Hiding the real number of unemployed

Your government believes that exhausting your unemployment benefits is a cause for celebration — because you are no longer unemployed!

Huh? Well, there is a slight of hand here. Only working people who are receiving unemployment benefits are counted as “unemployed” in official statistics issued by countries around the world. Thus the actual unemployment rates are much higher than the “official” rates, generally about twice as high. Most governments make it difficult to find the actual rate, and the corporate media does its part by reporting the official rate as if that includes everybody.

Then there is the matter of how much of a given national population is actually engaged in paid employment, another useful number difficult to discover. Finally, we can consider wages, both how fast they might be rising as compared to inflation and whether they are increasing in concert with increases in productivity.

To cut to the chase, things ain’t so hot. But you already knew that, didn’t you?

The Blue Mountains from the lookout in Blackheath, Australia (photo by Gemm347)

Let’s start our global survey with the United States, where, contrary to expectations, the real unemployment figure is easier to discover than most other places. Perhaps the Trump régime hasn’t gotten around to suppressing it, busy as it is hiding scientific evidence about global warming, pollution and other inconvenient facts. The official U.S. unemployment rate for May was reported as 3.8 percent, the lowest it has been in several years, and less than half of what it was during the post-2008 economic collapse. Predictably, the Trump administration was quick to take credit, although the trend of falling employment has carried on for eight years now.

Nonetheless, you might have noticed that happy days aren’t exactly here again. The real U.S. unemployment figure — all who are counted as unemployed in the “official” rate, plus discouraged workers, the total of those employed part time but not able to secure full-time work and all persons marginally attached to the labor force (those who wish to work but have given up) — is 7.6 percent. (This is the “U-6” rate.) That total, too, is less than half of its 2010 peak and is the lowest in several years. But this still doesn’t mean the number of people actually working is increasing.

Fewer people at work and they are making less

A better indication of how many people have found work is the “civilian labor force participation rate.” By this measure, which includes all people age 16 or older who are not in prison or a mental institution, only 62.7 percent of the potential U.S. workforce was actually in the workforce in May, and that was slightly lower than the previous month. This is just about equal to the lowest this statistic has been since the breakdown of Keynesianism in the 1970s, and down significantly from the peak of 67.3 percent in May 2000. You have to go back to the mid-1970s to find a time when U.S. labor participation was lower. This number was consistently lower in the 1950s and 1960s, but in those days one income was sufficient to support a family. Now everybody works and still can’t make ends meet.

And that brings us to the topic of wages. After reaching a peak of 52 percent in 1969, the percentage of the U.S. gross domestic product going to wages has fallen to 43 percent, according to research by the St. Louis branch of the Federal Reserve. The amount of GDP going to wages during the past five years has been the lowest it has been since 1929, according to a New York Times report. And within the inequality of wages that don’t keep up with inflation or productivity gains, the worse-off are doing worse.

The Economic Policy Institute noted, “From 2000 to 2017, wage growth was strongest for the highest-wage workers, continuing the trend in rising wage inequality over the last four decades.” The strongest wage growth was for those in the top 10 percent of earnings, which skewed the results sufficiently that the median wage increase for 2017 was a paltry 0.2 percent, the EPI reports. Inflation may have been low, but it wasn’t as low as that — the typical U.S. worker thus suffered a de facto wage decrease last year.

What this sobering news tells us is that good-paying jobs are hard to come by. An EPI researcher, Elise Gould, wrote:

“Slow wage growth tells us that employers continue to hold the cards, and don’t have to offer higher wages to attract workers. In other words, workers have very little leverage to bid up their wages. Slow wage growth is evidence that employers and workers both know there are still workers waiting in the wings ready to take a job, even if they aren’t actively looking for one.”

The true unemployment rates in Canada and Europe

We find similar patterns elsewhere. In Canada, the official unemployment rate held at 5.8 percent in April, the lowest it has been since 1976, although there was a slight decrease in the number of people working in March, mainly due to job losses in wholesale and retail trade and construction. What is the actual unemployment rate? According to Statistics Canada’s R8 figure, it is 8.6 percent. The R8 counts counts people in part-time work, including those wanting full-time work, as “full-time equivalents,” thus underestimating the number of under-employed.

At the end of 2012, the R8 figure was 9.4 percent, but an analysis published by The Globe and Mail analyzing unemployment estimated the true unemployment rate for that year to be 14.2 percent. If the current statistical miscalculation is proportionate, then the true Canadian unemployment rate currently must be north of 13 percent. “[T]he narrow scope of the Canadian measure significantly understates labour underutilization,” the Globe and Mail analysis concludes.

Similar to its southern neighbor, Canada’s labor force participation rate has steadily declined, falling to 65.4 percent in April 2018 from a high of 67.7 percent in 2003.

Mount Meager volcanic complex, British Columbia (photo by Dave Steers)

The most recent official unemployment figure in Britain is 4.2 percent. The true figure is rather higher. How much higher is difficult to determine, but a September 2012 report by Sheffield Hallam University found that the total number of unemployed in Britain was more than 3.4 million in April of that year although the Labour Force Survey, from which official unemployment statistics are derived, reported only 2.5 million. So if we assume a similar ratio, then the true rate of unemployment across the United Kingdom is about 5.7 percent.

The European Union reported an official unemployment rate of 7.1 percent (with Greece having the highest total at 20.8 percent). The EU’s Eurostat service doesn’t provide an equivalent of a U.S. U-6 or a Canadian R8, but does separately provide totals for under-employed part-time workers and “potential additional labour force”; adding these two would effectively double the true EU rate of unemployed and so the actual figure must be about 14 percent.

Australia’s official seasonally adjusted unemployment rate is 5.6 percent, according to the country’s Bureau of Statistics. The statistic that would provide a more realistic measure, the “extended labour force under-utilisation” figure, seems to be well hidden. The most recent figure that could be found was for February 2017, when the rate was given as 15.4 percent. As the “official” unemployment rate at the time was 5.8 percent, it is reasonable to conclude that the real Australian unemployment rate is currently above 15 percent.

