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McQuiston: World Wide Wages

09/14/10 7:55AM By Timothy McQuiston
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(HOST)  China is a long way from Vermont, but commentator Tim McQuiston says that wages in both places are more closely related than you may think.

(MCQUISTON) The Chinese economy was 17 percent of the United States economy less than 10 years ago. It's estimated that within 10 years the Chinese economy will be larger than the U.S. economy. Meanwhile, 10 Vermont school districts and their teacher unions are struggling to come to agreement over new contracts. These phenomena are related.
The teacher contracts are largely about wages. There are other issues, of course; but whether it is base pay, step increases, or health care contributions, it all comes down to what is the net gain, or loss, of cash in the pocket for teachers.
Wages, or more accurately per capita income, reflect the true value of the economy, whether it's here in Vermont, across the U.S. or across the globe.
Vermont's per capita income has been growing relative to the rest of the nation for the past few decades. At this point we're just below the national average in per capita income. But Vermont ranks in the upper half of the states. We're now 21st in the nation. In 1990 we were 27th. This is understandable. Wealthier states with larger populations, such as Connecticut and New York, raise the national average to a point that most states, more than 30, fall below the average. We can see this just in Vermont. The only county in Vermont with per capita income above the STATE average is Chittenden County. It is the largest and wealthiest.

Wages drive the economy, any economy. As China's wages climb, its Gross Domestic Product will climb. As Vermont's and the nation's wages have fallen the last couple of years, so has the economy of each. All the other factors in the current economic trouble ultimately lead to how those problems affect wages. Obviously, per capita income falls when unemployment increases. But there's also been a lot of wage degradation among those still working. Employers have reduced pay, increased health premium contributions, and cut overtime.
The economic decline has damaged consumerism, which makes up 70 percent of GDP. Meanwhile, a loss in wages results in a direct loss in tax revenues at the exact time that state and federal social services are increasing. Raising taxes to cover the shortfall takes more money out of the economy. We'll see efforts to shift taxes away from the personal income tax and toward other revenue sources. In Vermont we've already seen that in the last few years, as property and sales taxes have increased.

There is also the trickle-down effect. Look around at who is working at services jobs. This is difficult to quantify, but it certainly looks to me that there are middle-aged men doing jobs that much younger workers were doing just a few years ago. Younger workers then take the jobs that college students were doing; college students take jobs from high school kids. Many younger workers simply don't turn up in unemployment statistics anyway.
Chinese workers still get paid much less than American workers, but there are many more of them. My guess is that it will take longer for China to catch up to the United States than international economists believe because American wages will accelerate at some point. For the time being, though, teacher unions and every other worker will have to deal with the reality of current economic conditions.
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