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Why most Americans work ever more hours for ever less pay, while for most Europeans it has been exactly the opposite

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From 1820 to around 1970, workers' average productivity rose every decade. Their hourly output of commodities rose because they were ever better trained, had ever more and better machines to work with, were ever more closely supervised, and worked ever faster. Over those same years, their real wages (what earned income actually afforded them to buy) also rose every decade.

However, after the mid 1970s, while worker productivity continued to increase, real wages tapered off in America and then actually began to slowly decline. This growing gap between stagnating wages and growing amounts of product value per hour worked, meant a huge and growing increase in the prots of American business owners.

So why did real wages (adjusted for inflation) in America stop growing while continuing to increase in various European countries?

It was because U.S. corporations did the following things, some of which the European countries either did not do, or did not do to nearly the same extent.

They:

(a) moved operations abroad so as to pay lower wages and make bigger prots,

(b) replaced workers with machines (especially computers), and

(c) hired ever more women and immigrants, at lower wages than men received.

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For these reasons, real wages in the mid 1970s, in America, exceeded real wages today even though today's workers produce vastly more in the course of an hour's work.

As employers' prots exploded, those entitled to portions of the prots also benefitted handsomely, those being the managers the employers hire, the shareholders who get dividends, and so on -- but also the specialists who handled or managed each employer's mushrooming prot, namely the nance industry that invested it, lent and borrowed it, managed it, etc.-- they, too, got growing portions of the rising prots.

So what happened to a working class that measured individual success by rising consumption when it no longer had rising wages to pay for such consumption?

Even if individuals' real wages per hour stagnate, total earnings can rise if each household does more hours of paid labor. And so it was that millions of American housewives entered the paid labor force over the last 30 years while their husbands took second jobs and both teenagers and retirees found paid work too. Today, as a result, we Americans work on average 20% more hours per year than workers in France, Germany and Italy. In the 1970s, 40% of adult women were in the paid labor force. Today it is twice that.

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However, with more household members out working, new costs and problems beset American families. Women wage-earners needed new clothes, a second car, and services like daycare, prepared food, psychotherapy, and drugs to handle new pressures and demands. These extra costs soaked up women's extra income, and not enough remained to fund rising household consumption. The net income gained from extra work thereby disappeared and disappointed, and so it was that US families were provided with opportunities to borrow money like no working class in history. And, as we shall see momentarily, this soaring household indebtedness became part of the groundwork of today's crisis.

The US business community had seen, and grasped, a fantastic double opportunity. First, as already described, it reaped huge prots from the combination of at wages and rising productivity. Secondly, however, it realized that it could lend a portion of those prots back to a working class traumatized by stagnant wages, so as to enable it to continue consuming more. Therefore, instead of paying their workers rising wages (as in the 1820-1970 period), employers (directly or through the banks) ooded very profitable loans onto desperate but also often nancially naive workers. For employers generally, and especially for nancial corporations, this seemed like the golden age of capitalism.

Underneath the magic, however, workers were increasingly exhausted, their families disintegrating, and their anxieties deepened by unsustainable levels of debt. At the same time, banks, insurance companies and other nancial enterprises proted by taking ever greater risks and designing and selling ever more exotic and questionable securities to systematically misinformed investors. In these heady times, non-nancial industries also took bigger risks, believing that "the new economy" touted by Alan Greenspan could only keep expanding. Before long, however, as housing values stopped rising, and then began to fall, workers by the millions would begin to default on their debts, and were soon joined by defaulting corporations. This credit-based house of cards then collapsed, housing prices tanked, and recession descended upon us.

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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