U.S Wages Are Out of Line

America's familiar debate over income inequality conceals and confuses at least as much as it reveals. To hear most journalists and activists tell the story, our country is the scene of a rampant and long-running economic travesty, as the rich grow richer, the poor grow poorer, and the distance between them belies the promise of America even in times of prosperity. Wages in the United States are out of line with the rest of the world. The basis for this assertion is that the U.S. has a large trade deficit.
It is time to reform public employee compensation in California. Public employee compensation is out of line with the private sector in every area. There are thousands of individual government agencies in the state, employing almost 2 million individuals. Whether the standard is salary, working conditions, benefits, or especially pensions, public employees in California receive compensation far in excess of what workers in the private sector do. It is illiberal and unjust, and no true liberal or progressive should support current public employee compensation.
Money spent on public sector wages and salaries that's over and above private sector levels is money that isn't being spent on things we could really use, like improved public services or economic infrastructure. You could make the same argument about questionably useful government services. After all, do we really need health workers in local government working full time on wellness programs?
Those who advocate that job creation rests on corporate tax reform (lower taxes) or a return to deregulation of the private economy always fail to address dominant structural headwinds which cannot be dismissed: 1) Labor is much more attractively priced over there than here, and 2) U.S. employment based on asset price appreciation/finance as opposed to manufacturing can no longer be sustained. The "golden" days are over, and it's time our school and jobs "daze" comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street.
The deficit does provide evidence that prices in the U.S. are out of line, but it doesn't necessarily tell us anything about wages. First and most immediately, it suggests that the dollar is over-valued (a point noted in the column). The real value of the dollar is still up from its levels in the mid-90s. A lower valued dollar will reduce wages in the U.S. relative to our competitors, but it will have only a limited impact on real wages in the U.S. (Import prices will rise, which will lead to a limited drop in real wages.
The $1 million to $2 million in annuity value that more than a million non-public safety employees in California will receive through their pension programs in their middle fifties to early sixties similarly makes most California public employees de facto millionaires by their middle to late fifties. Frequently, California public employees, particularly in public safety, pay less than half or even nothing toward the employee's portion of retirement programs for the benefits they will receive.
The California public employee compensation crisis will continue to cripple the state in the years ahead-and more so and sooner than most now recognize. As a result of inaccurate actuarial assumptions concerning a) long-term return on investment, b) the number of government employees in the future, and c) longevity, both the short-term and long-term fiscal crises at the state and local government levels require change immediately. The status quo is unsustainable.
It is also possible that U.S. goods are not competitive because profits are too high. The profit share of income had risen over the last three decades, so one could plausibly argue that excess profits are making U.S. goods less competitive. We could also argue that the inefficiency of the sectors of the economy that are protected from foreign competition - most notably health care - is driving up the price of U.S. goods and making them uncompetitive. In that story, the problem is not the wages of auto and textile workers, but of doctors and hospital administrators.
How is it possible that people with so little income could spend so much on health care? The answer, as we have seen, is that most of the payments for health care are made by third parties. Indeed, people under age 65 in the bottom 10% of earners enjoyed third-party payments on health care equal to 65% of their income. People in the second tenth enjoyed third-party payments equal to 21% of their income. By contrast, people in the top two income tenths had third-party payments equal to 3% and 2% of their income, respectively. For those over age 65, people in the bottom fifth enjoyed third-party payments equal to an amazing 130% of their income, while those in the top fifth enjoyed payments equal to only 6% of their income.
And in comfy, cozy America, where government offers high-paying jobs for life, what's the incentive for people to start businesses, to take real risks without financial safety nets and create growing enterprises? There's also a matter of fairness.
Why should taxpayers laboring in the private sector happily take pay cuts and/or layoffs in order to subsidize above average wages and benefits for garbage collectors or office bound bureaucrats?