by Deb Cupples | Nobel Prize winning economist Paul Krugman says that wages going down -- what with employees negotiating pay cuts simply to hold onto their jobs. At least pay is going down for ordinary Americans who actually need jobs in order to survive.
At the same time, as we learned a week or two ago, pay packages for corporate executives and managers seem to be (miraculously) going up. 'Funny how that works.
It's pretty obvious, even to an economics layperson such as myself, that the less money ordinary Americans are earning, the less money they'll spend supporting American businesses -- and the less money American businesses get from ordinary Americans, the less money those businesses will be able to pay to ordinary workers, and so on.
Dr. Krugman explains:
"Falling wages are a symptom of a sick economy. And they’re a symptom that can make the economy even sicker....
"And soon we may be facing the paradox of wages: workers at any one company can help save their jobs by accepting lower wages, but when employers across the economy cut wages at the same time, the result is higher unemployment.
"Here’s how the paradox works. Suppose that workers at the XYZ Corporation accept a pay cut. That lets XYZ management cut prices, making its products more competitive. Sales rise, and more workers can keep their jobs. So you might think that wage cuts raise employment — which they do at the level of the individual employer.
"But if everyone takes a pay cut, nobody gains a competitive advantage. So there’s no benefit to the economy from lower wages. Meanwhile, the fall in wages can worsen the economy’s problems on other fronts.
"In particular, falling wages, and hence falling incomes, worsen the problem of excessive debt: your monthly mortgage payments don’t go down with your paycheck. America came into this crisis with household debt as a percentage of income at its highest level since the 1930s. Families are trying to work that debt down by saving more than they have in a decade — but as wages fall, they’re chasing a moving target. And the rising burden of debt will put downward pressure on consumer spending, keeping the economy depressed."
Memeorandum has commentary.
Other Buck Naked Politics Posts:
*Save Jobs by Cutting Executive Pay
* Wall Street Execs Paid $3 Billion While Driving Economy Toward Cliff
* Bank of America Publicity Stunt: Lewis Off Board but Still CEO
* Are Bailout Funds Being Misused?
* Execs Made Millions While Driving Companies into Ditch
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