American

Catch-22  

As of Q2 2018 Labor's Share is 56.5%

A Shrinking Slice of the American Economic Pie

Workers are getting a thinner slice of the American economic pie even with strong growth, robust hiring, rising corporate profits and the Trump administration’s tax cuts. Labor’s share of income of U.S. non-farm businesses -- reflecting salary and other employee compensation -- fell to 56.5 percent in the second quarter, down from the prior three months and below a year earlier, government data show. Some reasons why the share is still near a post-World War II low: technological advances, globalization, workers’ waning bargaining power and the rise of superstar firms, the theme of the Federal Reserve’s annual policy summit in Jackson Hole this week.

DYI:  Since 1962 American workers piece of the economic pie has been declining with lower highs and lower lows except the brief period during the booming 1990’s.  Since then workers share has reverted back to lower highs and if this trend continues within two or three years will experience an additional lower low.  If history is any sort of guide that lower low would clip workers down to from 53% to as low as 50% of corporate income.

Outsourcing

The cause of this is multi prong.  The most common answer is outsourcing as manufacturing/services moved to foreign lands seeking cheaper labor costs those unemployed sought jobs with far lesser pay.  Just the threat of outsourcing companies that remained in the States bargained successfully for reduced wages and benefits.  Both of these business moves have made headlines since the 1980’s.

Automation

Automation is the unseen villain for every workers job that is outsourced 1.7 jobs have been eliminated due to clever engineers pushing for greater and greater productivity gains.  These gains have been slow enough not to shock workers but fast enough to outdo outsourcing!  An assembly line worker from the 1950’s would be shocked at how few workers are needed for the manufacturing process.  Automation increases are slow but relentless.

Surprisingly manufacturing is returning to our shores at a trickles pace only when high levels of automation can be achieved overcoming the foreign wage differential and transportation costs.  Within thirty to fifty years from now our manufacturing base will be returned to our shores.  However there will be no mass employment for these industries as those jobs will have been automated out of existence.

Services are not immune from automation.  When you go into a grocery store a bar code scanner is used to tabulate your bill.  This increase in productivity reduced the need for check out lanes of around 20%.  Add on the heavy use of credit/debit cards the checkout procedure time was slashed thus adding another small round of reduced aisle along with that corresponding job.  Again slow enough not to be a shock but is relentless.  Staying with the grocery store example companies are working on Radio Frequency Detection (RFD).  When this is perfected all items [except produce that has to weighed] will be detected and cost tabulated all at once.  In other words no more scanning across the bar code reader making checkout only as fast as the groceries can be bagged!  [Discount stores will have the customer bag their groceries themselves!].

Businessmen and women are in business to do two transactions.  Push for ever increasing sales and ever decreasing costs.  That is why outsourcing occurred.  Forget all of the promises politicians made; they lie as it is a requirement for the job [sarcasm].  Always remember businessmen/women have two core objectives sales and cost.  Everything else is simply touchy feely propaganda from either the business or politicians.  I’m not pro business nor am I pro labor.  I’m stating a fact that all business seeks to achieve.  Two plus two equals four or the sun rises in the east and sets in the west.  Both are facts not something a person would want to argue about.  I place this core tenet for business in that same category.

 DYI