Posts Tagged ‘Hourly Wages’

Job Loss, Wage Stagnation, Low Productivity: We’re Great Again!

Monday, October 30th, 2017

A couple of years ago, as he finished his Gatling Gun presentation to conclude the Workers’ Compensation Research Institute’s annual conference in Boston, I asked the big-brained, really smart Bob Hartwig if he was alarmed at all that in the last 40 years inflation-adjusted hourly wages had risen only 4%. His answer: “Yes. Very.”

Since then, regardless of the playground-like antics in our nation’s capital, or maybe because of them, not much has changed. So, in this post I want to discuss some of the factors and trends that have contributed  to this economic wage crisis and suggest it played a powerful role in the rise of Donald Trump who, with rhetoric as sharp as the edge of an axe, seized on the frustration and outrage within the lower wage working classes whose nearly biblical devotion led to his election.

That it is a crisis has been borne out over time by a mountain of complex research that cannot be explained in a tweet. The latest brick in this ugly house was laid last week with the release of a study from The Hamilton Project at the Brookings Institution.

In The Hamilton Project at Brookings report, Jay Shambaugh, Ryan Nunn, Patrick Liu and Greg Nantz offer Thirteen Facts About Wage Growth with solid research buttressing each fact. The point of the paper is to explain why wages for production and non-supervisory workers have been stagnant for so long.

In order to explain the why, they first had to prove the point. To do that they divided the period since 1981 into four business cycles: 1981-90, 1990-2001, 2001-07 and 2007-17. They found that in the first three of those business cycles nominal wage growth (wage growth without any adjustment for inflation) averaged just a bit above 3%. In the last cycle, which started at the beginning of the Great Recession, growth has been 2.34%.

However, when one considers real wage growth (growth adjusted for inflation) each business cycle saw wages increase significantly less than 1%. Despite this 36-year run of bottom-of-the-bird-cage wage growth, according to the Bureau of Labor Statistics’s Inflation Calculator, what you bought for $1.00 36 years ago in 1981, the first year of this study, cost you $2.84 in September of 2017. This puts American workers in the position of trying to outswim a Navy Destroyer. Every moment they fall farther and farther behind.

The authors point out that our long-term wage stagnation can be traced to many trends, including the decline in US workers’ share of income.

The portion of national income received by workers fell from 64.5 percent in 1974 Q3 to 56.8 percent in 2017 Q2. Over the past few years the U.S. labor share has ceased falling, but this might reflect the ongoing economic recovery rather than any change in the long-run downward trend.

A number of factors have played a role in the fall in Labor’s share of income, including, but not limited to:

  • The long-term and continuing offshoring of labor intensive production;
  • The decline in union membership;
  • The decline in the real minimum wage;
  • The growth of non-compete contracts for even low-skilled workers;
  • The growth in income inequality between the top and bottom earners;
  • The continuing increase in the “education wage premium.”

To elaborate on a few of these factors:

Union Membership:  In 1956 about 28 percent of all workers belonged to a union; in 2016 that number was a little more than 10 percent. In the private sector, union membership has dropped to 5%. Regardless of what you think of unions, the fall in union membership directly correlates to an increase in wage inequality.

The Real Minimum Wage:  The Project Hamilton Report demonstrates how insidiously the federal minimum wage has limited wage growth among low wage earners. Since 1968 the real minimum wage (minimum wage adjusted for inflation) has fallen more than 20%.

Right now state minimum wages range from a low in Georgia of $5.50 to a high in the District of Columbia of $12.50. A number of states have passed legislation to gradually increase their minimum wage  over the next few years. Others have indexed theirs to the CPI. Regardless of what the states do, their minimum wage cannot be lower than the the federal minimum wage of $7.25 for any worker covered by the National Fair Labor Standards Act. If a worker in Georgia isn’t covered by the Act, however, $5.50 reigns.

The Education Premium:  The wage benefit of a college degree increased dramatically during the last two decades of the 20th century, leveling off around 2000 at an historically high level.

Bachelor’s degree holders ages 25 to 54 in 1979 could expect to earn 134 percent of the wages received by those with only a high school education, and advanced degree holders could expect to earn 154 percent. By 2016 the wage premiums for a bachelor’s degree and an advanced degree had risen to 168 and 213 percent, respectively.

Another way to look at the wage value of higher education is this: Although only 40% of the nation’s workers hold four-year college degrees (23% in 1979), in the top two earnings quintiles college graduates make up a clear majority, 78% in the top quintile. Only 15% of the bottom quintile are college graduates.

One last point about the Education Premium: In its most recent survey of college pricing, the College Board reports that a “moderate” college budget for an in-state public college for the 2016–2017 academic year averaged $24,610 (tuition, board and fees). It’s true that financial aid is available to most students. However, with the income of today’s low-wage earners falling farther and farther behind workers sitting serenely much higher on the economic pyramid, how do you think they’re going to manage to send their children off on a quest for a four year college degree, even at an in-state public college? This is a self-perpetuating educational death spiral.

Maybe you’re asking what this has to do with workers’ compensation?

