Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
On my prior blog site I used a term in 2007/2008 – “The Pooring of America”. This was in part a comment on what I saw as the great global wage arbitrage happening in the middle class. Those in developed countries would see wages pressured downward, while those in developing countries would see their wages pushed upward. They need not “cross” at any point, since cost of living varies substantially in these countries. This is a simple take away from economics 101 – when you introduce a few hundred billion new potential labor candidates the “price” of labor will generally fall. (which of course is great for multinational corporations)
All that said, the ethos is “get a college education and you really don’t need to worry about such things”. That might have been true in the 90s when globalization of labor was focused on blue collar. But the past decade has seen a great absorption of white collar jobs in this mega trend of global labor wage arbitrage. This story in the WSJ is striking in the fact we apparently now are at the point that (inflation adjusted) even college educated young adults are way behind where they were a decade ago. With far more debt of course to fund that education. And that is using the government’s rate of inflation, which many have argued understates reality, [May 2008: Bill Gross – Inflation Underplayed] and has been, through a series of statistical adjustments, skewed downward dramatically from how it used to be measured in the 80s and even 90s. These are very troubling trends for long term prosperity in a country where ‘consumption’ drives 70% of the economy.
- Young people entering the job market are taking the brunt of the downward pressure on wages caused by high unemployment, according to a new analysis of pay trends. In data compiled for a coming report, the Economic Policy Institute, a center-left think tank in Washington, found that the average inflation-adjusted hourly wage for male college graduates aged 23 to 29 dropped 11% over the past decade to $21.68 in 2011. For female college graduates of the same age, the average wage is down 7.6% to $18.80.
- The EPI data are another sobering sign for college students and have implications for the economy. With wages falling for many young people and about flat for the nation as a whole, consumers have limited ability to pay down debts and revive the economy with more spending.
- For the entire working population, average hourly wages have risen modestly over the past 10 years. But that is partly because many of the lowest-paid workers have lost their jobs and are no longer included in the average. “People who normally make below-average wages are not working,” said Bart Hobijn, an economist at the Federal Reserve Bank of San Francisco. “That raises the average wage.” (well that’s one way to fix the issue!)
- For men with only high school degrees, aged 19 to 25, the average wage is down 10% from a decade ago to $11.68. For women in the same category, the average has declined 9.2% to $9.92.
So while the high school educated have lower wages, both college and non college educated young adults have lost ground at about the same rate the past decade.
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