Wage cuts hurt, but they may be the only way to get Americans back to work

By Steven Pearlstein
Washington Post Staff Writer

Last week, General Motors and the United Auto Workers announced agreement on a new two-tier wage structure that would allow the automaker to produce its next-generation subcompact car in Michigan rather than in South Korea. Sixty percent of the workers at the Orion plant, those with the most seniority, would continue to be paid $28 per hour, while the least senior 40 percent would have to settle for $14. For the company, that works out to an overall 20 percent reduction in wages.

This story provides a interesting prism through which to think about the U.S. economy.

The fundamental economic challenge facing the United States is to get what we consume more in line with what we produce after years of living beyond our means.

Obviously there are two ways to correct this imbalance – increase production or reduce consumption – and given the magnitude of the adjustment, it’s likely we’re going to have to do both.

Since the economic downturn, we’ve made some progress. Households have gone from saving almost nothing at the height of the bubble to saving about 5 percent of their income, even as incomes have declined slightly. As a result, our collective standard of living has declined, at least in the way economists think about it.

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About westvirginiapatriot

Enjoy standing next to my beautiful wife who certainly makes me look good. Just trying to make sense of a world gone awry. My message for everyone...trust in God and hold on tight. We are past the point no return.
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One Response to Wage cuts hurt, but they may be the only way to get Americans back to work

  1. Although I am NOT an economist, I am amazed that very few want to approach this problem from the opposite direction — increase tariffs. While some may feel that these people are overpaid, I feel that are overpaid only in the percent of their wages that they pay in Union Dues.

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