Tuesday, August 09, 2005

Labor Turnaround?

Productivity growth at 2.2% with Labor Unit Cost up 2.9%, in the face of Unit Labor Cost having risen 4.3% year over year; complicated by the fact most of the Labor Cost came not from Wage increases, but Benefit Costs. What does this say? Workers are losing ground, while Corporate Health and Insurance are demanding higher Profits and rates of compensation. Then $64/barrel Oil enters the Picture, and The Fed has to raise Interest rates to curb Inflation while providing support for the Dollar.

What is the Outlook?

Workers are going to raise Wage Demands to pay for the increased Living Expenses generated by higher Energy Costs and higher Credit Costs. Employers will continue to drop Benefits from their Employment package--the major element being Health Insurance. The elimination of Employee health insurance will lead to larger Wage demands, sharp reduction in Health Care utilization, and vastly increased reliance upon Emergency Room care. Employers will be forced to pass Product production costs along to the Consumer, while providing less Service to both Consumer and Employee. Health Care industry Profits will decline by an expected 30%, and should decline by 80%. Tax liability will rise dramatically, no matter what the Tax rates, as Government debt spirals without effective Tax rates.

This Author believes that base of Power will shift from Employer and Corporation to Labor. Oil price and consumption will stay high, while Profits will decline in the Oil industry; Crude Oil prices will remain high because of Hedge Fund speculation until American Refining capacity matches American Energy demands. Hedge Funds, though, are not a good Bet; they will lose as much as they gain, as other industry Profits drop. Labor, abused by loss of Benefits and higher Living Costs, will demand a slower Production schedule, more Help, and a standardized Workweek. Employers will have to concede, as they must get Labor's concession to loss of Benefits. Productivity will become negative growth.

Solution: Effective Tax Rates (Sometime this Author will explain that) lgl

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