Real incomes are down here …
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… but not everywhere.
Yesterday I posted about the effects of a savings tsunami and mentioned that the American economy is not business as usual. Debt starts to matter when people accumulate enough of it relative to their income.
Real wages have indeed fallen a couple of percent, on average, from 2001 to 2004, according to a study by the Federal Reserve. Additionally, fewer people own stocks, and fewer families have tax-deferred retirement accounts, over the same period.
Over yonder, wages in China have been going up about 7% per year over the same period.
Interesting, no?
One Response to “Real incomes are down here …”
By Suresh on Mar 8, 2006 | Reply
Morgan Stanley Chief Economist Stephen Roach has written about this in relation to globalization. With globalization, tradeable products and services are sent to offshore manufacturing or service platforms. The net effect is that real wages in developed countries stagnate or fall, while real wages in developing countries increase. Absent changes in Westerners’ personal finance, average Western standards of living will fall, while average developing countries’ standards of living will rise.
Consider an example. GM closes an auto plant in the U.S. and builds an auto plant in Mexico. Over the past several decades, UAW workers made respectable salaries and with tenure, handily beat the average per capita income in the U.S. If the former workers at that closed plant don’t get comparable paying jobs, all else being equal, they will necessarily bring down the average per capita income. The reverse works in Mexico.