Thursday, November 12, 2009

Take 20+% Pay Cut or Never Be Employed Again (New Economic Theory)

I subscribe to the NY Times and the Wall Street Journal. Today I didn’t get my papers. So I called customer service to request a replacement and I spoke to a very nice girl named Rica. She works in the Phillipines.

The average Phillipine call center worker makes a daily wage of $9 (that's $2250 annually) with some companies forking over $14 a day. This is from a corporate call center website. It's not trying to expose wrongdoing. It's offering instructional guidelines for any company seeking to outsource their customer service.

Yesterday the NYT ran a story under the headline American Wages Out of Balance in their column that starts:

“American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close.”

The high productivity that’s raising the boats in the stock market is due to massive layoffs. As to what caused that unemployment, it’s debatable that it was overpaid American workers. Except perhaps in the financial sector.

Goldman Sachs is going to pay out the largest bonus pool in its 140 year existence and the rest of the few financial monoliths will do the same. In other words, the financial sector which now has less competition than ever and free credit lines from the government will be rewarded handsomely for creating and leveraging phony assets, spreading them around the globe and getting bailed out by the American taxpayer. Are they worth the money? And how much more will they make in the future?

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.
"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

The implied threat here is that unless the American labor force takes an average pay cut of 20%, we will achieve levels of unemployment similar to the first Depression. I got news for you, Edward Hadas, Martin Hutchinson and Antony Currie (the writers of this analysis, which I’m sure will be adopted by many firms sitting on mounds of cash and still not hiring), we’re already there.

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