5-16-05, 9:49am

Labor Research Association

The Bush administration’s attempt to dismantle Social Security and push more health care costs onto individuals coincides with the longest slide in real wages in two decades. As labor costs in the United States continue to decline, employers in other advanced nations will feel pressured to lower their costs to avoid further erosion in their competitive position.

Although we typically think of developing nations as the primary setting for the race to the bottom in labor costs, the competition is now unfolding between the U.S. and the other developed nations, which compete as exporters and as locations for foreign direct investment.

Under the Bush administration, the United States is leading the race to the bottom in wages, benefits, working conditions and social protections. Many of the companies that once considered investing in Western Europe or Japan are now investing in the U.S. as the new low-wage center of the developed world. Bush’s soft dollar policy has also made the U.S. a low-cost location at the expense of Europe.

Average total annual compensation for U.S. workers now stands at $33,195, compared with $50,445 in Germany, $46,541 in the U.K., $45,879 in France and $45,839 in Japan, according to new international pay data from Mercer HR Consulting, the largest human resources consulting firm in the world and the source of widely respected compensation studies.

Employment costs in the U.K. are now 40 percent higher than in the U.S. In Western Europe, costs are 23 percent higher than in the U.S., according to the Mercer survey data. Although the U.S. is commonly considered a high-wage nation, the decline in real wages and the sharp rise in the number of low-paying service jobs has greatly reduced the average wage.

Workers in Ireland, which was once considered a low-wage country, now average $38,259 a year in total compensation, well above U.S. rates. In wages alone, Irish workers now earn $1,200 a year more than their U.S. counterparts.

U.S. workers already receive only a fraction of the benefits and social protections that workers receive in Europe, Japan and even some of the less developed nations of Asia. U.S. employers now enjoy a growing competitive advantage in costs for both legally required and voluntary benefits, while conditions for U.S. workers continue to deteriorate.

The average annual employer contribution for Social Security in the United States is $2,196, compared with $8,274 in Germany, $2,972 in the U.K., $10,913 in France, $3,219 in Ireland and $5,183 in Japan. The U.S. employer contribution is even lower than the employer cost in less developed Eastern European nations, such as the Czech Republic ($2,385) and Hungary ($2,388).   Even in China, where wages are a fraction of the wages paid in advanced nations, employers contribute $851 a year per employee for social security benefits, according to the Mercer survey.

U.S. employers also benefit from the already low and declining level of workplace and labor market regulations. U.S. labor markets are among the least regulated in the world, and employers are free to hire and fire at will, while protections remain in place for workers in virtually every other country, including many developing nations.

In the World Bank’s index for the rigidity of regulations covering hiring, firing and hours of work, the United States scores a three on a scale of 0 to 100, with 100 indicating the greatest degree of regulation. The score for most European nations falls between 40 and 65. Most Asian nations, including China, India and South Korea, score between 30 and 50. Japan’s score is 24; the U.K.’s is 20. Among major nations, only Singapore and Canada share single-digit scores with the U.S.

Unregulated labor markets have allowed U.S. employers to drive labor costs to lower levels since the 2001 recession. The ability to hire and fire at will reduces the leverage employees might have in demanding higher wages.

Conservative commentators and members of the Bush administration claim that U.S. workers benefit from the lack of labor market regulation because the flexibility built into the system allows employers to bounce back quickly from downturns and generate more employment. In Germany and other Western European nations, they note, unemployment hovers around 9 percent, compared with the official rate of 5.2 percent in the U.S. The total unemployment rate for the U.S., however, is 9.0 percent, a number that includes discouraged and underemployed workers and represents a more accurate picture of U.S. unemployment.

© 2005 Labor Research Association