Path to Prosperity - SEIU

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Figure 3: Growth of Average Hourly Compensation and Productivity 400 350 300 250 200 Index (1947=100) 150 100 50 FIGUR E 3: Grow th of Avera ge Hourly Compensa tion and Produc tivity G ro w th o f A v e ra ge H o urly C o m p e n s a tio n a nd P ro du c tiv ity P rodu c tiv ity Productivity Hourly H o urly Compensation C o m pe ns a tion • The disconnect between pay and productivity was larger during the 2002-07 recovery than in prior economic recoveries: the hourly compensation of both high school and college graduates, for example, failed to improve at all while productivity grew 2.2 percent annually. 27 yampolsa 1/5/09 12:54 AM • As Figure 3 shows, this gap between productivity and wages did not exist between 1947 and 1973, when a third of all workers were in unions. 0 • In 1973, the average CEO made 27 times as much as the average worker in America. 28 Today, S&P 500 CEOs averaged 344 times the pay of typical American workers. 29 The New York Times recently described the relationship between unions and executive compensation in this way: “By giving employees a bigger say in compensation issues, unions also help to establish corporate norms, the absence of which has contributed to unjustifiable disparities between executive pay and rank-and-file pay.” 30 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 The Economic Consequences of Low Wages American workers in the 35-year period since the 1973-74 recession have been significantly less able to secure wage and benefit improvements despite increasing worker productivity, rising CEO pay, and increasing wealth for the richest Americans. Yet growth during the most recent business cycle has been supported by consumer spending to a greater extent than in the past, with 83.9 percent of economic growth from March 2001 to March 2007 coming from consumption spending. 31 So how has it been possible for consumers to spend more when their incomes have been stagnant? The answer is debt based on inflated asset values. Debt Bubbles Household debt has been climbing steadily since the early 1970s, but it has accelerated rapidly since the turn of the century (see Figure 4), due in large measure to Federal Reserve policies that kept interest rates unsustainably low for a very long time. Low rates encouraged home buyers to take out large mortgages and prompted 14 Path to Prosperity
homeowners to use large home equity loans, stimulating demand for homes and other goods. Home prices went up. And homes, home building, and home remodeling became the engines of economic growth, providing income to homeowners through home equity loans and income to workers through employment. Consumers could handle the rising burden of debt as long as the value of their homes kept rising. If they needed to pay off a credit card, buy a car, or finance college they could tap into their home equity. Rising home values facilitated mortgage equity withdrawals, which added approximately $700 billion to consumer spending during 2004, 2005, and 2006. 32 But once the prices of homes started to fall, consumers lost this source of income. As Figure 4 illustrates, the burden of debt grew heavier, taking up a large portion of disposable income and leaving less for spending on goods and services. The consequences of debt-fueled economic growth are disastrous when downturn comes. “Earlier downturns followed strong booms, so families went into recessions with higher incomes and lower debt loads,” notes Harvard Law School professor Elizabeth Warren. “But the fundamentals are off for families even before we hit the recession this time, so bankruptcy filings are likely to rise faster.” 33 We are already seeing the hardship that rising debt burdens have caused so many Americans. The foreclosure rate is the highest it’s been since the Great Depression. 34 National average housing prices are down at least 20 percent and still falling. Some analysts predict another 20 percent drop, while certain hard-hit states such as California, Nevada, Michigan, and Florida could see 40 percent declines. 35 FIGUR E 4: Househol d Financ ial Obl igations Ratio, 19 92-2008 Figure 4: Household Financial Obligations Ratio, 1992-2008 1992 1994 1996 1998 2000 2002 2004 2006 2008 NOTE: The data are quarterly and extend through 2008:Q1. The financial obligations ratio equals the sum of required payments on mortgage and consumer debt, automobile leases, rent on tenant occupied porperty, home owner’s insurance, and property taxes, all divided by disposable personal income. SOURCE: Federal Reserve Board. Percent 20 19 18 17 16 yamp Path to Prosperity 15
Page 1 and 2: Introduction Path to Prosperity Why
Page 3 and 4: Contents Executive Summary.........
Page 5 and 6: The recession of 1973-74 marked the
Page 7 and 8: Introduction The United States is a
Page 9 and 10: economic anxiety. One in 11 mortgag
Page 11 and 12: • Collective bargaining gains—h
Page 13: and the highest level since the Gre
Page 17 and 18: Pensions, noted University of Calif
Page 19 and 20: Workers Want Unions, But Cannot Get
Page 21 and 22: • 59 percent of workers believed
Page 23 and 24: “We encourage employers and union
Page 25 and 26: The “problem” of union intimida
Page 27 and 28: In the 25 states and District of Co
Page 29 and 30: Endnotes 1 Weisman, Steven R. “Tr
Page 31 and 32: 55 See Litton Sys., Inc., 173 NLRB
Page 33: 1800 Massachusetts Avenue, NW Washi

Path to Prosperity - SEIU

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