$1.75 Trillion Siphoned from Middle Class

How did the rich REALLY get richer? They ate the lunch of the American Middle Class via a process called “global labor arbitrage”. Exactly how much money does Jeff Immelt make when he ships your job to Mexico? Well, why don’t we just run through the numbers?

In the October 9, 2011 episode of 60 Minutes, Lesley Stahl reported:

“Over the last decade, big American firms have cut around 3 million jobs in the U.S. while adding almost as many overseas.”

And President Obama’s “Jobs Czar” Jeff Immelt, whom the show was about, didn’t contest the point. So, let’s start with 3 million jobs exported. Now let’s make some assumptions: $30 per-hour American workers were replaced by $2 per-hour Mexican, Chinese, and Indian workers. How much does that come to over a 10-year period? Take a look at this spreadsheet:

Using my assumptions, we get $1.75 trillion transferred from former middle-class workers to corporate coffers. Not to mention $349 billion denied to the Federal treasury that those workers would have paid in income taxes. Theoretically, corporations would have paid more income taxes, but as we have learned, they are quite a bit more, shall we say, “deft” at avoiding taxes than the average Joe.

And you don’t have to take my word for it. You can download my spreadsheet and punch in your own numbers. But let’s go back and look at those assumptions.

10 Years?
Factories started moving south in January of 1994, when NAFTA went into effect. So, we are in our 18th year of free-trade, “libertarian nirvana.” Are we having fun yet?

$2 per Hour?
In the good old days of Global Labor Arbitrage, foreign workers were paid much less. I have seen stories of workers being paid as little as 15¢ per hour. Wages are higher now, probably mostly due to inflation, but $2 is likely still a generous scale. A factory recently moved from the mid-west down to Mexico was reported to be paying its workers $70 per week.

3 Million Workers?
Perhaps that is an “official” headcount at multinationals. But what happens when a refrigerator plant in a small town moves? A lot of suppliers to that factory go out of business too, right? And the businesses formerly patronized by those workers also go under: restaurants, barbers, karate schools, movie theaters, dog groomers, etc. How many jobs have really been lost during this period? Ten million?

Pay and Taxes
Is it possible to calculate average pay, and average tax rates? I don’t know, but the evisceration of the Middle Class began with the liquidation of highly-paid union factory workers and information-technology workers in corporate data centers. And when you consider fringe benefits, the $30 per-hour number I have used may be low.

Stats in General
Since corporate money funds most think-tanks, news organizations, and politicians, there simply isn’t much hard data available on this subject. As you can imagine, guys like Jeff Immelt don’t want you to know where their astronomical salaries come from. But this is how it’s done. Maybe one day in the far future, historians will be able to calculate the exact toll taken, but today, we can only speculate.

Global Labor Arbitrage is not a thing of the past. It is still going on. And it will continue until your packages are delivered via UPS robots operated by remote control by Indian sweatshop workers making $2 per hour, and your gallbladder is removed by a surgeon in China operating a surgical robot at your local hospital. As we have seen, offshoring jobs is incredibly lucrative. It won’t stop until there is no more Middle Class and the rich are a great deal richer than they are now.

Of course, the growth of multinationals has created new home-office jobs here in the USA. However, recent studies have shown that the number claimed by corporate propagandists was greatly exaggerated. And while increased profits do get paid to American shareholders, economists say that the rich just don’t spend as much as regular people, and having the rich get richer reduces total economic demand.

So, what then, is the grand total considering all of the above? This is, obviously, a very difficult number to calculate – maybe an impossible number. But when all is said and done, I wouldn’t be surprised if $5 trillion has been extracted from the Middle Class, and $1 trillion denied to the US Treasury.