Excluding the top earners in the US economy, Americans on average have seen nearly a decade of stagnant wages.  Most of us are worse off than we were 8 to 10 years ago due to, in many cases, lower wages coupled with higher prices (for homes, food, gas, cable, etc.).  The structure of our labor markets and capital markets are the cause of this problem.  In short, our market for labor is inefficient, meaning it takes a long time for prices (wages) to adjust to supply and demand.

• Lower to middle workers have little to no bargaining power when it comes to wages.  Only the highest earners have bargaining power.  If a mid-level worker counters a job offer, it is extremely rare for the company to accept the counteroffer.  In nearly all cases, the company will simply say no to increasing their offer, leaving you to either take or leave the offer on the table. 


• There is poor information on salaries, making it more difficult to now the market rates.  In addition, there is little uniformity in job descriptions and responsibilities, and salary information is one of the most confidential information a company holds.  Without accurate information, workers have less bargaining power.  The opposite is true for executive level positions.  Information is available to the public, so candidates for the highest level jobs have information to use in the negotiations.


• The extreme emphasis on quarterly earnings pressures companies to continuously cut costs or hold them flat...in many cases this translates to layoffs or insignificant pay increases for mid to lower level positions.


• In years that companies perform well, upper level workers receive performance-based compensation and bonuses.  When the company performs poorly, salaries are rarely cut for the upper level.  For lower to mid-level jobs in good years, salaries are the same or slightly higher.  In down years, jobs are eliminated, and in many cases, hired back later at lower rates.  Many companies do not have performance compensation plans for lower or mid-level workers.


• Our society discourages an open market for low and mid-level employees.  Workers seen looking for new jobs are regarded as obstinate and lost causes.  Job searching needs to be conducted secretly, and often it is not feasible to leave work during office hours to travel to an interview.  Conversely, when a high level executive position becomes available, it is almost expected that qualified candidates bid for the position.


• Boards of Directors or compensation committees are assigned to make sure upper level candidates accept the job offer, leading to exorbitant salaries.  Lower and mid level positions are determined by either finding the lowest-priced qualified candidate, or by finding the lowest price that any of the qualified candidates will accept.


• When a company hires a position, it interviews multiple candidates within a short period of time to determine the best candidate at the best price.  It is normal for an offer to be made when several qualified candidates are found, so if one does not accept a low offer, there are still other qualified candidates.  When a job seeker looks for a job, often it is over a period of months or even years, so there is little opportunity to compare offers from several positions or several companies. 


• Workers are highly discouraged from leaving a company with fewer than a few years of service.  Most companies see this as a strong negative for a job candidate, limiting the potential for workers to find the highest paying position. 

Undoubtedly there are many more factors than those listed above that cause inefficiency in the US job market.  These are barriers that if not eliminated or surpassed will lead to increasing income inequality and years of stagnant wages for lower and middle class workers. 

 

Successful businesses grow, resist difficult times, and pay lucrative compensation to its owners, shareholders, and employees.  For successful personal financial management, I recommend treating your life like it is a business.   Think of yourself as the owner of your business, your family are the shareholders (and possibly employees), and your goal is to maximize the returns to all of the stakeholders.  Most people will find that if they follow these guidelines, they will avoid many of the financial problems that a great number of people face.

• Create and manage a budget and follow it strictly.  Do not spend more than you have, and make sure your plan allows for a net profit to be invested in the future.  If your budget shows a net loss, you should either cut costs or increase revenues.
  
  


• Invest if the future of your family.  Use your profits to spend on items that will benefit your family in the future...education, training, investments, assets, etc.


• Maximize your revenue.  Always look for additional revenue streams to add to your business (life), such as selling on e-bay, advertising on a blog, a part-time job, investments, etc.


• Successful businesses improve gross margins with purchase discounts and rebates.  Don't pass off discounts and rebates that may take some time, but will increase profits.


• Don't be afraid of leverage, as long as you can pay the interest, and ensure that the borrowing is for an asset that will either increase in value or provide income greater than the interest (such as a house or business).


