Thursday, May 10, 2012
Are Salaries Keeping Pace With Inflation?
Let's begin with some quick stats from AmosWEB.com.
AmosWEB reports real average hourly earnings of $10.21, up .2% from March, real average weekly earnings, $352.23, down .4% from February, and a CPI of 226.3045, up 2.9% from March. Using these stats, it looks like the prices increased more than earnings which means a harder time satisfying wants and needs.
The Bureau of Labor Statistics reports a change in the CPI for all goods and services a change from April to March of 1.729 which is still more than the bump in real wages, which are adjusted for inflation.
In a recession, labor loses bargaining power and contracts might not expire until a later time. Unions are losing their bargaining power as only 13% of US labor are unionized. The current unemployment stands at 8.1% well above the historical "natural rate of unemployment" of 5.2%. Furthermore, employers are quick to substitute capital for labor. A friend of mine says that new hires at HNI are now offered a lower entry-level wage than he was offered over 30 years ago. Clearly, there's downward pressure on wages. The cartoon suggests that social force is true.
The graph that accompanies this post, shows the real value of the minimum wage. Although the minimum wage is increasing, it is not increasing as fast prices as can be seen by the real buying power. The minimum wage is an institutional law that creates structural unemployment. The federally mandated wage, however, does not provide the wage needed to buy necessities for the approximate 38 million who receive it.
If wages are spiraling down and unions are losing their bargaining power, what is labor to do?
I think the answer is in the monopoly power that an entrepreneur possesses when they first enter the market. This is what I mean. If you have a unique good, you can charge a price for the product that is greater than the marginal cost of production. The problem is that most goods tend to be driven down to their marginal cost over time as competition enters the market. What I think people overlook is that profits can be made in the process of bringing the goods to the market.
Logistics concerns itself with the processes needed to bring a good to market. I think upstart entrepreneurs should find ways to streamline existing processes. This would put downward pressure on prices while giving those entrepreneurs a monopoly. Can existing processes be improved? At the HNI sharesholders meeting on Tuesday, Chariman and CEO, Stan Askren said that HNI made over 38,000 improvements to the way their office furniture is manufactured and delivered. This shows that the economy can achieve price control along with wage power by working toward efficiency.
Cartoons are a powerful device to spur creativity. Maybe one way to get small businesses to innovate to shower them with a daily cartoon.