Mirroring the pattern in North America, global employment is on the decline. The International Labour Organization estimated the world labor force participation rate as 61.9 percent for 2017, a steadily decline from the 65.7 percent estimated for 1990.

Stagnant wages despite productivity growth around the world

Concomitant with the high numbers of people worldwide who don’t have proper employment is the stagnation of wages. Across North America and Europe, productivity is rising much faster than wages. A 2017 study found that across those regions median real wage growth since the mid-1980s has not kept pace with labor productivity growth.

Not surprisingly, the United States had the largest gap between wages and productivity. Germany was second in this category, perhaps not surprising, either, because German workers have suffered a long period of wage cuts (adjusted for inflation) since the Social Democratic Party codified austerity by instituting Gerhard Schröder’s “Agenda 2010” legislation. Despite this disparity, the U.S. Federal Reserve issued a report in 2015 declaring the problem of economic weakness is due to wages not falling enough. Yes, the Fed believes your wages are too high.

The lag of wages as compared to rising productivity is an ongoing global phenomenon. A separate statistical analysis from earlier this decade also demonstrated this pattern for working people in Canada, the United States, Britain, France, Germany, Italy and Japan. Workers in both Canada and the United States take home hundreds of dollars less per week than they would if wages had kept up with productivity gains.

In an era of runaway corporate globalization, there is ever more precarity. On a global scale, having regular employment is actually unusual. Using International Labour Organization figures as a starting point, John Bellamy Foster and Robert McChesney calculate that the “global reserve army of labor” — workers who are underemployed, unemployed or “vulnerably employed” (including informal workers) — totals 2.4 billion. In contrast, the world’s wage workers total 1.4 billion. Writing in their book The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China, they write:

“It is the existence of a reserve army that in its maximum extent is more than 70 percent larger than the active labor army that serves to restrain wages globally, and particularly in poorer countries. Indeed, most of this reserve army is located in the underdeveloped countries of the world, though its growth can be seen today in the rich countries as well.” [page 145]

Having conquered virtually every corner of the globe and with nowhere left to expand into nor new markets to take, capitalists will continue to cut costs — in the first place, wages and benefits — in their ceaseless scrambles to sustain their accustomed profits. There is no reform that can permanently alter this relentless internal logic of capitalism. Although she was premature, Rosa Luxemburg’s forecast of socialism or barbarism draws nearer.

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You are working harder and getting paid less

The bad news: Your wages are declining. The worse news: Surveys documenting falling wage actually under-estimate how much your wages are declining.

A recent entrant to this labor literature, a research paper titled “Decomposing the Productivity-Wage Nexus in Selected OECD Countries, 1986-2013,” studied 11 advanced-capitalist countries and found that in eight of them median wages have not kept pace with growth in labor productivity. To put the preceding sentence in clear language: You are producing more and getting paid less.

You likely did not need to read the above to know that. But there is nothing wrong with confirmation. The paper’s authors, Andrew Sharpe and James Uguccioni, publishing in the International Productivity Monitor, wrote:

“In eight of the 11 [Organisation for Economic Co-operation and Development] countries examined in this article, median real wage growth since the mid-1980s has not kept pace with labour productivity growth. The size of the growth gap between labour productivity and median real wages differs across countries, but the qualitative pattern is consistent: workers are growing more productive, but those productivity gains are not being matched by growth in the typical worker’s wage.”

The 11 countries studied were Canada, the United States, Norway and eight members of the European Union — Denmark, France, Finland, Germany, Ireland, the Netherlands, Spain and the United Kingdom. Working people in the United States will not be surprised to find that the widest gap between pay and productivity growth occurred there, with Germany in second place. Spain, Norway and Ireland were the three exceptions, although in each the gain in wages over productivity is small.

The opening of the 2003 World Social Forum (photo by Feijaocomarroz from pt)

There is no one single factor accounting for these results, the authors write, looking to mainstream economics for explanation. They offer conventional causes for declining wages:

“The causes of labour’s deteriorating bargaining power are hotly debated. One of the most trumpeted causes is globalization. Proponents argue that capital is far more mobile than labour in an increasingly globalized world, which makes the threat of outsourcing and offshoring far more credible. Due to the threat of offshoring from countries with less strict labour regulations and lower labour costs, workers are increasingly forced to accept lower wages. Some argue that labour’s deteriorating bargaining power is less a matter of globalization and more a matter of technological change which is biased against labour. For example, the OECD [in its 2012 employment outlook] argues that the spread of information and communication technologies have led to major innovation and productivity gains over recent decades, but have also had the effect of replacing workers altogether. The result is an increase in capital’s bargaining power, and a decrease in labour’s — particularly for workers in highly repetitive jobs which naturally lend themselves to automation. Structural and institutional reforms may also have contributed to the reduction of labour’s bargaining power.”

Globalization, yes, but what is behind globalization?

Are these causes some natural phenomenon like the tides in the ocean? Or might there be reasons behind these explanations? To this we will return. But, first, it should be noted this report under-reports the extent that wages are falling behind, which the authors readily acknowledge.

This under-estimation is revealed when the differences between average and median real hourly earnings are reported. This matters because an average is the midpoint between highest and lowest, while median represents the earner at the point where half make more and half make less. When those at the top make more and the rest make the same, the average goes up while the median stays the same; thus examining median income as opposed to average gives a more accurate representation.

The gap between labor productivity and median real hourly wages growth, 1986-2013 (percentage points per year)

Of the 11 countries examined, the authors report that median hourly earnings fell further behind average hourly earnings in 10, with France the exception and there the change was minuscule. This finding represents fresh proof of increasing wage inequality. The biggest increasing in this measure of wage inequality is — surprise! — the United States, followed by Britain. OK, United Statesians or Britons reading these lines won’t be surprised.

The paper’s authors report:

“Empirically, earnings distributions within OECD countries are positively skewed; the mean is greater than the median because the mean is dragged upward by very high earners. … This would imply that the gains from labour productivity are flowing disproportionately to workers who were already high earners relative to the median worker.”

