Unemployment and Low Wages Paint Bleak Picture for US Workers

By: David Smith   Date: 15 June 2011

About The Author

David Smith

An English journalist who, when he's not exploring the social consequences of political actions,

David Smith, Investigative Journalist

 

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The US unemployment rate stood at 8.9% in June 2011 for workers who are without jobs but searching, according to official Government figures. However, the real rate is probably much higher still. If we use the U-6 figures from the US labour department’s bureau of labour statistics, it is around 15.9%.

Unemployment and Low Wages Paint Bleak Picture for US Workers

Little Sign of Hope
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The latter figure arguably gives a more accurate picture of US unemployment because it includes people who want full-time work, but can only find part-time work, and those who want to find a job, but have given up looking. If we take the rate as 15.9%, then one in six members of the US labour force brings home little or no money.

This is clearly a huge burden on those individuals and on their loved ones, but what is its effect on the owners of US companies, and their shareholders? Is it possible that they are actually benefiting financially from the high numbers of unemployed, or workers in part-time jobs?

Some statistics from the US Labor Department suggest that the shareholders and business owners have not fared badly at all in the past two years. From mid-2009 until the end of 2010, output per hour at US non-farm businesses rose 5.2% as companies found ways to squeeze more productivity out of existing staff. But hourly wages rose only 0.3% in relative terms. In other words, companies shared only 6% of productivity gains with their workers.

A Bank of America Merrill Lynch report came to a similar conclusion. Even though US companies have collected about US$940 billion since the credit crisis, most are not spending the money on new staff. The report predicted that corporate investment would climb 11% in 2011, while employment would only rise 1.7%.

Another problem for US workers is that companies are employing cheap overseas labour. Examples include the two software makers, Oracle and Cisco Systems, which have both added about twice as many workers overseas over the past five years as in the US and General Electric, which has about 54% of its workforce abroad.

Even workers who have jobs face the negative effects of rising unemployment as the paucity of jobs has also led to wage depression.  

The New York University economist Professor Edward Wolff, author of Poverty and Income Distribution, said:

“Because of the high unemployment rate, companies have been able to reduce workers’ wages. The principle feature of the recovery is the large increase in profitability among US companies. The main beneficiaries have been stockholders, business owners and capitalists.”

The US labour laws, according to the OECD, make it the easiest place in the world to sack, or replace employees. But is this OECD generalisation true in practice? The picture is complex, but Professor Marley Weiss, a specialist in International Labour Law at the University of Maryland, broadly agrees that workers in the US have weaker protection than in many other countries.

“Reducing the workforce probably is easier in the US than many other places,” said Professor Weiss. “The US is on average the easiest place for a private sector employer to terminate the employment of one employee or of many, compared to Western European countries and Canada, and this is especially true as to economically motivated reductions-in-force.

“Severance pay is due only if a Collective Bargaining Agreement, or individual employment contract or employee fringe benefit plan provides for it, or in Maine and a few other states, when state law imposes such an obligation. Otherwise, the 60-day notice rule of the WARN Act forces the employer to pay 60 days severance pay to most of its employees, whether or not it still keeps them at work...What there is not is anything like the typical European severance pay obligation of, say, one month's pay per year of credited service for the employee,” she said.

A major vulnerability for most private sector workers is that their contracts are mostly “at-will” ones, which means that both the employer and the employee are free to terminate the employment at any time and for any cause, or for no cause at all.

“More employees today are in ‘at-will’ relationships than was the case 50 years ago,” said Professor Weiss. “In the 1950s, about 35% of private sector employees were covered by collective bargaining agreements (CBAs), and something like 90% of CBAs limit discharge from employment to cases in which the employer can establish ‘just cause’. Today, only about 7% of the private sector labor force is covered by a CBA, which means a very much higher proportion of private sector employees are subject to the presumption that their employment relationship is ‘at-will’”.  

Professor Weiss said the question of termination of employment because a business owner decides job cuts are an economic necessity was a slightly different one to being laid off for allegedly inadequate performance. But in these circumstances, protection is still weak for US workers.


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