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No Recovery for Workers' Wages

Purchasing Power of Workers' Weekly Wages Fall 1.6% in 2009

By Adam Price |
January 20, 2010
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San José, CA - On Friday, Jan. 15, the Department of Labor released reports on inflation and real earnings (wages adjusted for inflation) for 2009. The rate of increases in prices for workers who live in cities was moderate, at 3.4%. This figure was higher than the official inflation rate of 2.7%. However wages failed to keep up with the rise in prices, so weekly real earnings, or the purchasing power of workers' weekly wages, fell by 1.6% in 2009. This fall in wages was mainly because the average increase in hourly wages was less than the rise in prices. This reflected the lack of raises and spreading wage cuts last year. Cuts in workers' hours, which also reduced weekly pay, also played a role.

This fall in workers' real earnings was the largest on records dating back to 1990 and shows the impact of the economic crisis on working families. Workers' standard of living took a triple whammy with the recession in 2009. The first hit was from less purchasing power. Then there were rising numbers of foreclosures that put many working families, both home-buyers as well as renters, out of their homes. Finally, there were cuts in school programs and government services that help low-income and working families due to local and state budget crises.

But this decline in workers' standard of living did not just appear with the recession that began in 2007. Another measure of standard of living, the median or typical household income, was lower in 2008 than in 2000, right before the last recession in 2001. This means that for the first time since the 1930s, average incomes failed to grow with the economy, as all the economic gains went to those with higher incomes. A separate report on private sector workers (excluding government workers), shows weekly wages in 2009 the lowest since 1980.

The value of what U.S. workers produced each hour was 85% greater in 2009 than in 1980. But wages have been stagnant, so the gains in productivity have gone to businesses in the form of higher profits. Under capitalism businesses are driven to cut wages and hours, while raising prices, in a race for ever greater profits. At the same time these profits are reinvested to increase output and productivity even more. This leads to crises of overproduction or recessions, when the limited purchasing power of workers collides with the increased ability of businesses to produce.

But why have recessions been less common and milder during the 30 thirty years? For one, a part of the growing profits were made into loans to finance the sale of the homes, cars and other goods and services that working people could not really afford with their pay. This increase in credit gave a boost to the economy as the construction of homes and shopping centers produced more construction and retail jobs. But at the same time workers went deeper and deeper into debt, as seen in the rising rates of bankruptcies. Another part of these profits went into finance and real estate, supporting an army of mortgage brokers and real estate agents. At the same time these profits were lifeblood of a frenzy of speculation in financial products cooked up by Wall Street. But this build up of household debt and financial speculation finally collapsed into a financial crisis in 2008.

At this time working people need to organize to fight for our jobs, our homes and the public schools and government programs that we need to survive. But ultimately we need to fight to replace capitalism with an economic system that puts peoples needs, not profits first - socialism.