“Workers lose in two-speed recovery” is the headline of an interesting article in today’s Business Herald print edition, sourced from “The Economist.” Living standards are declining in recovery because the share of income going to profits has far outstripped wages. Most people are not feeling better off.
Some instances quoted: in the US,
this is the first time profits have out-performed wages in absolute terms in 50 years
in the UK
the median British household has suffered the biggest three-year fall in real living standards since the early 1980’s
in the US again
productivity rose by 83% between 1973 and 2007 but male median wages rose by just 5%
Various reasons for the disparity are discussed, including union decline. One commentator
reckons privatisation has also led to a decline in labour’s share of the cake. Managers of newly-privatised entities tend to lay off workers as their focus shifts from empire-building to profit maximisation
The article concludes:
One factor that should perhaps get more emphasis is the role of the financial sector. Central banks have repeatedly cut or held down interest rates over the past 25 years in an attempt to boost bank profits and prop up asset prices. With this subsidy in place, is it surprising that earnings in finance have outpaced wages for other technologically skilled jobs?
Attempts to remove that subsidy are met by threats from international banks to move elsewhere. This is a little reminiscent of the protection rackets run by the gangsters in Mario Puzo’s The Godfather. It is as if the finance sector is saying: “Nice economy you’ve got there. Shame if anything should happen to it.”
Massive state aid to the financial sector has been combined with Government resistance to any enquiry into bank behaviour. No perhaps about it, the role of the financial sector should definitely get more emphasis.