• Always look for ways to cut costs and pay the lowest prices.  Your purchasing department should compare prices from various vendors and choose the best bargain on all purchases.


• Do not add to your payroll if you cannot afford it.  Make sure you carefully consider all of the costs and benefits to adding to your family.


• Make sure your employees are happy...make sure you spend on vacations and other ways to improve the well-being of your family.


• Hedge your costs.  Well-managed businesses hedge the major costs of materials that they need to operate.  For a family, they typically include fuel (oil), food, home costs, energy, telephone, etc.   Hedging is usually best to do when costs are low and you can "lock-in" low prices (ie, now might not be the best time to hedge fuel costs, since oil prices are at record highs).  A way to hedge costs could include investments in ETF's that track commodity prices, energy companies, etc.

If you listen to the financial reports these days, the consensus seems to be that we will enter a short and mild recession.  However, there are various factors present in today's economy that may not allow us to pass this recession so easily as in the past.  We are seeing just about every day reports of major corporations cutting jobs.  It is no secret that unemployment is up and job losses are continuing.  What makes this recession more dangerous is that the people losing their jobs have no equity in their houses they can use to pay bills...nor do they have cash saved in emergency funds.  Why do I expect this recession to be longer and more severe than past recessions?

There is little home equity to help the middle class workers who lose their jobs

I don't see any new innovations or demographic changes to help drive productivity and consumption...in fact, we see the opposite.  Demographic changes are pointing to less productivity.

Our credit is tapped out...we have no borrowing poser left in our houses or credit cards.  Consumers can't borrow any more.  Plus, interest rates are already low...we can't go much lower if the economy continues to worsen. 

The weak dollar make it more difficult for the US to borrow.  The credit of the US is weaker with the weak dollar.

The entire country is already carrying too much leverage.  Leverage is great when times are good, but it makes bad times even more difficult.

The only human resource this country can look to  for  productivity is foreign workers...provided our federal government can figure out how accept enough foreign workers to meet demand.  And the problem here is that the well-educated baby-boomers are retiring and being backfilled by lower-skilled foreign workers.

Prices are continuing to increase.  We haven't seen much CPI data to support this yet, but food and energy price increases will force other price increases.  There is a lag between the time energy prices increase and the time manufacturers of other products will increase prices to cover these costs.

Our country's wealth is held by too few people.  We are depending on the wealthiest 10% of the  population to increase spending and consumption to carry us out of this recession.  However, when spending increases, these same people are just becoming more wealthy, adding even more strain to the middle and lower classes.

US companies are no longer the dominant companies.  We are losing out to foreign competitors.  The best-run companies come out of downturns as stronger companies.  These will be foreign competitors.

When the free markets cease to determine prices, quantities, and profits, the system of Capitalism fails to function properly.  Government intervention is one way to interrupt the free markets.  The Government's role in Capitalism should be to ensure that free markets determine price and quantity.  Unfortunately, we are seeing more and more cases of the US Government intervening in ways contradictory to the Capitalist system. 

• Bail-outs disrupt Capitalism.  Especially bailouts of companies involved in Oligopolies or "cartel" like environments. The US financial system is dominated by few players with access to a disproportionate share of the world's wealth.  Government regulations created this type of environment by creating barriers to entry.  Now, we are in a catch-22 situation where these institutions that control so much money are not exposed to free markets.  A free market would let the inefficient companies fail and give rise to competitors.  We bail out Bear Stearns to drive its competitors out of the markets.  These competitors could have a product or business that is much more efficient than Bear, but we no will never know. 
  
  


• Government should not control the market price of money.  I disagree with any Federal manipulation of interest rates.  The Federal Reserve creates and destroys bubbles with its interest rate manipulation.  The availability of credit should be determined by the market...the market knows best when the market needs credit or when it should limit its access to credit.  The Fed's solution to any financial slowdown is to increase the debt load of the markets...which seems contradictory to common sense.  Slowdowns are the times when the weak players should be exposed and the strong or new competitors emerge.  Making money almost free (artificially) by dropping interest rates only prolongs the failure of weak players in the markets and encourages irresponsible borrowing.