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Wage Cuts Deflationary?

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July 06, 2008 – Comments (8)

Mish has a post from 4 days ago, http://globaleconomicanalysis.blogspot.com/2008/07/airtran-asks-employees-to-take.html, about airline and auto industry workers agreeing to take pay cuts. 

This is one of the things that I've expected to see more of as the credit bubble unwinds.  I constantly go back to what I saw happening in Vancouver as I think it was a very unique economy in that I remember seeing lots of workers being forced to take pay cuts over the years, yet we've seen housing costs go up enormously.  There are simply jobs here that pay the same as they did in range of 20-30 years ago, and many unions dissolved so there are lots of jobs that pay less then 20-30 years ago.

Yet our housing market went up.  When I was young workers without finishing high school enjoyed a reasonable lifestyle.  Now they work full time and many go to food banks to help make ends meet.

Our rise in housing costs has been driven by the fact that Vancouver is an "international" city and a major port for both shipping and airlines from Asian counties.  Immigration here has been insane, so there has been a dual economy, one with a grossly declining standard of living for average workers, yet there has also been the convention centers and booming international business and wealthy immigration.

If you look at a place like Detroit where there hasn't been the immigration, the wage cuts and lay offs have hit their housing market.  Vancouver's housing market simply wasn't driven by what was happening in the lives of local people, but immigration.

8 Comments – Post Your Own

#1) On July 07, 2008 at 12:07 AM, Tastylunch (29.54) wrote:

Detroit in all fairness isn't probably the best counter example. That city hasn't just been not receiving significant immigration  but has been hemorrhaging  population for decades.

Their housing market was horrible even before the crisis even hit due to population loss....

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#2) On July 07, 2008 at 12:31 AM, LordZ wrote:

LMAO

Unless you have ever lived in the D...

you can never really understand...

Insane Political corruption, blocks of areas where not one decent building remains, crack infested crime ridden areas.

Scarey movie 4 best describes the city.Where you have it (detoilet of an afro populated city) burning before the aliens arrive and its burning as the aliens are attacking.

 

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#3) On July 07, 2008 at 1:26 AM, AnomaLee (28.88) wrote:

Since wage increase absorb inflation and make its long-term effects permanent. I think the mandatory increase in federal minimum wage this October will greatly effect the wages companies offer and tremendously effect the lowest income workers over the next two years, but I don't know how companies will adjust the wages they offer. As stated, I don't think Detroit isn't a good example...

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#4) On July 07, 2008 at 1:58 PM, Gemini846 (82.65) wrote:

New Orleans would be just like that except for Tourisim. Why do you think they wanted to hold Marti Gras even after Katrina?

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#5) On July 07, 2008 at 6:46 PM, lquadland10 (< 20) wrote:

Good job. Welcome to Globalazation (slave labor) in the U.S.A.go to the  labor department web sight and go to their inflation caculator you will see that in 1970 your 100.00 dollars would need to be 558.33 now to buy the same amount.

NAFTA opponents - including labor, environmental, consumer and religious groups - argued that NAFTA would launch a race-to-the-bottom in wages, destroy hundreds of thousands of good U.S. jobs, undermine democratic control of domestic policy-making and threaten health, environmental and food safety standards.

NAFTA promoters - including many of the world’s largest corporations - promised it would create hundreds of thousands of new high-wage U.S. jobs, raise living standards in the U.S., Mexico and Canada, improve environmental conditions and transform Mexico from a poor developing country into a booming new market for U.S. exports.    Dwot, the same applies toCanada and Mexico. We are not better now. 

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#6) On July 07, 2008 at 7:29 PM, lquadland10 (< 20) wrote:

Good job. Welcome to Globalazation (slave labor) in the U.S.A.go to the  labor department web sight and go to their inflation caculator you will see that in 1970 your 100.00 dollars would need to be 558.33 now to buy the same amount.

NAFTA opponents - including labor, environmental, consumer and religious groups - argued that NAFTA would launch a race-to-the-bottom in wages, destroy hundreds of thousands of good U.S. jobs, undermine democratic control of domestic policy-making and threaten health, environmental and food safety standards.

NAFTA promoters - including many of the world’s largest corporations - promised it would create hundreds of thousands of new high-wage U.S. jobs, raise living standards in the U.S., Mexico and Canada, improve environmental conditions and transform Mexico from a poor developing country into a booming new market for U.S. exports.    Dwot, the same applies toCanada and Mexico. We are not better now. 

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#7) On July 07, 2008 at 7:34 PM, lquadland10 (< 20) wrote:

Sorry for the double post I will find out how my computer does this.
Ten years of economic data belie the promises of broad economic benefits that NAFTA's promoters used to sell the
pact to a skeptical U.S. public. We were promised that
NAFTA would result in a growing U.S. trade surplus with
Mexico that would create new U.S. jobs. Instead NAFTA has
turned a modest U.S. trade surplus with Mexico into a huge
new NAFTA trade deficit and the U.S. trade deficit with
Canada has increased fivefold. We were promised 170,000
new U.S. jobs would be created annually by NAFTA. When
unprecedented U.S. economic growth in the 1990s created
jobs at a fairly rapid rate, the hundreds of thousands of full-
time, high-wage, benefit-paying manufacturing jobs that
were being lost to NAFTA were masked. But the U.S. lost
three million manufacturing jobs -- 1 in 6 jobs in that
sector -- during NAFTA and some 525,000 U.S. workers
have been specifically certified as NAFTA job-loss victims
under just one narrow government retraining program. NAFTA's rules provided new incentives to relocate production:"foreign investors" -- meaning U.S. companies
relocating to Mexico -- received both special investor
protections and preferential access for finished products
shipped back to the U.S. Meanwhile, many workers who
have lost high-wage, benefits-paying manufacturing jobs
have only found new work in service sector positions that
typically pay 23-77 percent less than their previous wages
and offer few or no benefits. NAFTA's transformation of the
kinds of jobs available to the 75 percent of Americans who
do not have a college degree has contributed to stagnant
wage levels that have destroyed the economic security of
millions of American families. From 1946-73, there was an
80% gain in median wages.Yet from 1973-2000, U.S. median
wages have been almost flat, even though trade now
represents two times the share of U.S. economic activity
than it did thirty years ago.

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#8) On July 08, 2008 at 11:15 AM, dwot (97.03) wrote:

lauadland, I agree that globalization has led to a race to see who can get the cheapest labour and it has meant that wages have gone down for those who made good wages and they have come up in places where they were very low.

I had an uncle that was a steady worker, but certainly no einstein.  When his manufacturing job left he essentially was unemployed for years.  When you are used to making 3-4 times minimum wage and then the only work out there is minimum wage or maybe 30-40% above it.  When he eventually did work again it was a job that leave very little disposible income.

Yup, globalization, throw away economics...

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