Wages

Recently news reports have pointed out that wages among the middle class have been stagnant for the past 40 years. The reasons given are the decline of unions and the global market where Americans must compete against lower paid people in places like China. I believe there is another reason that is rarely if ever considered and that is the process of how wages are negotiated. I offer a specific example. In my years as a financial planner, starting in 1971, I had many clients who were teachers at the University of North Dakota. In those days they paid in ten percent of their salary into the pension plan and the university added two percent. As the years passed the university always seemed to be short on cash, so they kept offering a better deal on the pension in lieu of increased wages. Soon the employees paid in 8% and the university 4% and then 6% each and finally the university was paying in 10% and the teachers 2% which was a complete reversal over about a 25 year period. This same thing happened in state, county and municipal government negotiations. It also was going on in the private sector with companies like General Motors offering better pensions instead of increased wages. The end result of all this is the fact that wages did not increase as rapidly as they might otherwise and pension promises made are not going to be kept.