Globalization is draining American wages

Marketplace Staff Jul 17, 2006

KAI RYSSDAL: On the face of it, you’d think this would be a tricky time to announce corporate profits. Energy prices are still sky high. Interest rates will probably get at least one more bump before the Fed’s through. And the stock market seems not to know which way is up. None of which is really conducive to making money.

But then you see Citigroup reporting a 4 percent rise in profits this morning. Harley Davidson was up almost 3 percent. Toymaker Mattel said today its profits tripled last quarter. What gives? Commentator Kim Clark says it’s deceptively simple.

KIM CLARK: Globalization is making businesses more profitable.

Maybe you don’t think it’s that black and white.

After all, businesses are shrugging off rising interest rates because they’ve cleaned up their balance sheets. Firms are able to absorb skyrocketing oil prices because they’ve become super energy efficient. And profits are growing because all those investments in computers are finally paying off in productivity.

That’s all true. But remember, interest rates and energy have always been a comparatively small share of business costs. The two biggest factors in profits have always been labor on the cost side, and sales on the revenue side. And that’s where globalization comes in.

First, the good news: Thanks, in part, to the weak dollar, foreign demand for American stuff is booming. That’s why US businesses will bring home $250 billion worth of foreign profits this year. That’s double the amount they earned five years ago.

But before you lift that glass of French champagne to toast globalization, take a look at its effect on your paycheck. American workers make 4.2 percent more stuff each hour than we did a year ago. Profits are rising because employers are currently keeping all the rewards of that increased productivity. They’re now paying us almost 1 percent per hour less.

How could this happen when unemployment is just 4.6 percent — a level that used to mean a shortage is so severe that employers had to bid up wages? You got it: Globalization. Employers have more leverage now that they can remedy a shortage of workers at home by moving jobs overseas.

The only question now is whether this is just part of a standard economic cycle or a permanent shift in the way our national income is distributed.
Globalization is already controversial, and as the recent failed trade talks show, it is not inevitable. Anyone who thinks globalization is a good thing had better hope American workers start to reap some of its rewards soon.

RYSSDAL: Kim Clark is a senior writer with US News and World Report.

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