The “economic recovery” that has been portrayed by the media and the current administration, primarily for the purpose of covering up very bad policy mistakes, is a lot less than what it seems. There seems to be a vast disconnect between ivory tower economists espousing economic theory and “real world” economics where the vast majority of Americans live. That is the point that I want to address here today…not as a financial commentator, analyst or economist but as a “real world” small business owner.
In today’s world I am one of those evil corporate individuals that is trying to run a profitable enterprise for the sole purpose of creating…wait for it…a “profit”. I know, that is a politically incorrect motive and I should be chastised by the masses for even harboring such a ludicrous and outmoded ideal – however, I have families that rely on me for a paycheck and in order to make sure that they have a “job”; I have to do what is necessary to try and remain in business in a very weak “real” economic environment.
I speak to hundreds of business owners all experiencing the same problems right now, today, this minute. Weak demand from consumers, rising costs of doing business, uncertainty about the future strength of the economy and the impending increases in payroll costs and health care benefits (which are the largest costs to businesses) all weigh on business owners and their ability, or desire, to increase production, hire and/or raise wages. However, in order to maintain current payrolls and profitability, there is that dirty word again, productivity must be increased why holding wages as low as possible. These are the facts, the reality, but this is not the “American Dream” that I was told about when I was growing up where in this country “if you work hard, you get ahead.”
Well, today, Americans are working harder than ever and earning less. Compensation has been on a steady decline over the last decade and unit labor costs have plunged over the last couple of years as staffing has been cut to the bone in order to keep the doors open.
Working Harder – Earning Less
The problem is that the cycle is pervasive and extremely difficult to break. As we point out in our recent posting on the “Virtuous Economic Cycle” the entire cycle must begin with the consumer because if there is no incremental demand increase on business they are not going to hire, increase production or expand. It is basic math and if the average consumer is worker harder but bringing home less, while food and gas are eating up more and more of their average wages and salaries, the incremental demand increase that businesses need to start hiring is not available.