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Where is the Middle Class?


September 18, 2013

Written by Sandy Stuart

We have all heard the political rhetoric. The current line goes kind of like this. “The rich are becoming richer. Corporate profits are way up. Yet the rich just sock it away. On the other hand the poor and middle class have seen their wages stagnate and sometimes even drop in purchasing value as inflation rises faster than their paychecks. The rich are obviously not paying their share of income taxes! They should be using their wealth to hire more workers and certainly give raises to the existing work force. Raise the minimum wage!”

The President has announced he is going to rebuild the economy from the middle out. None of this “trickle down” economy, where money goes into the economy at the top in hopes it will make its way down to the production level and fund more hiring and pay raises. One supposes that tax money will be invested in education and infrastructure to make our middle class more competitive with the foreign workforce. He also wants to strengthen unions.

The scope of the task is breathtaking. What are we up against?  While the U.S. has been borrowing over many years to fund our deficit spending, those from whom we have borrowed have been pouring those interest payments (our tax dollars) into their infrastructure and schools. They have been building roads, modern factories, and high speed railroads. They have developed a well-educated and highly motivated workforce, many of whom speak the English language as well or better than many U.S. youth. English is a required course in many foreign high schools. And nothing motivates like poverty! Many of the young, foreign middle class had parents or grandparents who worked the rice paddies. Poverty for them was earning $1.25 per person per day. That the children are currently making ten or twenty thousand per year was unimaginable to the prior generation.

Meanwhile, the U.S. has a workforce that demands $15 per hour for flipping burgers. Poverty is officially $63 per day income for a family of four in the U.S. And at that level of poverty the doors for a bunch of tax payer funded benefits are thrown open. So where is the middle class? It is diffused around the world as foreign workers happily do the work for what the U.S. considers poverty wages but the foreign workers consider a king’s ransom!

I hate to be the bearer of bad news, but the law of supply and demand (“THE LAW”) is fully operational within the labor market, and it will prevail. We will have to meet the competition head-to-head. Our wages will have to be competitive with (i.e. as low as) the competition, and our workers will have to be as or more skilled and motivated as our competition.

In my opinion, Labor unions have been all about trying to circumvent THE LAW. For instance, if a job applicant comes with a complete set of skills, ready to go to work, and if those skills are rare and in high demand, he will command a high salary. In fact, there may be a bidding war to see who will land him. If however, lots of people have that skill set and not that many companies need those skills, he will find his pay at the other end of the spectrum, if he is hired at all. So assume he is hired at a low salary. The union says, “Join our union and we will threaten to strike to force management to give us higher salaries.” The union is trying to circumvent THE LAW.  Should they succeed to obtain a pay raise, the company becomes less able to compete. Soon, because whatever the company produces is also subject to THE LAW,  either the company goes under,  moves to a non-union state or moves overseas where they can hire well-educated, hard working, motivated workers for much less.

To rebuild the middle class, labor unions and management will have to stop fighting. They need to work together, trying to produce more efficiently and cost effectively. The labor force had better keep a keen eye on the competition and meet or beat it, or they will join the ranks of the unemployed.

 It’s a matter of economic survival. THE LAW will prevail!

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