Corporations have been having it all their way for a long time now cutting their costs by creatively reducing payroll expenses, under-funding employee pension and benefit programs, maximizing tax loopholes and not being held responsible for the full cost of the social and environmental harm they are inflicting on things like public health, government safety nets, water and air pollution, carbon emissions.
Trouble is, neither business owners nor labor can have it all their way forever. Pendulums swing back, and financial engineering notwithstanding, eventually sales need consumers and consumers can’t live on credit forever–eventually they need more income and savings to make ends meet. Until consumer debt levels are reduced and household savings are rebuilt in the economy on higher disposable cash flow (through higher wages and benefits and/or lower living expenses), consumption will be weak, and corporate and government finances under increasing pressure. See more here: Why jobs, wages and savings mean weaker profits. Weak wage growth has North Americans saving less. That can’t go on forever:
Without solid wage increases, Americans are maintaining their spending by saving far less than previously thought. Last week’s gross domestic product report showed that personal saving rate—money saved as a share of after-tax income—came to just 3.8% in the second quarter, while the first-quarter saving rate was revised to 3.9% from 5.1%. Up until a year ago, the rate was hovering between 5% and 6%.
…the declining savings rate shows that jobs growth only goes so far. Without wage growth, U.S. companies may struggle to increase their sales.
The alternative is that employers, responding to a tighter labor market, start paying employees more, giving them the wherewithal to spend more. That would increase labor costs and, with companies struggling to find new ways to increase productivity, likely put further pressure on profit margins.
The worst scenario for profits is that wages go up but people put their raises in the bank until their savings rate returns to levels that prevailed until about a year ago. That might actually count as a welcome long-term development for the economy, but for corporate bottom lines, not so much.
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