Wednesday, May 10, 2006

GDP Up - Real Wages Down

GDP (Gross Domestic Product) is a measure of goods and services produced by an economy; it represents the size and growth of an economy. Essentially, GDP is the market value of goods and services which are produced with in a specific period of time.

The formula for calculating GDP is Consumption+Investment+Government Spending+(Exports-Imports) or Net Exports.

Here’s a news release from the Bureau of Economic Analysis:
“Real gross domestic product -- the output of goods and services produced by labor and propertylocated in the United States -- increased at an annual rate of 4.8 percent in the first quarter of 2006, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real
GDP increased 1.7 percent”. (Real GDP factors in the element of inflation)

So GDP is up by 4.8 percent, which is a significant increase. This should be good news for all of us, however, there’s a chink in the armor.

Real Wages have been down for some time now, and in fact have been declining steadily since the early 1970’s.
More recentlythough, since early 2001, gross domestic product per person in the U.S. has expanded 8.4% after adjusting for inflation (Real GDP). However, the average American family has not benefited from this growth, not yet anyway. The average weekly wage has edged down 0.3%, since 2000. That contrast may explain why so few believe the Bush Administration’s claims that our economy is doing well.

The root cause is simple; the trickle-down theory of economics is not working.

Since the end of the recession of 2001, growth in GDP has translated into profits, not wages. This reflects workers' lack of bargaining power in the face of high unemployment. Another factor holding down wages is employer-paid health benefits, pensions, executive compensation, and payroll taxes; with the lions share of that increase being in employee health benefits.
These components combined are making employers less generous with wages

Historically when unemployment is low and growth is steady, the American family will see its income increase. As that happens Americans' optimism will rise, but until then, Americans will maintain a dim view of our economy.

2 Comments:

Blogger Van said...

You're right CP - there is no evidence that tax cuts generate or trickle down wealth.

I'll be posting on this in the near future, hopefully it won't be too borring - lol

POJ - we are still far from the Third World, but the so-called experts say that our economy is growing, evolving into an information economy. This means that we will have a paucity of service sector jobs and a limited amount of industrial jobs - most of which paid very well.

Service sector jobs catagories are expanding in human interaction catagories. This means that companies are hiring people who can deal with people on a face to face interaction sort of basis.

If you look on the DOL website you'll see that the fastest growing jobs are low paying retail and customer service positions - retail sales, bank tellers, waiters and bartenders.

These are not middle-class jobs, and not everyone will be able to go to college to learn a professional skill. In fact the professional job catagories are shrinking, there may be a brief expansion of professional jobs when the Baby Boomers retire, but many experts believe that the Boomers will not retire in a tradition sense. The'll likely stay in the workforce for a decade or so after retirement age.

So naturally there will be millions of working poor who cannot or will not go to college. And let's not forget the growing trend to treat labor as a trading comodity. Companies will find it much easier to import cheap overseas labor into our economy which will puch down the wages of the professional worker.

Thanks to conservative economic policies, we may resemble a Third World nation in the near future.

The solution is simple. We must rebuild our industrial base and start exporting goods again.

Lots of people argue against this, but I look to countries like Japan and Korea -- they have an industrial base and an information sector.

Per capita they are much happier than we are, the average citizen that is. Also, we can look to Scandinavia as an example of a succesful economy. The people are working, they are well educated, they produce products that the world wants to purchase and they have a very large middle-class.

I guess it boils down to this, do we want to live in a world were the rich get richer and the inequality of wealth grows between the wealthy and working classes? Or do we want to live in a world were the economy serves the people and not the other way around?

4:50 AM  
Anonymous Anonymous said...

GDP has nothing to do with wage rates.

Wage rates, a/k/a "the price of labor" is governed by the same laws that ALL other commodities are - to wit, Supply & Demand.

In any free society, workers are, whether they like it or not, entrepreneurs in the BUSINESS of selling their skills/labor to consumers/employers.

The sole reason for the stagnant U.S. wage rates is Free Trade/Open Borders.

Free Trade treaties, GATT was expanded in 1991 by Tip O'Neill's Congress, and NAFTA was passed in January of 1994 with a Democratic Congress and a Democratic President, allowed for all the "outsourcing" folks are complaining about today...AND open borders - well, millions of "undocumented workers" streaming across the border to work cheap, puts a persistent downward pressure on ALL real wage rates. They only begin by depressing low skilled wage rates.

The Supply Side Policies ("Trickle Down Economics") in the form of all those tax cuts, not only INCREASE tax revenues (fewer people defer their compensation when income tax rates are lowered) and DO SPUR INVESTMENT. Both those facts have been proven out time and again.

I support far more draconian tax cuts that would cut to the point where they reduce government revenues - that way government would not only be forced to do more with less, they'd simply have to live with doing less period.

7:36 PM  

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