The Next Stage of Gross Redistribution of Wealth
March 18, 2010
– Comments (24)
Financial Armageddon has a post with a graph that show how wages follow the employment rate, and currently it indicates that wages have not decline that much for the relative weakness in employment.
I keep repeating myself here, but to me Vancouver's economy since my early adult years is a micro economy of what is now happening on a grand scale around the world.
I had enormous problems with the declining wages. With my mother's death I had ended up with a piece of property that was in a very hard hit place and I had a choice, either sell for 40c on the dollar, or drop out of university. That land was considered a "liquidable" asset and as such disqualified me for student loans when rules changed after my second year. To me, forcing a $20k loss when $20k would have be a 20-40% down payment on a home is not liquidable and emotionally, how many times does one have to pay for the loss of a loved one? The only thing that got me through that difficult period was telling myself that a university degree would lead to a much better future.
Only I graduated into a era where wages for degrees were declining and every time I punched the numbers, I came out way, way, way ahead by never going to school and working as a waitress. It was enormously hard to take that I had squandered all my mother had left and I was never going to get it back from the job market. When I made the decision to go to school I had a friend who had left a job that paid $36,000 in 1978 and she had a two year technical program training. My father was earning $50-60k. My father's wife was earning in the mid $40k range for office work, all while I was in school. Around 2003, 12 years after I got my first degree, I interviewed for a job that was offering in the low $30k range. I knew of graduates working in labs for $10-12 per hour. What was the point of going to school at all?
And then the internet makes the world a global community of sorts so somehow I met a number of people graduating with similar qualifications and getting job offers in the range of double what I was finding in Vancouver. There were a very few good jobs in Vancouver, but insane competition for them, like the one job that 24 applicants were invited to write a 3 hour test to qualify for a job interview, and a technician level job went to a Ph.D graduate.
But, when I look at Vancouver's economy, it is almost night and day the way you can cut through age demographic and see a massive difference in the distribution of wealth. I know several people who have siblings 5-10 years older then my age cohort and they have their homes paid for, they take nice vacations every year, they upgrade their vehicles every few years and if you look 10-15 years older, there are huge numbers retiring in the late 50s and early 60s.
One friend is 7 years younger then his sister. He always shared a vehicle with his wife, still has a significant mortgage on a home worth half of what his sister has and vacations have always been very budget, none of the annual flights to hot spots for a few weeks like his sister. This type of wealth distribution is very common in Vancouver. If you got into the housing market by about 1990 at the latest your home was affordable and offered huge protection against astronomical increases in the cost of housing. And, if you got into the housing market by then, chance are that you also had a job that also protected you from wage declines and just had to contend with increases that did not keep up to the cost of living. But, declining interest rates meant that mortgage payments declined every time the mortgage was up for renewal. Since 1990 there was only one other period where getting into the housing market would have made a huge difference to a person's financial well being, and that was a two year period around 2000-2002. Homes were 10-12% less then when they peaked in 1993, still expensive, but manageable. By today's housing bubble those prices seem cheap, but they would have only been barely affordable based on wages.
So, in Vancouver you had this mass movement of younger people to the suburbs to keep housing affordable, and now even those suburbs are grossly expensive.
Right now so many places in the world face the economic conditions that lead to this downward spiral of disposable income, high real estate costs, high unemployment, governments with massive debt.
Right now there are still a lot of people in the US being supported by government income supports, and by simply not paying their mortgage. Governments at all levels have huge budget shortfalls and there has to be another wave of layoffs to help control government spending, which will continue to put downward pressure on wages.
Vancouver's economy was sluggish my entire adult life. I do not see how you have a vibrant economy when so many people have such limited disposable income, and those who do tend to spend significant amounts of their disposable income in other countries on vacations.
So, those with jobs will have much better wage protection then those without jobs and the difference in wages for those trying to get jobs and those that have jobs will grow significantly, as it did in Vancouver. And, that massive wage difference also led to huge declines in unions. The population as a whole will accept and support unions even when they make less money then union workers do to a degree. When the wages of union and non-union workers get too far out of line, and the opportunity to ever get such a job is non-existent, union support by the masses goes away. This was another trend that I saw in Vancouver, a large decline in the unions and very little public support for them.
I'd say count your blessings if you have a job and a home that is affordable.
RSS Headlines
Fool UK