Overworkd and Underpaid; M. Skousen

"Most blue-collar workers and midlevel white-color managers are overworked and overwhelmed. " -Robert Reich, Secretary of Labor September 11, 1995 A ccording to Labor Secretary Robert Reich, eight million Americans are holding two or more jobs, the highest figure since data were first collected 25 years ago. Work time is on the rise, while leisure time is on the decline.! Median wages have fallen from $479 a week to $475 a week (factoring in inflation). In fact, according to the Bureau of Labor Statistics, average real wages have been declining since the mid-1970s. "There is something terribly wrong, terribly un American, about the fact that the economy's prosperity is bypassing so many working people," Reich asserted. Is the American dream falling on hard times? Free-market economists dispute Reich's claims. Ohio University professor Richard Vedder points out that Reich's real-wage data do not include fringe bene fits, such as medical insurance, paid vaca tions, and pension plans. When benefits are added, total real compensation per hour has been rising, albeit modestly since the mid 1970s.Moreover, by using another measure of human economic welfare, consumer spending rose a dramatic 40 percent per person in real terms. As Professor Vedder says, "How many Americans in 1975 had VCRs, microwaves, CD players, and home computers?' , In short, measuring the quantity, quality, and variety of goods and services is often a Dr. Skousen is an economist at Rollins College, Winter Park, Florida 32789, and editor of Fore cast & Strategies, one of the largest investment newsletters in the country. For more information about his newsletter and books, contact Phillips Publishing, Inc., at (800) 777-5005.

Mark Skousen better measure of economic progress than average real wages. The Dramatic Slowdown in Productivity Still, there is much to be concerned about. Statistics from the U.S. Commerce Depart ment clearly show that worker productivity has slowed considerably since the mid 1970s. And productivity is the key to rising or falling wages. Many years ago, F. A. Harper, an econ omist and staff member of FEE, wrote a grand little book entitled Why Wages Rise. He demonstrates that wages aren't high because of unionization or government imposed minimum.wages. Rather, "Higher wages come from increased output per hour of work. ,,2 Ludwig von Mises adds, "if you increase capital, you increase the mar ginal productivity of labor, and the effect will be that real wages will rise. ,,3 Training, new production methods, and updated ma chinery and technology make workers more efficient and valuable.

How does a nation increase its capital invested per worker? A clue may be found in another interesting statistic: Government debt as a percentage of GDP started rising in the mid-1970s,at the same time real wages stopped growing significantly. Coinci dence? I don't think so. Deficit spending crowds out saving and private capital in vestment and reduces the funds available for training, new tools, and new technology. Deficit spending isn't the only factor that has slowed the rate of capital formation in the United States. Other determinants are 734 (a) heavy taxation and regulation of busi ness, (b) Social Security and other employ ment taxes, and (c) the tax burden on saving and investment, specifically capital gains, interest, and dividends. All of these factors have kept the U.S. savings rate at a low level, creating a serious capital shortage and slowing productivity gains. The Hong Kong Model Hong Kong provides an interesting case study of how the U.S. might increase pro ductivity and thereby reignite the rise in average real wages for Americans. Real earnings in this small Asian colony have been rising steadily and rapidly over the past half-century. Immigration has been high and union membership low in Hong Kong over the years. Yet worker income keeps rising. Why? There are several reasons: A high rate of personal and business savings.

Heavy emphasis on education and training. No perennial government deficits. No trade barriers. And most importantly, a flat min imum tax on personal income (15 percent) 735 and corporate income (16.5 percent), a min imal Social Security program, and no tax on capital gains or dividends. In short, there are virtually no limits on the ability of the residents of Hong Kong to save and thus increase the capital per worker. Conse quently, wages keep rising. Here in the U.S., many pundits (including Secretary Reich) will continue to blame our lackluster performance in real wages on big corporations, foreigners, women in the workforce, and lack of union power. But the root cause is the anti-growth policies of government. Recently there has been a strong move ment to overhaul the budget and tax system in the U.S. One proposal favors a flattax system similarto Hong Kong'S. Such a policy change would cause a sharp rise in saving, invest ment, economic growth, and the standard of living of the American wage-earner. D 1. Juliet B. Schor, The Overworked American: The Unex pected Decline of Leisure (New York: Basic Books, 1991), pp. 1-5.

2. F. A. Harper, Why Wages Rise (Irvington, N.Y.: Foun dation for Economic Education, 1957), p. 19. 3. Ludwigvon Mises, Economic Policy: Thoughts/or Today and Tomorrow (Chicago: Regnery Gatewa~, 1979), p. 88. "Liberty is the leading journal of the libertarian movement." -Whole EarthReview "Liberty is a delight! It's intelligent, lively, and refreshingly free of dogma. I look forward to every issue." -Ed Crane, President, Cato Institute "Liberty is the most exciting and enjoyable freedom magazine, always interesting, always bold, and always challenging. It's the first thing I read when it arrives in the mail." -Mark Skousen, economist "~~~~~~~~~~~ II Ll-b'ert:7l1is a 1ive~YI idiosyncratic.p~b1ication,.. .xd, presenhng fresh and ongmal com ments ... I very much enjoy it .. ." -Milton Friedman Liberty is a probing, provocative magazine that takes economic freedom seriously ... and the status quo with more than one grain of salt.

You'll like Liberty. But don't just take Milton Friedman's word for it, or Ed Crane's, Mark Skousen's. Try Liberty. 100% guaranteed satisfaction, or your money back. Use the cou pon below, or call toll-free: 1-800-854-6991. You have nothing to lose, and the fruits of liberty to gain! ~---------------,Yes ' Send me one year (six issues) of Liberty,to the address givI • en below. I enclose $19.50. I I Name _ II Address _ I City, State, Zip I '-- L ~be~,~p~~,~.~x~8!.!o~T~x:n~~~8.J AU the Governmenfshorses and all the Governmenfsmen couldn'tputAmerica togetlieragain. America'sproblemswill be solvedby its people, not its politicians. The central challenge for conservatives over the next 20 years is to restore the tradition of American Citizenship by repairing the institutions of civil society-families, communities, churches, volunteer groups, businesses, schools, local governments. To understand the principles of American Citizenship read The Heritage Foundation's magazine: POllCYREvIEw ThE JOURNAL OF AMERICAN CITIZENSHIP We study what works: private-sector and local government alternatives to the welfare state. We profile great American citizens who are doing amazing things in their communities. And we provide the common-sense policy prescriptions that you expect from The Heritage Foundation.

Order Today. Call 1-800-304-0056to reserve your copy. Express Key Code: AFR!