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Shifting Earnings to Workers Will Strengthen Overall Economy

By Don Cunningham on December 11, 2014

This column, written by LVEDC President and CEO Don Cunningham, originally appeared in Lehigh Valley Business on Dec. 8, 2014.

Don Cunningham

Don Cunningham

Each news cycle seems to offer commentary on how the economy is doing. Unemployment is down. Earnings are up. Gas prices are dropping.

The headlines offer a helpful framework on the economic big picture but the real answer lies in the paycheck and the pocketbook.  There’s often a difference between the opinions of workers and analysts or economists.  That’s because there are multiple “economies:” the national economy, those of individual corporations and of workers.

Someone else’s job doesn’t pay your bills and if corporate profits don’t trickle down to increased wages or benefits, your outlook is not likely to be as positive. Here in lies the current challenge in the economy.

Corporate profits are up. Unemployment is down. But, in general, family income is stagnant while benefit costs have increased.  The United States median income hit a high of $56, 080 in 1999. In 2008, during the recession, it dropped to $53,644. In 2013, it was even lower at $52,100. Raises have returned but they are mostly small and it will take some time to restore 1999 levels.

Add to this, according to the Society for Human Resource Management (SHRM), that companies have been whittling away at benefits during the last five years. The rising cost of benefits, particularly health insurance, has made it “more challenging for employers to offer them,” according to a recent SHRM report.  In fact, the only compensation benefit to increase, the SHRM report says, have been one-time employee bonuses that don’t accrue to base pay.

While the majority of companies that provided health care, pension and other benefits have retained them, much of the cost increases have been passed on to employees, reducing their paychecks.  The cost of pensions have largely been shifted to the employee by eliminating defined benefit pension plans and instead offering 401k or other retirement investment funds that divert current income for retirement savings. Some benefits have, in large part, been eliminated completely such as automobile subsidies, moving and relocation expenses, and costs related to more education and training.

Until the rising economic tide begins to float the boat of each worker many will still feel adrift.

Shifting earnings to workers right now will do two things to strengthen the economy. First, more money in paychecks will be infused right back into the economy through the purchase of goods or services that have long been avoided, such as a new refrigerator, an upgraded car or replacing the worn out sofa or carpeting. Consumer spending is still the number one driver of the American economy. It is a self-fulfilling economic prophecy. The more earned by workers, the more pumped back into the economy, the more earnings generated and the more jobs created. There is no need for trickle down.

The second benefit of bumping up wages right now is the retention of workforce. One of the primary concerns of most employers right now is the retention and/or attraction of skilled workers. While much needs to be done to improve training and preparation of workers to meet the ever-changing needs of our technological economy, the lowest cost option for employers is the retention of existing talent. Turnover and hiring is expensive.

As unemployment continues to decline, workers will have more options. In the Lehigh Valley’s transportation, logistics and warehouse sector, wages are rising as the laws of supply and demand are at work. With more than 5,000 new jobs created in recent years, wages have risen. Jobs that a few years ago paid $12 per hour are now at $15 per hour.  It remains to be seen if that will happen in all sectors but keeping good employees is still cheaper than searching for new ones.

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