The Economy and Mr. Bush
"the U.S. economy kept growing [in 2005] at a rate close to the impressive 4.2 percent notched up in 2004, which many had assumed was unsustainable... Yet on one important measure, the economic news hasn't been as good. The majority of workers have not felt the benefits... the problem for workers lies in take-home pay. Wages for blue-collar manufacturing workers and non-managers in services have remained stagnant since the economic recovery began in November 2001.
Part of the reason lies in the rising cost of non-wage benefits, especially health insurance. The value of benefits received by the average civilian worker rose 5.1 percent in the year to September, and that increase followed two years in which benefit costs were roaring ahead at a rate of more than 6 percent. These increases, which outpaced inflation, help explain disappointing wages. If it costs more to provide medical insurance to workers, employers will pay themselves back by holding wages down.
But it may also be true that technology and globalization are contributing to wage stagnation; if workers can be replaced by machines or foreigners, they have limited bargaining power. In the four years since the recovery began, inflation-adjusted compensation (that is, wages plus benefits, as measured by the government's Employment Cost Index) has risen just 0.8 percent per year on average, less than in past recoveries and less than gains in productivity would seem to justify.
... the signs that market forces may be making it hard for workers to win pay gains raise fresh questions about President Bush's tax strategy. Mr. Bush has cut taxes on capital, even though capital has increased its share of the proceeds from the economy; the cuts may ultimately force a compensating increase in taxes on workers, whose incomes haven't done as well. This amounts to common sense inverted. Rather than counteracting a troubling aspect of the economy, Mr. Bush's policy makes it worse."
- posted by geoff @ #