China-Like Wages Now Part Of U.S. Employment Boom

The China-esqsue income for the general labor pool might not spark a backlash against the Chinese, Washington's favorite punching bag. Instead, it will favor future political backlashes against globalization and the corporations seen driving up inequality -- and driving down mobility -- because of it.
Kenneth Rapoza
August 4, 2017
Workers pack and ship customer orders at the 750,000-square-foot Amazon fulfillment center in Romeoville, Illinois. An even bigger one opened in a blue collar town in Massachusetts this summer, but it pays poverty wages for a 30 hour work week.
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New job? Great. Many of them will pay China-like wages.
 
There is a new 1.2 million square foot Amazon warehouse in the downtrodden Massachusetts city of Fall River. It used to be a mill town, where mostly Portuguese, French and Lebanese immigrants stitched together suits and curtains for sale at Macy's and Woolworth's, both retail power houses owned by the richest men of the day. The city boomed as a cheap labor hub for New York for about fifty years then quietly slipped into oblivion. Average income in this dinosaur mill city is just $35,000 a year, below the national average, and far below the state's average income too.
 
Yet, count those thousands of new jobs at the Amazon warehouse on Friday's blockbuster jobs report.
 
It is without irony that Reuters used a picture of a FedEx delivery center in its headline report on today's news of 2.5% higher wages this year, and the super low 4.3% unemployment rate. Former president Barack Obama truly did give President Donald Trump a head start.
 
Back in Fall River, MA, where 19% of the population are foreign born (more than the national average of around 13%), and at least a third of them are on the Supplemental Nutritional Assistance Program (SNAP), popularly known as food stamps, Amazon's hiring spree here won't make a dent in those numbers.
 
While the Amazon warehouse will help the city collect more taxes (oh wait, Amazon billionaire Jeff Bezos managed a cool $15 million in tax breaks), it won't make the locals any richer.
 
Not all jobs are part-time.  According to the local press, some 1,000 employees are full-time, which of course comes with full benefits, paid leave for new mothers, and career training to help climb Amazon's very tall corporate ladder.
 
Starting pay at the Amazon warehouse, carved out of a large lot with a new road called Innovation Way designed for Amazon-bound trucks, is at $12.75, no degree required. For junior inventory clerks with warehousing experience, the pay is $14.70 an hour and requires a bachelor's degree. Operations managers are full time salaried positions that can pay upwards of six figures, a huge salary in southern Massachusetts.
 
Some of the jobs are temporary hires through Integrity Staffing. The job description for one of the $12.75 an hour gigs includes the ability to stand for 10 to 12 hours straight in a fulfillment center where the temperature will occasionally exceed 90 degrees.
 
In some ways, this is almost like the 1920s, minus the child labor: a retail bigwig, in this case, Bezos and not R.H. Macy, has found a low skilled labor pool in need of money. If you can teach them how to sew a hem on a pair of slacks, you can teach them how to operate a fork lift and punch numbers into a computer.
 
But seen another way, it is not those days of industrial expansion. Because the Amazon hiring that is part of today's job numbers is not indicative of the boom times in that city, when clothiers like Anderson Little (long out of business) made three-piece suits for Manhattan city slickers. The people working at Amazon won't make median income in one of the 10 poorest cities in Massachusetts. It is not much different from the typical retail job, the same ones in the ubiquitous American shopping mall now being replaced by e-commerce.
 
Here's the math: a 30 hour work week at $15 an hour is $450 per week gross, or $1,800 a month. That comes out to less than $22,000 a year. At 40 hours, Amazon warehouse full timers, outside of management level employees, are earning $28,800 before taxes.
 
Fall River sits on the Rhode Island border. In Rhode Island, a family of three with a parent earning $13 an hour qualifies for food stamps.
 
Like any other retail gig, the Amazon employees are likely to be from dual income heads of households, or they will be young, single individuals either just starting out or hanging on for dear life. Amazon warehouse pay is around 30% higher than starting pay at the local mall.
 
