Paid for by NDN.
The Emerging Progressive Economic Consensus on Wages
by Dr. Robert J. Shapiro, Globalization Initiative Director and Simon Rosenberg, NDN President
July 25, 2006
Click here for the PDF version of this memo
There is a new progressive economic consensus emerging about changes in the American economy, and the mistakes Republicans have made in trying to deal with them. The “Americas” section of this morning’s Financial Times (see below) leads with a story about the growing prominence of flat wages and incomes in the ongoing debate about America’s economic future. The article reports a meeting today of the Hamilton Project at the Brookings Institution, and notes that the issue of wages “is starting to catch fire among a number of prominent US groups.” NDN was the among the first Democratic groups to publicly press this issue, and the article prominently quotes Rob explaining the phenomenon as follows:
“What we are seeing is a major structural shift in the way the US economy works,” says Rob Shapiro, head of the New Democrat Network’s Globalization Initiative, a centrist advocacy group. “The ripple effects caused by the supply shock of the entry of hundreds of millions of Chinese workers into the global economy has changed the way American workers benefit from trade.”
For over a year now, NDN has pressed the case that President Bush’s economic policies are failing ordinary Americans, and Republicans don’t understand the nature of the new global economy. At the launch of our Globalization Initiative earlier this year, we again stressed the important issue of stagnant wages. We pointed out that while businesses were doing well in this recovery, prosperity was not shared widely by most Americans. Now, as the Financial Times article makes clear, former Treasury secretaries Bob Rubin and Larry Summers are throwing their weight behind the issue. And a collection of other progressive organizations – including the Hamilton Project, the Democratic Leadership Council, The Center for American Progress, The Center for Budget and Policy Priorities, and the Economic Policy Institute – also are putting this issue at the heart of their agendas.
Given the issue’s new prominence, we at NDN wanted to outline three important elements of this debate: first, the nature of the consensus itself; second, the way Republicans fail to understand this issue; and third, why we at NDN believe that today’s stagnating wages can be traced to deep changes in the global economy. This debate marks a real opportunity for progressives. It allows us to point out how conservatism is failing our economy. But, just as important, we must turn back pressures for protectionism and global disengagement, as we work to ensure that globalization works for all Americans.
The New Consensus
The basics of the new economic consensus flow from the way the American economy is currently performing. After the recession of 2001, American workers and businesses did their job: GDP and productivity have both grown at very sound rates. Yet, despite these achievements, most working families are not benefiting from these gains.
Wages have been flat or declining on average for 5 years now. As the Financial Times story points out, we have had 5 years of economic growth, but the amount the median American worker earns every week has fallen by 3.2 per cent, adjusted for inflation, since the start of the recovery in November 2001. For the first time ever, the real wages of American workers have declined through more than four years of strong growth. Calculations by NDN show that the average American earned $480 a week when President Bush came to office. Controlling for rising prices, the average American still earns exactly $480 today. So while the American economy has been growing, the incomes of most Americans have been standing still.
The result is an economy where prosperity is not broad based. Corporate profits are at their highest levels on record, both absolutely and as a share of all national income. And after 6 volatile years the stock market is nearly back to the levels of the Clinton years. Yet, the real incomes of ordinary Americans have stagnated or even declined, while the costs of energy, healthcare, college tuition and other essential middle-class goods have soared.
The Republican Response: Denial and Spin
How have Republicans responded to the recent record of declining incomes, in the midst of healthy GDP gains? Realizing that his economic record has become a problem, President Bush has spent the last few weeks engaged in a public relations offensive to try to turn around his dismal economic approval ratings. He went to Chicago earlier this month to trumpet what turned out to be disappointing jobs figures. And he used a White House press conference to highlight a new, lower than expected deficit projection, fueled by growing tax revenue from the wealthiest Americans. But on the issue of wages and incomes – the real issue for millions of working people – the administration’s response has been a mix of denial and spin.
First, we have the denial. Treasury Secretary Henry Paulson, in his Senate confirmation hearings, was asked directly whether he was concerned about declining real wages. In response he simply denied the problem, saying that ,“I'd be optimistic that if we keep this economy 
growing, have good GDP growth, good employment growth, that we will see wage growth for the middle class Americans you're talking about.” We see no reason for such optimism from all recent economic data.
Second, we have the spin. Speaking at the White House during Paulson’s swearing in, President Bush argued -- against all available evidence -- that consumers trust his economic record, and that wages were rising: “Consumers and businesses are confident in the future. Productivity is high. That's leading to higher wages and a higher standard of living for our people.” This distortion was quickly picked up by the Wall Street Journal on July 11th, whose editorial “Good Jobs at Good Wages” was a perfect example of the conservative spin machine in action. They argued that wages were rising, citing Bureau of Labor Statistics incomes data for June that did not take account of inflation. When inflation is taken into account, hourly wages once again were lower than a year earlier.
The Challenge of the Global Economy
What is causing these problems? At NDN, we think that much of the answer lies in the changing nature of the global economy. It is the reason we set up our Globalization Initiative. We believe that the entry of hundreds of millions of Chinese, Indian and Central European workers into the global work force since 2000, and the rapid modernization of those economies, has directly or indirectly intensified competitive pressures on businesses and workers everywhere else, including the United States. These new global economic conditions are changing the way the American economy operates.
Globalization is changing two of the most basic economic dynamics in our economy. First, it weakens the long-standing connection between increases in the productivity of American workers and the wages they earn. Since 2001, labor productivity in the United States has grown, on average, more than 3 percent a year. That’s the best performance in decades. Yet, despite five years of strong productivity growth, wages are stuck. Even when we include the value of health insurance premiums and pension contributions, the compensation of an average American worker has increased little, for all the economy’s productivity improvements.
Second, globalization has measurably weakened the relationship between growth and job creation. The first evidence came in the 2001 recession, when job losses relative to the actual decline in economic growth were six times greater than in previous postwar recessions. Five years into the current expansion, job creation is still running at half the rate of the preceding recovery. Despite this historic slowdown in job creation, the official U.S. unemployment rate remains low – but only because the number of working age people looking for jobs has also declined, even as the economy has grown.
The American people know there’s a serious problem. A June poll by the American Research Group found that the President’s economic policy is even less popular than the President himself: 36% of Americans approved of the way Bush is performing overall, while only 34% approved of his economic policies. Put another way, two-thirds of Americans have no confidence in the way the President is managing their economy.
As Rob said at the launch of the NDN Globalization Initiative in February, “as far as globalization goes, the current administration is doing virtually everything wrong. The purpose of this project is to show the American people that we understand how to get it right.” This new consensus amongst progressive groups is a good start. It highlights an important issue. NDN is proud to have been part of the debate from the start. Now we have to move the debate to a new level, both to show the American people that progressives have better solutions and to ensure our continued commitment to a free and open global economy. NDN looks forward to meeting that challenge working with our allies in the progressive movement.
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Additional Resources
NDN Globalization Initiative
Daily Commentary on these issues at the NDN Blog
The DLC American Dream Initiatve
