Sunday, February 05, 2006

Maybe we should all work for free?

Listening to the constant drumbeat of the business press, one would think that rising healthcare costs are the root of all corporate and economic ills, and that if only medical costs could be reined in, say by eliminating people’s ability to sue for malpractice, we could return once again to the golden age of rising tides floating all boats. Well that would all be well and good, if only it weren’t a baldfaced lie.

As Kristen Gerencher notes in MarketWatch:
“At this stage of most past recoveries, companies distributed 25% of their income growth to profits and 75% to compensation. But this time appears to be different, with the split closer to 60-40. Companies are putting 59% of income to profits and 41% to worker compensation, according to EPI's analysis.”
This is not merely “different,” as Gerencher describes it; it’s a near reversal. This is nothing less than a complete sea change. Where once 75% was given to total employee compensation costs, it has now become a mere 41%, a reduction of nearly half. Is it any wonder that consumer spending, so important to the health of the nation’s economy, cannot muster any sustained strength?

Other business press reports continually lament a dearth of personal savings and the meager amounts that workers manage to put aside for retirement. But when real spendable earnings decline year after year for the vast majority, while the cost of everything continues to climb, the concerns expressed by the business gurus ring hollow.

As long as “compensation costs” continue their decline, the corresponding trend will be toward increasing income inequality, and the consumer economy will continue on its staggering, stumbling trek to perdition. Regardless of what the moneyed class believes, a vibrant consumer economy is a precondition to a functional economy and stable polity. Stockholders who thrill to the continual reductions in compensation costs really ought to be careful what they wish for...

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