Only the wages of the top one per cent grew faster than productivity growth.

“[R]emoving the top one percent from labour income doubled the rate of decline of labour’s share of income in Canada and the United States. In fact, the removal of the top one percent from total labour income hastened the decline in labour’s share of income in all of the OECD countries they studied except Spain.”

There are plenty more studies where that one comes from. The International Labour Organization, in its 2014/2015 Global Wages Report, similarly found that wages are declining:

“In the group of developed economies, real wages were flat in 2012 and 2013, growing by 0.1 per cent and 0.2 per cent, respectively. In some cases — including Greece, Ireland, Italy, Japan, Spain and the United Kingdom—average real wages in 2013 were below their 2007 level. … Between 1999 and 2013, labour productivity growth in developed economies outstripped real wage growth, and labour’s share of national income – also a reflection of the link between wages and productivity – fell in the largest developed economies.”

Less income and fewer protections for labor

David Ruccio, in a brief post for the Real-World Economics Review Blog, reports that the labor share of income in the United States is the lowest it has ever been since the end of World War II. The tendency throughout the period has been for decline, but the decline has been much steeper since 2001 —  labor share of income in the U.S. is 15 percent lower than it was in 2001. Skewing those results is that the share of income going to the top one percent has doubled since the mid-1970s. So the income share of working people has actually worsened more than the overall statistic indicates.

Concurrent with the increasingly precarious state of working people are dwindling labor rights. No country on Earth fully safeguards labor rights, the International Trade Union Confederation found in its 2017 Global Rights Index report. On a scale of one to five, with one representing the countries with the best ratings (merely “irregular violations of rights”) and five representing the worst (“no guarantee of rights”), Britain and the United States received rankings of four. Thus inequality being the most pronounced in those two countries, so fond of finger-wagging at the rest of the world, comes as little surprise.

(graphic by David Ruccio, Real-World Economics Review Blog)

And still less so considering the immense pressure financial capital puts on corporate executives to squeeze ever more out of employees, exemplified by Verizon Communications attacking its workforce to the point of forcing its employees to go on strike despite racking up $45 billion in profits over five years and Wall Street judging even merciless Wal-Mart as insufficiently ruthless in extracting billions of dollars in profits out of its employees.

The reasons behind these trends appear to be somewhat of a mystery to the two authors of “Decomposing the Productivity-Wage Nexus.” They disapprove of the decline in wages they document but seem to believe this is due to some unfortunately poor political decisions. They conclude their paper with these thoughts:

“The lack of inclusive growth we observe in many OECD countries has significant societal implications. There may be less political support for productivity-enhancing policies in the future if the benefits of productivity growth are not shared equitably. The incentives for employees to work hard may diminish if they believe that they are not receiving their ‘fair share’ of the firm’s productivity gains. Finally, the current taxes and transfers system may not be well equipped to offset the growing trend of wage inequality among workers if it was designed assuming labour productivity growth will lead to real wage growth for all workers.”

Writing a letter to your representative might not do the trick

Well, it’s all a misunderstanding then? If only we speak up, and point out the unfairness of this, somebody out there will do something about it. One imagines that members of parliaments and congresses are largely aware of growing inequality. But if political policies are doing what the sponsors of those policies expect them to do, just what should we expect those office holders to do? This sort of class warfare rages on because only one class is waging it, and that class has the means to dominate society through a mass of institutions paid to do their bidding, control of the mass media and ability to buy government and the legislative process.

Does anybody believe that Donald Trump, or Theresa May, or Emmanuel Macron, or Malcolm Turnbull, upon receiving a well-written letter explaining the problem, would then slap their heads to their forehead and exclaim, “I never realized this was happening!” Pigs, elephants and polar bears will all fly long before any such epiphanies. We can add leaders of the past, such as Gerhard Schröder, to the list. It was the former Social Democratic leader, when chancellor, who pushed through his “Agenda 2010” legislation to codify austerity on German workers, which, inter alia, cut business taxes while reducing unemployment pay and pensions. German wages have been suppressed since 2001 in relation to inflation or productivity gains — the prosperity of German manufacturers has come at the expense of German workers.

Globalization, pointed to by the two authors of “Decomposing the Productivity-Wage Nexus” as a culprit, doesn’t happen in a vacuum or because some capitalist somewhere woke up in an ornery mood. Globalization is the response of industrialists and financiers to the rigors of capitalist competition.

Once the limits of Keynesianism were reached in the 1970s, and the growth levels of the mid-20th century could no longer be sustained, capitalists ceased tolerating wage increases. Instead, from their perspective, they needed to force through wage cuts to maintain profit margins. Relocating production to places with lower wages and fewer regulations was the answer.

Mergers, with attendant layoffs, are another response to capitalist competition. Once one capitalist succeeds with such an “innovation,” the others must follow on pain of losing their competitive position. The need to move raw materials and finished products across borders, from the capitalists’ point of view, necessitates the lowering of barriers and borders to trade, and thus the increasing harshness of so-called “free trade” agreements that are promoted by multi-national corporations.

Globalization is not some natural process beyond human control, but rather is the result of capitalist competition — of allowing markets to decide ever more outcomes. When one side has so many more resources and weapons at its disposal, it’s no surprise that class warfare is such a one-sided affair. If we want the world to be otherwise, we’ll have to struggle for it. Everything of human creation can be changed by human effort, including the world’s failing economic system.

Austerity never ends: Economists say wages are too high

No, you can’t really make this stuff up: Orthodox economists continue to tell us that the reason for ongoing economic stagnation is that wages and unemployment benefits are too high. Yes, that’s right. You haven’t suffered enough.

Given that orthodox economics (or “neoclassical” or Chicago School, if you prefer alternate labels) exists as a propaganda tool to justify all manner of capitalist excesses and inequality, it’s not actually surprising that such snake oil continues to be peddled with a straight face. Never mind the years of stagnant wages, the decades of wages trailing productivity ever further, housing costs rising far more sharply than inflation, and the increased use of debt just to stay afloat.

