As reported by The Guardian earlier today, studies show that 70% of developed nations are affected by flat or falling incomes. Let’s have a look at what that means.

First, the article compares the percentages of two generations to illustrate a major shift:

“Research by the McKinsey Global Institute found that between 65% and 70% of people in 25 advanced countries saw no increase in their earnings between 2005 and 2014.

The report found there had been a dramatic increase in the number of households affected by flat or falling incomes and that today’s younger generation was at risk of ending up poorer than their parents. Only 2% of households, 10 million people, lived through the period from 1993 to 2005 – a time of strong growth and falling unemployment – without seeing their incomes rise.”

This is telling us that stagnation isn’t just a problem for individual countries. Many countries are facing the same predicament together. They next bring up the findings that stagnating people tend to be more xenophobic:

“It noted that people who had seen no increase in their incomes tended to be pessimistic about the future both of themselves and their children, and were likely to be more negative about removing barriers to trade or migration.”

They end by saying that governments are responsible for mitigating this effect, but there’s no mention of how to resolve it:

“The MGI said government policy and labour market practices helped determine the ultimate extent of flat or falling incomes. “In Sweden, for example, where the government intervened to preserve jobs, market incomes fell or were flat for only 20%, while disposable income advanced for almost everyone. In the United States, government taxes and transfers turned a decline in market incomes for 81% of income segments into an increase in disposable income for nearly all households.”

The objective opinion seems to be, if governments introduced policies to preserve jobs, then the percentage of stagnant or falling wages would fall. But that’s a rather broad assumption. Governments in every developed nation implement policies to preserve jobs, and they don’t seem to be doing the trick. Why?

For a possible answer, let’s look at what wasn’t studied. Of the 200-ish countries in existence, 142 of them are considered to be “developing.”  China is on that list, and you might recall that they are battling it out with the United States over who has the biggest economy in the world. Their unemployment rate is also below 6%, like a lot of other developing nations. Cambodia and Thailand are below 1%, for example.

So as economies stagnate in developed nations, economies boom in deveolping nations.

There could be many reasons for this, including exporting jobs overseas, multinational corporations solidifying a global presence, or individuals sharing ideas through telecommunication. I think a major reason, though, is the supply-demand relationship between what jobs need to be done (like those surrounding water, food, and shelter distribution) versus jobs that exist from pure excess (layers of middle management, advisory positions, or speculative careers). Some developing nations are booming because providing all the basic needs to the people is a priority, and they have little purpose for jobs that do not contribute directly to those basic needs. Wealth and middle income develop as a by-product from the amount of effort put into the greater economy, as the United States showed the world during the Industrial Revolution, and China is showing us now. It’s only after the majority of people in a given nation have their needs met before that nation is ready to produce jobs that are tuned to more niche opportunities.

So what does that mean to developed nations who might be upset about losing their wealth?

It means that perhaps the solution to falling wages isn’t to protect existing jobs, but to cultivate new ones by providing everyone with the basic needs they require to survive so that they then can follow up and develop businesses that are more in tune with the needs of the future. Spending time, effort, and money on providing food, water, shelter, and electricity goes a long way in creating stable communities, and therefore economies. If the United States and other developed nations want to vanquish stagnation, they need to stop assisting it by protecting jobs that ultimately do not add anything of value to the economy. If our priority as a species is to create a lasting future, then we can’t leave ourselves obsessed with the present.

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1 Comment »

  1. .US infrastructure is aging. That is where there could be numerous jobs. But instead our subsidies are propping up things we don’t need, or filling the pockets of companies like big oil which were subsidized to get started and later had so much power that no one in the government wanted to cut off the handouts once those industries were self-supporting and wildly profitable.

    Whereas in Germany, they subsidize new technologies like solar to get them started, and then once they’re turning a profit, the subsidies are wound down and transferred to the next emerging jobs-creating market or technology. That way, the standard of living improves, jobs continue to open up, and they weather the ups and downs of global recessions better.

    As just one example: we now have durable road surfaces which can be embedded with solar cells, thus turning roads into highly efficient generators of electricity for cars and city. If the 5 freeway were paved with solar cells, it would power all of California. But powerful lobbies support traditional materials, not new ones, even if the infrastructure revamping would require millions of jobs. So solar roadways remain at the prototype stage, not yet mass-produced (bringing down the cost) because only a few places have decided to install them.

    If we’d always been this conservative about subsidizing old tech at the expense of new, we’d all be paying subsidies for horse feed and buggy maintenance, while motor cars would still be written off as experimental and too expensive to be practical.

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