Over-Saturated job Market Depresses Wages

by Bud Meyers, published May 17, 2015

If humanity had as much access to oil as they do to all the seawater in the oceans, oil itself would be next to worthless. Whereas an extremely rare commodity or a work of art could be considered priceless by some measure. If we have an abundance of something that can’t be used for any meaningful purpose, it’s devalued.

If the U.S. were still on the gold standard for our currency, gold might be worth $40,000 an ounce instead of $1,200. If corporations could have a patent and a monopoly on all the drinking water and the air we breath …. but I digress.

If 100 college graduates had a Ph.D. in computer science, but only one stock boy is needed to work the graveyard shift at Wal-Mart, the value of a college education in the labor market is devalued. When 48 million unemployed Americans are vying for 5 million job openings, the value of labor is also devalued — although, the last JOLTS report showed that for March 2015 there were 1.72 official unemployed per job opening. Really?

The unemployment rate is a measure of excess supply. When people aren’t needed, their labor is devalued, and wages are depressed. I’ve been saying this for years, and why when robots displace humans — when human labor becomes obsolete — we’ll need a basic income. But for now, besides just dealing with the lack of jobs, we also need to deal with the downward pressure on wages for those who do have jobs.

As an interesting aside, regarding the immigration debate (how undocumented workers have been flooding the labor market putting American-born citizens out of work): As of 2013, while immigration from Mexico has been in a steady decline, immigration from China and India has exceeded that from Mexico. The trend of lower-paying jobs going to Mexican immigrants (“doing jobs Americans don’t want to do”) may have been reversed, by going to H-1B visa workers working for less than prevailing U.S. wages — and doing jobs that Americans wanted to do (before the better-paying jobs were either offshored or went to foreign-born guest workers, further depressing wages).

Regarding depressed wages, below are a few excerpts from several recent articles, starting with: “Why you shouldn’t expect wages to rise any time soon“(Posted at PBS on March 17, 2015 by John Komlos, a professor emeritus of economics and of economic history.)

A seminal article by W. Arthur Lewis, published in 1954 [Development with Unlimited Supplies of Labor] explains the dynamics of a labor market with surplus labor, for which he received the Nobel Prize. The logic of the article is straightforward: as long as there are plenty of workers who are willing to work for the prevailing wage, one cannot go to the boss for a raise because she’ll just point to the unemployment lines outside of the window with people clamoring to get in the door.

The implication for today’s U.S. economy is that regardless of the number of jobs created, as long as there are still roughly 17 million workers under-employed, the [sic] jobs created last month are not going to make much of a dent in the immense amount of surplus labor available to corporations. So there is no need for them to raise wages …

The participation rate among working-age adults (25-54 year olds) who did not take early retirement declined by 3.6 percent … add another 7 million to the hidden surplus labor supply. So there are approximately 24 million people who are putting a tremendous downward pressure on wages.

But that’s not all the slack in the labor market. The labor force is growing by about 81,000 a month — at least that was the average during the last four years. These are new entrants who perhaps quit high school and started looking for a job or graduated college or, for a myriad of other reasons, are now ready to work. We’ve been conveniently neglecting that the monthly reports on the jobs created are gross figures and leave these new entrants out of consideration. The average number of jobs created during the course of the last four years was 207,000 per month; subtracting the 81,000 new entrants from the jobs created leaves an average of 126,000 net jobs created monthly. If that rate were to continue indefinitely we would need roughly 190 months, or roughly 16 more years, to absorb the surplus labor before any upward pressure were felt on median wages around 2031 …

In spite of all the hype about job growth and GNP growth, for most people on Main Street, it still feels like we’re in a permanent recession. According to a recent Gallup Poll, some 42 percent of the population is “struggling” or “suffering” financially … The economy as currently constituted is able to produce a lot of wealth for those who are already rich and famous, but it is not able to create decent lives for nearly half the population.

Significant is the inconvenient truth that the number of people employed FULL TIME today — seven years after the recession began — is still an amazing one million workers less than it was in November 2007! In contrast, the number working part-time has increased since then by a full 2.7 million. All of them would like to work full time, but such jobs are in short supply. Plus, there are 10 million working poor, who are poor in spite of the fact that they have a job.

The obstacles to President Obama’s vision of “Middle-Class economics” are still too numerous: too much surplus labor, too much globalization, too much technological unemployment, and too little bargaining power for labor without union backing.

Economic Policy Institute (May 15, 2015) Growing Consensus that Labor Market Slack Remains

Nominal wage growth’s failure to significantly increase over the last several months (and years) is evidence enough that there’s sufficient labor market slack to convince the Federal Reserve to keep its foot off the economic brakes and not increase short-term interest rates … One of the leading forces (besides the 30+ year trend in workers losing bargaining power ) behind sluggish wage growth is the fact that there’s still much labor market slack left in the economy today. The headline unemployment rate underestimates this slack … New evidence released today backs up our “missing worker” interpretation that the unemployment rate is underestimating the true degree of labor market slack because labor force participation remains cyclically depressed … Sluggish wage growth and depressed labor force participation continue to show signs of a weak economy…

Medium (May 13, 2015) Why Your Wages Aren’t Going Up

This is what the new normal looks like. Wages barely rise during periods of economic “expansion” (you know, the opposite of recession), then fall when unemployment spikes during a recession. In the long run, that means that average real earnings actually go down, and household income can only keep up if people work more hours. Yet the number of full-time jobs is lower today than it was before the financial crisis.

New York Federal Reserve (May 15, 2015): The Class of 2015 Might Have a Little Better Luck Finding a Good Job

Since the Great Recession new college graduates have been struggling to find good jobs — 44.6 percent of college graduates with a bachelor’s degree or higher are working in jobs that typically do not require college.

New York Times (May 15, 2015) Don’t Be So Sure the Economy Will Return to Normal

Many colleges and universities fired full-time tenured and tenure-track faculty members, and then began to increase their reliance on lower-paid adjuncts … In manufacturing [such as the auto industry], many of their new employees are paid much less in two-tier structures, with the new wage being as little as half the old one … A heavy burden of adjustment in the overall labor market is being borne by the young. Wages for the typical graduate of a four-year college have dropped more than 7 percent since 2000, and the labor force participation rate of the young has been falling. One consequence is that young people are living at home longer and receiving more aid from their parents … The effects of a recession can be pernicious for decades: Earning a lower wage in earlier years is predictive of lower wages through the rest of one’s career … Perhaps the most crucial issue is whether economies will return to normal conditions of steady growth, or whether we are witnessing a fundamental transformation, unveiled in bits and pieces. Nominations for the nature of that transformation include a “robot economy,” a new political economy where elites have too much power or, perhaps, a new global economy where the United States no longer holds such a dominant position, to the detriment of American firms and workers.

And then there’s our government leaders pushing for yet more disastrous trade deals (TPP and TTIP) — making our labor worth even less than it’s currently valued by our “job creators”. Here’s a list of the lobbyists and corporations behind the trade deals — it’s a “who’s who” list of corporate America that Obama is now backing against the average American worker.