(Photo by Gargolla)

If you would just work for less, all would be well. The basic reason for that belief is an admission that, in a capitalist economy, wages are a commodity. (That really means human beings are commodities, but we can only expect so much truth here.) This underlying belief is succinctly summarized by this commentary offered by the conservative Library of Economics and Liberty:

“Unemployment is just a labor surplus; since wages are the price of labor, the fundamental cause of unemployment has to be excessive wages.”

But capitalism is supposed to be a perfect system, always moving toward equilibrium, according to capitalist dogma. So there should be no unemployment. There obviously is, so what’s the culprit? You’ve likely already guessed — it’s the government’s fault. The self-proclaimed capitalist tool, Forbes magazine, claims that wages aren’t increasing because “pent-up wage cuts didn’t happen” following the 2008 global economic meltdown and so poor downtrodden corporations have no choice but to keep wages from rising to make up for those cuts that should have been imposed. If only government policies wouldn’t interfere with the magic of the market, all would be well, Forbes asserts:

“To summarize, government regulation and policy are very much linked to the enduring presence of wage stickiness and slow wage growth since the Great Recession.”

There’s ideology, and then there’s the real world

You can even win a Nobel Prize for these beliefs. The Nobel Prize for economics isn’t actually a Nobel Prize (officially, it is an add-on called the “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”), but, still, it’s widely considered one and it’s the highest honor an economist can receive. It almost invariably goes to a conservative economist who upholds orthodox ideology. One recent recipient is Thomas Sargent. Although he formally received his prize for other work, Dr. Sargent is known for writings in which he argues that unemployment benefits are too generous, and if such benefits were reduced, there would be “incentive” for people to go back to work.

Here in the real world, there are many more candidates than jobs that pay a living wage, and unemployment benefits are insufficient to live on. Depending on the state, unemployment benefits amount to 30 to 50 percent of lost wages in the United States — hardly enough to live comfortably on, and it’s cut off after 26 weeks. British benefits are capped at £73.10, and it can be less if you have savings you have yet to tap. Nobody is living large on that amount.

Continental European unemployment coverage is better, and, interestingly, some of the countries with the highest levels of benefits, such as Denmark, Norway and Finland, have among the lowest unemployment rates, although those benefits have eroded in recent years. Nonetheless, social safety nets in general lead to unemployment, Dr. Sargent believes. In an interview with Swedish Television, he said workers ought to be prepared for having low unemployment compensation in order to get the right incentives to search for jobs.

“Sargent, with Swedish economist Lars Ljungqvist, found that high, long-lasting unemployment benefits in Europe have caused many European workers who lost their jobs to stay unemployed for years and, thereby, erode their human capital. This makes them less employable in the long run. The fact that the U.S. government extended unemployment benefits in many U.S. states to 99 weeks, said Sargent in the 2010 interview … ‘fills me with dread.’ ”

Those extended terms of unemployment have since been rescinded, so he can hopefully now sleep at night. Related to supposedly overly generous social safety nets, is the idea that working people stubbornly refuse to accept wage cuts. This is not entirely true, as the effects of the North American Free Trade Agreement demonstrate. NAFTA has caused a persistent decline in wages for displaced workers and manufacturers routinely threaten to shut down and/or move their facilities in response to unionization drives since NAFTA came into force. But, remember, we’re dealing with ideology here, not practical reality. Two years ago, the San Francisco branch of the Federal Reserve issued a report that blamed ongoing economic weakness on wages not falling enough. The paper claimed:

“One explanation for this pattern is the hesitancy of employers to reduce wages and the reluctance of workers to accept wage cuts, even during recessions, a behavior known as downward nominal wage rigidity.”

Cutting wages won’t be a panacea

Falling wages might provide a short-term boost to corporate profits, but the reduced purchasing power of working people would soon cause people to buy less. That is disastrous in advanced capitalist countries, where consumer spending generally accounts for anywhere from 60 to 70 percent of gross domestic product.

Lars Syll, a heterodox economist and self-described critic of market fundamentalism writing on the Real-World Economics Review Blog, put this plainly:

“The aggregate effects of wage cuts would, as shown by Keynes, be catastrophical. They would start a cumulative spiral of lower prices that would make the real debts of individuals and firms increase since the nominal debts wouldn’t be affected by the general price and wage decrease. In an economy that more and more has come to rest on increased debt and borrowing this would be the entrance-gate to a debt deflation crises with decreasing investments and higher unemployment. In short, it would make depression knock on the door.”

A food line in Toronto in 1931; falling wages didn’t work out during the Great Depression.

Falling wages were a reality during the Great Depression, but that didn’t help matters. By 1933 in the United States, manufacturing wages fell 34 percent and unemployment rose to about 25 percent. The Canadian economy contracted by more than 40 percent and unemployment reached 30 percent in 1933. Collapses in wages did not bring better times; only the massive government spending to wage World War II put an end to the Depression.

Moreover, already existing low wages come at a high cost. A 2015 study by the researchers at the University of California Berkeley Center for Labor Research and Education found that public benefits given to people who have jobs but can’t live on their meager wages cost the public more than $150 billion annually in the United States — more than half of total public-assistance spending by federal and state governments. Wal-Mart alone costs taxpayers an estimated $6 billion per year subsidizing the retailer’s low pay and paltry benefits at the same time it pays out similar amounts in dividends, half of which go to the Walton family.

Working harder for less

As all of you doing the jobs of two or three people at your place of employment have undoubtedly noticed, more work is not being rewarded with more pay. The average U.S. household earns about $18,000 less than it would had wages kept pace with productivity gains, and the average Canadian household is short at least $10,000 per year because of pay lagging productivity gains. Workers across Europe, including in Britain, Germany and Spain, have also seen pay lag productivity.

The upward flow of money not only causes more inequality but further concentrates power in the hands of plutocrats. As David Ruccio summarized in a separate Real-World Economics Review Blog post:

“If you put the two trends together—increased individual income inequality and increased corporate savings—what we’re witnessing then is increasing private control over the social surplus. Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want—or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares.