The lowest paid workers in that warehouse, assuming 30 hours per week, would earn around $18,000 annually, or roughly $7,200 more than the median Chinese worker; a country where people still survive on $2,000 a year.
 
Compared to the median wages in Beijing, a rich part of China, that $14.75 an hour hire working 30 hours a week is earning $442.50 versus Beijing's median wage of $329.53 per week. The fork lift operator at $12.75 is making $382, not much more the average guy in Beijing.
 
Worth noting, a one bedroom apartment in Fall River costs about $1,000 a month. A one bedroom apartment in Beijing is around $930. The working class in each city are having equally hard times affording median rents.
 
One can argue that a fork lift operator working at the Alibaba warehouses makes less. That is probably true. And of course Fall River's median salary is much higher than that of Shanghai, China's highest earning city. And professional service workers like doctors, even in low income cities like Fall River, earn more there than they do in China.
 
But China aside, in constant dollar terms, median weekly earnings in the U.S. have risen a whopping $15 a week since 2008, according to U.S. Bureau of Labor Statistics. Constant dollar measures inflation and cost of living increases in order to better gauge how far a dollar goes today versus years in the past.
 
In current dollar terms, total weekly wages ended the fourth quarter of 2008 at $727 per week nationwide and hit $863 in the second quarter of this year, according to BLS data.
 
Assuming a recent graduate from the University of Massachusetts in the nearby town of Dartmouth was hired by Amazon at the best possible wage on offer, $14.75, and was putting in a 30 hour work week, they would gross $21,600. (It would be even lower for new hires at H&M.)
 
In 2015, that type of annual pay would be considered poverty unless you were single. U.S. households in the lowest quintile of income earners had incomes of $22,800 or less, according to the U.S. Census Bureau.
 
Comparing changes in household income at selected percentiles shows that income inequality has increased from 1999 to 2015, based on Census findings.
 
Part of that is because the U.S. was hit by a recession in 2001 after the dot-com bubble burst, and again in 2008 after the housing bubble burst.
 
But there is something else worth noting here: China's ascension to the World Trade Organization was a game changer.
 
U.S. median wage growth remains subdued over the last 15 years of China's WTO entry, despite the unemployment rate dropping in half since the Great Recession. The securities market is a runaway train, but why aren't Americans all buying summer homes and IWC "time pieces".
 
Market gains and declining unemployment are not translating into better pay. The same phenomenon is happening in all the major economies. In economic jargon, this is described as the ‘flattening of the Phillips Curve’ says VTB Capital economist Neil MacKinnon.
 
"The impact of globalization and in, particular, the entry of China into the WTO in 2002 increased the global labor supply markedly," he says. "Excess supply of Chinese labor and the stream of low cost Chinese goods into the world economy was a boon for global consumers and contributed to disinflationary price pressures, which some central banks said was the result of their successful inflation-targeting policies," he says, in a jab to central bankers.
 
The after-effects of excess supply from China continue to linger. China now sets the global price of labor in manufacturing and may soon do the same in logistics and transportation. Alibaba, an Amazon rival, is the biggest online sales platform in the world. They're building up warehouses just as fast as Amazon. That is Amazon's competition worldwide.
 
The political and social side-effect of this is lower productivity, the "unskilling" of blue collar workers and to some extent, a weakening outlook for middle income labor, particularly in the manufacturing sector, some investment analysts believe. Chinese disruption in American labor markets is at least on par with Amazon's disruption of traditional retail. This is an ongoing process. But what we are seeing is a balance of things, with China gaining quick in terms of lower to medium-skilled labor in manufacturing, and now logistics.
 
The China-esqsue income for the general labor pool might not spark a backlash against the Chinese, Washington's favorite punching bag. Instead, it will favor future political backlashes against globalization and the corporations seen driving up inequality -- and driving down mobility -- because of it.
 
August 8, 2017