Unemployment and Low Wages Paint Bleak Picture for US Workers

15 June 2011.

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%.

15 June 2011.

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%.

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: [quote] “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.” [/quote]

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.

[quote] “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. [/quote]

“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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Part-Time Jobs Part of The Problem?

[quote] “There is little to prevent a non-union employer from mass termination decisions except the Worker Adjustment Retraining Notification Act (WARN), which requires the employer to provide the union representative, or each worker individually, with at least 60 days advance notice in the event of a facility closure or mass reduction-in-force in excess of a certain size threshold. There is a good bit of commentary suggesting that this law has failed to meet expectations, because of certain loopholes which have allowed many employers to engage in mass redundancies while providing little notice and escaping liability,” she said. [/quote]

Workers’ disillusionment with the power of the unions to fight their corner in part explains the decline in private sector unionisation over the last 50 years. It is now down to 9%, much lower than other OECD countries.  

There has also been a money-saving shift from full-time jobs to temporary positions. In 2010, 26 per cent of all new jobs were temporary. This compared with less than 11 per cent in the early 1990s recovery and just 7.1 per cent in the early 2000s.

“Temporary jobs in the US are part of the same problem,” said Professor Wolff. [quote] “Because of weak labour laws and the unions having almost no power any more, firms are able to hire workers as temps, rather than on a permanent basis. As a result much of the job growth has been in temporary employment. This has put further downward pressure on wages and benefits. Pension benefits have been particularly adversely affected during the current recession and health coverage has been declining as well.” [/quote]

Professor Wolff said the Democratic Obama administration had done little to protect workers, or increase unemployment.

[quote] “There are two factors in this failure. First, our political system has evolved into one heavily controlled by the rich capitalist business owners. Campaign contributions, lobbying efforts and the like have been so concentrated into the hands of the rich that in order to secure re-election even so-called liberal politicians like Obama are forced to favour policies than benefit the rich and business. The Democrats are also co-opted by the rich and if Obama tries to change track, he will run into serious opposition from his own climate,” he said. [/quote] [quote] Professor Wolff compares the sense of disillusionment with the feeling which arose in the aftermath of Clinton’s election. “There was the same hopeful election and people felt it would turn in favour of the workers, but it didn’t because the political economy has so changed over the last 30 years starting with the Regan revolution that it’s basically become a vehicle for business interests to pursue their interests. Workers, as a result, have suffered dramatically. It’s been a gradual evolution of declining wages and benefits, and high unemployment.” [/quote]

There is, however, little sign of a willingness to address the widening inequality between the Super Rich and the American middle- and working-classes.

“Basically the Government is not willing to do anything about it. You would expect there to be social welfare legislation, but here is little sign of that. The welfare net – as limited as it was – has deteriorated even more. Unemployment insurance may be the exception as it has been extended to 99 weeks from normal 26. But by and large other kinds of benefits that normally aid workers have deteriorated over the last 25 years. So, even the power of the State to offset income inequality has gone the other way,” he said.

If wage repression and unemployment makes the picture for the average US worker bleak, it becomes bleaker still when one considers the related problem of rising defaults on student loans. In such a repressed job market, many graduates are struggling to repay large debts. Defaults rose to 13.8% from 11.8% for students beginning repayment in 2008 compared with those starting a year earlier, according to Department of Education data.

And these figures only measure defaults within the first three years of repayment. Over a lifetime, the levels would be far higher. Meanwhile, tuition fees have been rising.

[quote] Professor Wolff said: “Student debt has sky-rocketed over the last 10 to 15 years and given the fact that in the current job market a lot of new graduates can’t get jobs, or only low-paying part-time ones, they are in a bind. It’s another aspect of the attack on the working class and middle-class in this country.” [/quote] Although even the American middle-class has seen its real income decline, there has been little political reaction.

[quote] “It’s surprising, but the American middle class have been distracted by other issues like religion, which is far more important among Americans than Europeans,” said Professor Wolff. “They are distracted from important political and economic issues by moral social issues, like abortion, mixed marriage. I won’t say the American middle class are stupid, but they are gullible and easy to manipulate. Given that the economic situation is being controlled by the super rich, they take advantage of the situation.” [/quote]

David Smith, EconomyWatch.com