And proposals to decrease tax rates for wealthy individuals and corporations will only increase that private control.”

And that is the context to keep in mind when one reads fairy tales such as this from the far right Mises Institute:

“Ending poverty and giving people additional income are praiseworthy goals, but there are no free lunches in this world. And trying to force prosperity through a minimum wage simply creates a whole host of negative and unintended consequences especially for those who are the most vulnerable.”

The value of the minimum wage in the U.S. is about two-thirds of what it was when it reached its inflation-adjusted peak in 1968. The Canadian minimum wage is worth about a dollar less than its peak in 1976. Australia’s minimum wage is well below what it was worth in 1985.

Even in these bare bottom-line terms, a higher minimum wage is hardly a “free lunch.” It is still less so when we realize that jobs don’t come from the great benevolence of bosses nor are profits conjured out of thin air by the genius of capitalists. Employers generate profits by paying employees much less than the value of what they produce. Increased exploitation through work speedups, increased workloads and benefits reductions mean that capitalists are taking a bigger share of the value of what you produce.

And here we come to the real meaning of “freedom” that capitalists and their publicists so love to extol. “Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists. The world’s central banks have printed and spent $8 trillion (€7.4 trillion) to buy bonds, mostly those issued by their own governments. Imagine what that spending could have done if that money had been given to people or used for productive social spending instead of a free lunch for financial speculators.

Eight people own as much as half the world

Just when it seemed we might be running out of superlatives to demonstrate the monstrous inequality of today’s capitalism, Oxfam has provided the most dramatic example yet: Eight individuals, all men, possess as much wealth as the poorest 50 percent of humanity.

Eight people have as much as 3.7 billion people.

How could this be? Oxfam calculated that 85 people had as much wealth as the poorest half of humanity in 2014, a staggering finding that researchers with the anti-poverty organization discovered through crunching numbers provided by Forbes magazine in its rich list and by the investment bank Credit Suisse in its global wealth distribution report. Oxfam found wealth distribution to be even more unequal than did Credit Suisse, which calculated that the top one percent equaled the bottom 50 percent. Oxfam, in its report, “An Economy for the 99%,” released this month, explains:

“This year we find that the wealth of the bottom 50% of the global population was lower than previously estimated, and it takes just eight individuals to equal their total wealth holdings. Every year, Credit Suisse acquires new and better data sources with which to estimate the global wealth distribution: its latest report shows both that there is more debt in the very poorest group and fewer assets in the 30–50% percentiles of the global population. Last year it was estimated that the cumulative share of wealth of the poorest 50% was 0.7%; this year it is 0.2%.” [page 11]

 

The "wealth pyramid" as calculated by Credit Suisse. Oxfam's findings are that even this is an under-estimation of inequality.

The “wealth pyramid” as calculated by Credit Suisse. Oxfam’s findings are that even this is an under-estimation of inequality.

Because Oxfam includes among the bottom 50 percent people in the advanced capitalist countries of the Global North who have a net worth of less than zero due to debt, some critics might argue that these people are nonetheless “income-rich” because they have credit available to them and thus distort the inequality outcome. Oxfam, however, says that almost three-quarters of those among the bottom 50 percent live in low-income countries, and excluding those from the North with negative wealth would make little difference in aggregate inequality. That total debt is equal to only 0.4 percent of overall global wealth. The Oxfam report says:

“At the very top, this year’s data finds that collectively the richest eight individuals have a net wealth of $426 bn, which is the same as the net wealth of the bottom half of humanity. …  [E]stimates from Credit Suisse find that collectively the poorest 50% of people have less than a quarter of 1% of global net wealth. Nine percent of the people in this group have negative wealth, and most of these people live in richer countries where student debt and other credit facilities are available. But even if we discount the debts of people living in Europe and North America, the total wealth of the bottom 50% is still less than 1%.” [page 10]

Profiting from cheap labor and forced labor

We are accustomed to hearing that chief executive officers in U.S.-based corporations earn hundreds of times more than their average employee, but this dynamic can be found in the developing world as well. No matter where the CEO lives, brutal and relenting exploitation of working people is the motor force of inequality. Oxfam reports:

“The CEO of India’s top information firm earns 416 times the salary of a typical employee in his company. In the 1980s, cocoa farmers received 18% of the value of a chocolate bar — today they get just 6%. In extreme cases, forced labour or slavery can be used to keep corporate costs down. The International Labour Organization estimates that 21 million people are forced labourers, generating an estimated $150 bn in profits each year. The world’s largest garment companies have all been linked to cotton-spinning mills in India, which routinely use the forced labour of girls.” [page 3]

appleoxfam-graphicPeople become sweatshop workers out of desperation; often these are men and women driven off the land their families had farmed for generations. Land, even small plots that provide only subsistence for those who work it, represents wealth taken away when those subsistence farmers are forced into migrating into urban slums. Displacement from global warming is also a factor.

“[M]any people experiencing poverty around the world are seeing an erosion of their main source of wealth — namely land, natural resources and homes — as a consequence of insecure land rights, land grabbing, land fragmentation and erosion, climate change, urban eviction and forced displacement. While total farmland has increased globally, small family farms operate a declining share of this land. Ownership of land among the poorest wealth quintile fell by 7.3% between the 1990s and 2000s. Change in land ownership in developing countries is commonly driven by large-scale acquisitions, which see the transfer of land from small-scale farmers to large investors and the conversion of land from subsistence to commercial use. Up to 59% of land deals cover communal lands claimed by indigenous peoples and small communities, which translates to the potential displacement of millions of people. Yet only 14% of deals have involved a proper process to obtain ‘free prior and informed consent.’ Distribution of land is most unequal in Latin America, where 64% of the total wealth is related to non-financial assets like land and housing and 1% of ‘super farms’ in Latin America now control more productive land than the other 99%.” [page 10]

As entire areas of the world like Latin America have been plundered for the benefit of multi-national corporations based in the Global North, with those benefits flowing to the executives and financiers who control those corporations, it is no surprise that most of the wealth remains concentrated in the advanced capitalist countries. Although steering well clear of so much as a hint of the imperial nature of uneven development, the Credit Suisse report that Oxfam drew upon does note that North America and Europe together account for 65% of total household wealth with only 18% of the world’s adult population.

