity is bound to pay off for the American people as a whole. But as this painful adjustment goes forward, political tensions and perhaps alienation toward the political system are bound to grow. It will take the ultimate of American resilience, sense of fairness and entrepreneurial initiative to contain this revolution.

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