Well, if US workers on the bottom half of the income scale have seen their wages lag behind the CPI for four decades, they are right now hard pressed to contribute to the country’s economic growth and viability. Moreover, when one of them suffers a lost-time injury at work, that worker will suddenly see his or her take home pay reduced because of state workers’ compensation laws, which will make it even harder to support a family. Research shows this, among other things, contributes to underreporting of workplace injuries.

For more information on this issue, see Bureau of Labor Statistics data and a recent New York Times economic report by Ben Casselman.

I have a hard time believing decades-long negligible wage growth, especially for those on the lower end of the income scale, can be anything but harmful for America, its economy and the quality of life of its workers. I suggest this is a significant cause of the frustration and outrage that led to the rise of the Tea Party and Freedom Caucus. Donald Trump saw this frustration, this outrage, as a mammoth opportunity and continues to feed it like red meat to a hungry lion. That type of divisive behavior can be nothing but destructive. But until our elected officials grow enough spine to do something meaningfully constructive and productive about it, I fear this situation will continue to divide and erode us as a nation.

That is terribly sad to contemplate.

 

 

 

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Artificial Intelligence: Change On A Monumental Scale

Monday, February 29th, 2016

This morning, Joe Paduda, at Managed Care Matters, did the workers’ compensation community a service with his blog post What Job?, in which he writes about the likely prospect of many jobs disappearing due to Artificial Intelligence (AI).

AI is permeating every industry. For example, watch Motoman’s nearly human-free plant in Sweden as robots assemble, package, shrink wrap and ship thousands of Ikea bookcases, or a BMW plant in Germany as robots build the i3 electric car from scratch and with amazing precision, or CNN as its reporters show how Google’s driverless cars are navigating California and three other states.

This is one of the defining issues of our time, and one in which I am profoundly interested. I suggest it is not hyperbole to predict that we are on the verge of an epochal change, something like a kind of mass extinction, and what’s going extinct is an enormous number of jobs. This change might be even more significant than humanity’s evolution from an agrarian to an industrial economy.

Mr. Paduda cites the the Frey and Osborne paper from Oxford University’s Oxford Martin School that suggests up to 47% of jobs run the risk of going the way of the Woolly Mammoth by 2025. The paper is highly controversial and its conclusions have been hotly debated. Even so, the most conservative naysayers agree that the figure is at least 16% (but that figure doesn’t take into account the jobs that the AI revolution will create, estimated at about 9%, for a net job loss of 7%). So, you can see there’s a huge difference of opinion. Regardless, millions of jobs will be lost. Add into that mix the following, and you have a wicked brew for the future:

  • The rise of the Millennials, whose cultural and social thinking, as well as their total buy-in to AI technological development, is nearly diametrically opposed to today’s economic leaders, the Baby Boomers, who are now exiting the work force at the rate of one every seven seconds;
  • Rapidly increasing economic inequality throughout the workforce. For example, consider that since 1973 inflation has grown 533%, while hourly wages for non-farm US Production and Non-Supervisory employees, measured in constant 1984 dollars, have risen a whopping 4%;
  • Put that beside the Disappearing Act of US labor unions. Whatever you think of them, unions were good at negotiating hourly wages and other benefits like health care. But with only 6.7% of the private sector unionized today, that doesn’t happen anymore, so we’re left with a near total change in how we pay for health care today, as well as what we get for it, compared with how we paid and what we got for it in 1973. For example, we now have $2,000 (or more) deductibles, significant increases in employee premium contributions, the gold medal for the highest cost for health care in the developed world, way-over-the-top histrionics surrounding the Affordable Care Act, etc. You get the picture.
  • The increasing need for both cognitive and social skills in entrance level jobs on track for middle class wages (presuming there is a middle class). See The Increasing Complementarity of Cognitive and Social Skills, by Catherine J. Weinberger, University of California, Santa Barbara.
  • The continued accuracy of the 1965 technological development prediction, known as Moore’s Law. Simply stated, Gordon Moore, the founder of Intel, predicted that computing power would approximately double every two years, and it has – since 1965. Moore has recently revised his prediction to two and a half years through the next decade.
  • Finally, the rise of what can be called the “intellectual” robots as exemplified by IBM’s Watson, which, in addition to handily beating all-time champion Ken Jennings at Jeopardy, is already doing a better job of reading XRays, CT Scans and MRIs than human radiologists. And here’s something to ponder along that line: Many agree that a workers’ compensation claims adjuster with a lost time caseload of 100 to 125 claims has the ideal caseload (a few nights ago at a Central New Jersey Claims Association meeting I was talking with a motivated and energetic workers’ comp claims adjuster for a company that shall go nameless – but it’s respected and well-known – who told me she’s carrying 180, and that’s the norm for her group). How would Watson do on that? Watson, a machine that sounds like the Hal 9000, never sleeps and could analyze thousands, maybe more, of lost time claims a second. IBM says that human involvement with Watson is critically important, but how many people does that mean? After the initial intake with the claimant, how much claim management could shift to Watson? You may not agree, but it seems to me that more than a few workers’ comp claims adjusters may soon begin to resemble that long-gone Woolly Mammoth.

I’ll leave you with a question: Do you think it would have been appropriate if this subject had made it onto the agenda for the upcoming WCRI Annual Conference in Boston, March 10 and 11? Regardless of your answer, I’ll be there and will be happy to dive deep into the AI crease with any interested attendees.

Hope to see you there.

 

 

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