The sociologist James Petras estimates that the corporations and banks of the North took US$950 billion of wealth out of Latin America for the period 1975 to 2005. Thus it is no surprise that global inequality, when measured by the standard statistical measure of income distribution, the gini coefficient, is greater than inequality in any single country.

More programs on the way to make inequality still worse

Few countries of the Global North are more unequal than the United States, the imperial center of the world capitalist system that seeks to impose its ways and culture on the rest of the world. The new Trump administration is determined to make U.S. inequality even more extreme. Not only through intentions of cutting taxes on the wealthy and corporations, but via many less obvious routes.

For example, the Center on Budget and Policy Priorities reports that the repeal of Barack Obama’s Affordable Care Act, a process already in motion, would result in tax cuts of $2.8 billion per year for the country’s 400 highest-income taxpayers. Special Medicare taxes that fund subsidies for low-income United Statesians to buy insurance under the act are assessed only on those with annual incomes higher than $200,000. Conversely, the loss of tax credits to buy health insurance would lead to a tax increase for about seven million low- and moderate-income families.

Through the end of 2016, the central banks of Britain, the European Union, Japan and the United States have shoveled a colossal total of US$8 trillion (€7.4 trillion) into their “quantitative easing” programs — that is, programs that buy government bonds and other debt in an effort to boost the economy but in reality does little other than fuel stock-market bubbles and, secondarily, real estate bubbles. Vast rebuilding of crumbling infrastructure — a program that would actually put people to work — would have cost less.

CEO-to-worker ratioStandard economic ideology insists that the real problem is that wages have not fallen enough! Consistent with that, the Federal Reserve released a paper in 2015 claiming that “rigidities” “prevent businesses from reducing wages as much as they would like” during economic downturns.

Oh yes, falling wages instead of stagnant wages will bring happy times! Never mind that productivity has soared over the past four decades, while wages have consistently not kept pace. The average Canadian and U.S. household would earn hundreds of dollars per week more if wages had kept up with rising productivity, while wages in Britain and many other countries are also lagging.

What to do? The Oxfam report, in its conclusions, advocates a switch to a “human economy,” one in which governments are “accountable to the 99%,” businesses would be oriented toward policies that “increase prosperity for all,” and sustainability and equality would be paramount.

“Oxfam firmly believes humanity can do better,” its report concludes. Surely we can do better. But not under capitalism. Does anyone believe that the world’s elites, who profit so enormously and believe they can build a wall high enough to keep the world’s environmental and social problems away, are going to suddenly accept business as usual can no longer go on and willingly give up their enormous privileges?

Any way you calculate it, income inequality is getting worse

A flurry of new reports have provided yet more data demonstrating that inequality is getting worse. All right, this does not qualify as a shock. But it really isn’t your imagination.

The economic crisis, nearly a decade on now, has been global in scope — working people most everywhere continue to suffer while the one percent are doing just fine. One measure of this is wages. A newly released report by the Organisation for Economic Co-operation and Development finds that median wages in the OECD’s 35 member countries are still below where they were in 2007. For the bottom 10 percent of wage earners, the news is worse; wages for this bottom decile have declined 3.6 percent since 2007. But wages have risen for the top 10 percent.

Graphic via the Institute for Policy Studies

Graphic via the Institute for Policy Studies

The report on wage inequality by the OECD, the club of the world’s advanced capitalist countries and a few of the biggest developing countries, also found that inequality has increased in most of those countries. No part of the world has been immune. The report, “Income inequality remains high in the face of weak recovery,” states:

“The crisis has not only heavily affected the number of jobs but also their quality. … Even in countries where labour market slack has been re-absorbed, low-quality jobs and high disparities among workers in terms of work contracts or job security weigh heavily on low-earning households and contribute to maintaining high levels of income inequality. Wages have stalled in most countries, including those that were largely spared by the recession (e.g. Japan) and fallen in those hard hit (e.g. Greece, Portugal, Spain, and the United Kingdom).”

Chile and Mexico are the most unequal countries among the OECD members, followed by the United States, as measured by the gini coefficient. Iceland, Norway and Denmark are the least unequal. (The gini coefficient, the standard statistical measure of income distribution, is equal to zero if everybody has the same income and to one if a single person takes all income.) To put that scale into some tangible form, Iceland’s gini coefficient is 0.24 and Chile’s is 0.46.

Global inequality worse than any country’s

The world’s most unequal country is South Africa at 0.65. Calculating this scale on a global basis gives a better idea of the scale of inequality but is a difficult statistic to find. One measure, as calculated for a United Nations Food and Agricultural Organization paper, estimates the world gini coefficient in 2005 was 0.68, significantly higher than in the 19th century but a bit lower than it had been in 1981. That’s higher than South Africa. The Economist, crunching data from several sources, estimates a global gini coefficient of 0.65 in 2008, a very slight dip from the 1980s peak.

Global inequality has very likely worsened since but no more recent statistics appear to be available.

Rising inequality has been particularly acute in the global center of world capitalism, the United States, and a quick examination of trends there are useful as capitalists elsewhere seek to emulate the new U.S. gilded age. Those at the top of the pyramid are grabbing ever more. The Economist reports:

“Including capital gains, the share of national income going to the richest 1% of Americans has doubled since 1980, from 10% to 20%, roughly where it was a century ago. Even more striking, the share going to the top 0.01%—some 16,000 families with an average income of $24m—has quadrupled, from just over 1% to almost 5%. That is a bigger slice of the national pie than the top 0.01% received 100 years ago.”

