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The New Yorker has reignited a debate on issues that are as economically vital as they are seemingly intractable: slow wage growth and rising inequality. While discussion continues, the 1980s meme of obsolete workers paid handsomely with government funds to sit at home (popularized by Alvin Toffler's much-derided Future Shock ) while maintaining aggregate consumer spending levels – is becoming more of a reality by the day.
New Yorker staff writer James Surowiecki's column "The Pay is Too Damn Low" provides a surprisingly balanced look at U.S. wage inequality, an issue with substantial implications for Canada's economic future.
As Mr. Surowiecki explains, the widely-reported U.S. unemployment rate of 7.4 per cent tells only a mere fraction of the story. The calculations exclude vast swathes of the population, including those who have stopped looking for work and those drawing from government programs such as disability.
The percentage of the over-18 U.S. population with full time jobs tells a much more depressing story than the headline number. Only 58.7 per cent of American adults have a full time job and this measure continues to circle the drain near all-time lows.
A remarkable report by NPR detailing the explosion in the number of Americans on disability benefits indicates the massive scale of the unemployment problem:
"Going on disability means you will not work, you will not get a raise, you will not get whatever meaning people get from work. Going on disability means…you will be poor for the rest of your life. That's the deal. And it's a deal 14 million Americans have signed up for."
Factory automation and the rise of "our new robot overlords" get a lot of attention, but globalization has been the primary cause of unemployment. The U.S. manufacturing sector – historically the main source of high-paying jobs for non-college graduates – has shrunk from 25 per cent of U.S. GDP to about 13 per cent, as labour moved to low wage Asian and Latin American countries.
Jobs have been created south of the border but few of them pay even $10 per hour. "Five of the six fastest-growing job categories today pay less than the median wage," Mr. Surowiecki writes. Many of these jobs pay the minimum wage ($7.25 per hour), which Mr. Surowiecki notes is lower in inflation-adjusted terms than it was in 1968.
The aging of the Canadian population means that the domestic economy will face a similar, painful dilemma over the next 25 years. The Dependency Ratio – those 65 and older, plus 19 and younger, divided by the 20 to 64 working age population – is set to rise to over 40 per cent from the current 24 per cent by 2040.
There are no obvious, viable policy options to address the problem of lower wages and a smaller working population. Import tariffs to support domestic manufacturing have proven economically detrimental in the past. The Obama administration is currently pushing an increase in the minimum wage, but this would help a surprisingly small percentage of the working poor.
The social safety net is already massively stretched in the U.S. and is about to become a problem in Canada, particularly within the health care system. In addition, subsidies for the Canadian auto industry are already a point of contention in policy circles, and the pressure is only starting to build.
For now, politicians on both sides of the border seem to be twiddling their thumbs, praying that a new industry will arise to soak up all the excess labour. Historically, the working population have been wary, even angry, about the possibility of higher taxes, particularly those aimed at significant increases in benefits for the unemployed.
However, while the unemployed and elderly may struggle, they still vote, which suggests there is no clear path to resolving the deadlock. A trade-off between the desire to spend on social programs and increase government debt levels, and the imperative to promote economic growth will need to be found.
The vicious political fight over entitlement spending down south is already underway – ours is just delayed. We all have some difficult decisions ahead.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .
Scott Barlow