Another new study, by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman, found that the average pre-tax income of the bottom 50 percent of U.S. adults is flat since 1980 in inflation-adjusted dollars — and this includes government transfers, other public spending and the value of job-derived fringe benefits — and thus the share of national income going to the bottom half of United Statesians declined to 12 percent in 2014 from 20 percent in 1980. The top one percent, meanwhile, hauled in 20 percent of income in 2014. Another way of looking at this inequality, the authors write, is that the top one percent of U.S. adults earned on average 81 times more than an adult in the bottom 50 percent. This ratio was 27 times in 1980.

The top of the pyramid does well around the world

To zero in on the tip of the pyramid, the U.S. Internal Revenue Service released a report this month on the 400 tax returns showing the highest incomes reported to it. Those 400 taxpayers reported an aggregate income of $127 billion in 2014 — a fourfold increase in inflation-adjusted dollars since 1980. Those 400 taxpayers by themselves accounted for 6 percent of all interest income and 11 percent of all capital gains (profits from financial assets such as stocks and bonds). To put that in perspective, 149 million tax returns were filed in the U.S. in 2014. Stock-market bubbles and other forms of financial speculation truly are the province of the super-wealthy.

In Canada, Statistics Canada reports that, in 2013, the top one percent grabbed 10.3 percent of income; the average Canadian in this grouping received $450,000 that year. In Britain, the top one percent have doubled their income since 2005, collectively adding another £250 billion to their wealth. Meanwhile, a fifth of Britons live below the poverty line and life expectancy in some areas is lower than in many developing countries, The Independent reports. Australian inequality has not yet reached the above levels, but is getting wider — the percentage of total Australian income grabbed by the top 0.1 percent there has more than doubled since 1980.

Again, nothing here is going to make you fall off your chair in shock. The question becomes: What will we do about all this? This is the internally logical result of the development of capitalism — the upward distribution of income as exploitation accelerates through work speedups, layoffs, movement of production to low-wage havens and the panoply of deregulatory measures resulting from corporate capture of governments.

So-called “free trade” agreements, with their use of clauses enabling multi-national corporations to use secret private tribunals controlled by their lawyers to overturn laws they don’t like, are an exemplary example of the processes used to ratchet up inequality, even if but one of many manifestations. Capital is international and our resistance to it must be international as well. The rise of far right and even fascist movements across Europe and in the United States, decked in the cloaks of nationalism and fake populism, is all the more dangerous because the scapegoating that is always front and center in such movements deflects attention from the real problems.

If the beginning of the end of capitalism is upon us — admittedly something that none of us can yet be certain of — then the need to build movements that can move societies toward a better world is all the more a necessity. Even if the final decay of capitalism has arrived, that decay is likely to unfold over decades unless a global Left movement, uniting the variety of social and environmental movements and struggles across borders, can speed up the process. The only alternative is for inequality to get worse and the repression necessary to impose that inequality to get still more severe.

Wages are so stagnant even the Federal Reserve has begun to notice

You are working harder while not making more. It isn’t your imagination. The latest research demonstrating this comes, interestingly, from the St. Louis branch of the United States Federal Reserve.

Perhaps the researchers examining the relation between wages and productivity hoped this work wouldn’t be noticed by the public, as it was published in an obscure publication, Economic Synopses, produced by the St. Louis Fed. Regardless, it is of interest. The two authors, B. Ravikumar and Lin Shao, not only found a divergence between rising productivity and stagnant wages in the current “recovery” from last decade’s economic collapse, but that this has been a consistent pattern.

The Economic Synopses paper found that labor productivity for U.S. workers has increased six percent since 2009, while wages have declined 0.5 percent. (The authors measure labor productivity as real total output divided by total hours worked and labor compensation as real total labor compensation divided by total hours worked.)

Looking back to the previous officially designated recession in the U.S., declared to have ended in 2001, the authors found that over the following five years productivity increased about 13 percent, while wages increased by about five percent. Overall, the authors summarize by demonstrating that wages have lagged productivity by a wide margin since 1950, with the gap beginning to widen in the 1970s. Productivity in 2016 is 3.8 times higher than it was in 1950, while wages are only 2.7 times greater.

Wages and productivity in the United States since 1950 (Graphic by the St. Louis Fed, based on Bureau of Labor Statistics data)

Wages and productivity in the United States since 1950 (Graphic by the St. Louis Fed, based on Bureau of Labor Statistics data)

We are talking about the Federal Reserve here, so Dr. Ravikumar and Mr. Shao are not offering any analysis. In about a tepid a conclusion as possible, they write:

“In conclusion, labor compensation failed to catch up with labor productivity after the 2007-09 recession. However, the driving force behind it is not unique to the recent recession but is part of a long-term trend of a widening productivity-compensation gap.”

Ideology in the service of inequality

Hmm, something mysterious? Or as natural as the tides of the ocean? Well, no, if we think for even a moment about the asymmetric class warfare that has raged for decades. Yet neoclassic economic ideology (and not only its extreme Chicago School variant) continues to insist that we get what we deserve and that labor is compensated for what it produces.

Neoclassical economics is an ideologically driven belief system based on mathematical formulae, divorced from the conditions of the actual, physical world, and which seeks to put human beings at the service of markets rather than using markets to provide for human needs. Economic activity is treated as a simple exchange of freely acting, mutually benefitting, equal firms and households in a market that automatically, through an “invisible hand,” self-adjusts and self-regulates to equilibrium.

Households and firms are considered only as market agents, never as part of a social system, and because the system is assumed to consistently revert to equilibrium, there is no conflict. Production is alleged to be independent of all social factors, the employees who do the work of production are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences.

The real world does not actually work this way — the executives and financiers who reap fortunes from the huge multi-national corporations they control and who can bend governments to their will have rather more power than you do. Neoclassical economics does not adjust to the real world because it is, at bottom, an ideological construct to justify massive inequality, which is why two other Federal Reserve researchers declared that the reason for economic difficulty in recent years is that wages have not fallen enough!

Productivity gains outstrip wages around the world

Stagnant or declining wages, however, are quite noticeable in the real world. Independent studies have found that the lag of wages as compared to productivity costs the average U.S. and Canadian employee hundreds of dollars per week. That is by no means a trend limited to North America — employees in Britain, France, Germany, Italy and Japan have experienced differentials between wages and productivity, albeit not as severe as what is endured by U.S. workers.

Where is the extra money taken out of employees’ pockets going? Not necessarily to the bosses at the point of production — financiers are taking an increasingly large share of profits. Financialization is a response to declining rates of profits and that the one percent have more money flowing into their bank accounts than they can find useful outlets for investment. During periods of bubbles, financial speculation becomes more profitable than production, drawing still more money and thus increasing the already bloated size of the financial industry.

In turn, ultra-low interest rates help inflate stock-market bubbles, in effect acting as a subsidy for financial profits. The world’s central banks have flooded financial markets with more than US$6.5 trillion (€6 trillion) in “quantitative easing” programs, and all that has been accomplished is the inflation of a stock-market bubble because speculators have poured money into stock markets in the wake of low bond returns resulting from the quantitative easing. Concomitantly, corporate executives have borrowed money at low interest to fuel a binge of buying back stocks, adding to speculative fevers.

In an interesting article in the July-August 2016 issue of Monthly Review, “The Profits of Financialization,” Costas Lapavitsas and Ivan Mendieta-Muñoz calculate that the profits earned by the financial industry as a percentage of overall U.S. corporate profits increased steadily throughout the second half of the 20th century, more than tripling from 1950 to the early 2000s. Although now below the early 2000s peak, financial profits remain at historically high levels.

U.S. financial profits as percentage of corporate profits of domestic industries, 1955–2015 (Graphic by Monthly Review, based on U.S. Bureau of Economic Analysis data)

U.S. financial profits as percentage of corporate profits of domestic industries, 1955–2015 (Graphic by Monthly Review, based on U.S. Bureau of Economic Analysis data)

Because central banks have kept interest rates at extraordinarily low levels for years, the authors argue that high financial profits represent a “vast public subsidy to the financial system” and thus an “expropriation” that is “a hallmark of financialization.”

Federal Reserve researchers may have just discovered what has long been apparent to working people and “heterodox” economists, but aren’t going to offer any solutions, must less formulate critiques of the system that produces such results.

The harder you work, the richer the executives and bankers get. What if, instead, those who did the work reaped the rewards? That, however, will require a different system.

Millions for the boss, cuts for you

More is never enough. By now we really don’t need yet another statement of inequality, but here goes anyway: The average ratio of chief executive pay to employee pay has reached 335-to-1 in the United States.

And some of the highest paid CEOs were at the companies that stash the most money in overseas tax havens. Among the giant corporations that comprise the Standard & Poor’s 500, the 25 at the companies with the most unrepatriated profits hauled in 79 percent more than other S&P 500 chief executive officers, reports the AFL-CIO union federation’s Paywatch 2016 report. Just 10 corporations — Apple, Pfizer, Microsoft, General Electric, IBM, Merck, Cisco Systems, Johnson & Johnson, Exxon Mobil, and Hewlett-Packard successor HP Inc.  — are believed to be holding about $948 billion in accounts outside the reach of tax authorities.

Being at the top of the corporate pyramid certainly pays — the average S&P 500 chief executive officer hauled in $12.4 million in 2015, while the average non-supervisory worker earned $36,875. That average worker would have to work 335 hours to earn what the CEO makes in one hour. For a worker earning the federal minimum wage, the pay ratio is 819-to-1.

CEO-to-worker ratioThe Paywatch 2016 report illustrated this stark inequality with the example of Mondelez International Inc., where Chief Executive Officer Irene Rosenfeld earned close to $20 million last year, or 534 times the average worker’s pay. At the same time, Mondelez asked workers at a Nabisco cookie and cracker plant in Chicago to take a permanent 60 percent cut in wages and benefits, or their jobs would be moved to Mexico. As nobody could agree to such conditions, hundreds of people were laid off. Ms. Rosenfeld, incidentally, received a $7 million raise for her troubles, likely comparable to the combined pay of the laid-off workers.

Lest we fret that Mondelez may be undergoing tough times, please don’t lose any sleep — the company reported net income of $7.3 billion in 2015 and $15 billion for the past five years. Nor should sleep be lost worrying about Mondelez’s tax “burden” as it paid all of $49 million in U.S. taxes in 2015. That’s a tax rate of less than one percent.

That company is not unique, of course. Workers at Verizon Communications Inc. have been on strike since April 13 as Verizon seeks to move call-center jobs overseas, outsource instillation work to low-wage, non-unionized contractors, and reduce benefits. Verizon wants to stick it to its workers despite racking up $45 billion in net income over the past five years, at the same time paid no taxes and has stashed $1.3 billion in offshore accounts.

Avoiding taxes has become an art form for U.S. corporations, especially those who operate as multi-nationals. Dodging taxes is simply another “capitalist innovation,” and so common that a single small building in the Cayman Islands (where the corporate tax rate is zero percent) is the registered address for almost 19,000 corporations. Tax dodging also means higher pay for top executives — yet another corporate subsidy.

tax burden chartThis goes beyond simple unfairness, although corporate tax collection in the U.S. has declined drastically, falling from about one-third of U.S. government tax receipts in the 1950s to 10 percent in 2015; it was as low as 6.6 percent in 2009. Nor is it simply that less taxes collected reduces the ability of governments to effectively provide an adequate social safety net. Higher taxes actually lead to more jobs. Countries that provide more subsidies toward services that are complementary to work — such as child care, elder care and transportation — have higher workforce participation rates. Yes, contrary to orthodox economics, higher rates of taxation lead to more employment.

Let’s not reduce all this to simply greed. The relentless competition endemic to capitalism mandates that corporations engage in an endless race to the bottom. “Grow or die” is an inescapable mandate — if you don’t grow, your competitor will and put you out of business.

That’s a war that working people can never win. Class warfare rages hotter than ever, but there is only one class that is waging it.