11 Reasons Why You’re Not Making More Money

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When the mainstream media grabs a certain negative theme, it’s usually more noteworthy than most of us think. One of the apparent contradictions in the current economic expansion has been the notable absence of increasing incomes. Different theories abound. But I’ve come up with a list of 11 reasons why you’re not making more money than you should. After all, with an official unemployment rate trending consistently below 4%, salaries should be rising all over.

That’s not what’s happening, so let’s attempt to dig down into why it isn’t.

1. “Monopsony” (It’s a Real Word and it Really is a Thing)

I’ve heard this term maybe twice in my life. Last week it was mentioned in an article on Business Insider, Here’s why wages in America have been going nowhere.

11 Reasons Why You’re Not Making More Money
11 Reasons Why You’re Not Making More Money

Basically, monopsony happens in wages when a relatively small number of employers collude to suppress payrolls. Investopedia gives an example of how this this may be playing out in the tech industry:

“The technology industry is an example of this type of monopsony. With only a few large tech companies in the market requiring engineers, major players such as Cisco and Oracle have been accused of collusion and choosing not to compete with each other in terms of the wages they offer for technical positions. This suppresses wages so that the major tech companies realize lower operating costs and higher profits. This example illustrates how a group of companies can act as a monopsony.”

I think it’s safe to say this is happening in other industries as well, but they’re are bigger picture reasons why.

2. The Number of Employers is Shrinking

We’ve probably all heard the term “mergers and acquisitions”, but associated it mostly with Wall Street. But it’s a real situation, and it affects Main Street at least as much.

Because of mergers and acquisitions, and other factors, the number of potential employers in America has been shrinking steadily for decades. Fewer employers means less competition for workers, and fewer job opportunities.

Here are some examples of how that’s playing out:

The decline in the number of publicly traded companies. Between 1998 and 2016 the number of publicly traded companies in the US fell by half. 20 years ago there were more than 7,500 publicly traded companies, and now they’re just over 3,600. That’s a massive drop in the number of potential employers, especially since they represent some of the highest paying companies. Nearly every merger or acquisition ultimately results in a reduction in the number of jobs.

Hospital closures. Hospitals are a major source of employment and not just for doctors and nurses. Yet despite a dramatic increase in both the population and healthcare spending the number of hospitals has declined from nearly 7,000 in 1981 to about 5,500 today.

The shrinking banking industry. Between 1987 and 2017 the number of banks in the United States declined from 18,000 to 5,800. That’s a decline of nearly 70% in 30 years.

Consolidation is the order of the day in industries across the economy. Fewer competitors in any given industry means fewer jobs, and more downward pressure on wages.

3. New Business Formations Have Declined Dramatically

Historically, the formation of new small businesses has been a major force for job creation. But in recent decades, new business formations have been in a steady and dramatic decline. The number of new business formations declined from more than 550,000 in 1978, to fewer than 150,000 by 2012.

Entrepreneurialism was once the economic backbone of America – the small shopkeeper, the farmer, and the tradesmen. But today it seems like an historic novelty, as more people pursue jobs in government and corporate America.

The decline in entrepreneurship hurts the job market and wages in two ways:

  1. Fewer small businesses means more potential entrepreneurs competing for jobs instead of starting businesses.
  2. Fewer small businesses means fewer potential employers and the jobs they create.

4. The Rise of the Solopreneur

The combination of the Internet and the high cost of doing business is producing a higher number of solo entrepreneurs, or solopreneurs. Instead of operating a business and hiring employees, the entrepreneur instead works alone. Any additional services needed are subbed out to contractors and other solopreneurs, rather than hiring employees.

I’m an example of a solopreneur as a blogger and freelance blog writer, and I know many other people who are solopreneurs as well. I work from home, online, and have no employees. It’s a growing phenomenon among the self-employed, but further constricts the number of potential jobs.

Employees not only represent payroll expense, but also potential legal liability. Many entrepreneurs today, well aware of the legal environment we live in, would prefer not to have employees. It greatly lowers the potential of facing a lawsuit.

5. It’s Not a Cliché – Machines are Replacing People

When we hear the term “robots” it conjures up visions of some type of robotic humanoid – like Rosie the Robot on the Jetsons – that will eventually replace everyone’s job. But it’s far more stealthly than that. It’s being done by machines that look nothing like robots. It’s been going on for years, and it’s much more common than most of us think.

Here are some ordinary examples:

ATM machines. These not only reduce the number of tellers needed to the man banks, but also reduces the number of physical bank branches needed. ATMs are frequently available in non-bank locations.

Online banking. If I can do my banking online – and I do – I have less need for a bank branch. That further reduces the number of bank employees needed.

Self-serve soda fountains. Have you noticed the number of restaurants installing these devices? They’re not to make our lives easier – they’re to enable restaurants to operate with fewer employees.

Self-serve gas stations. Since employees are no longer needed to pump gas, a station that was once manned by six people can now be easily covered with just two.

More of this is coming. McDonalds has self-serve kiosks in 3,500 restaurants, and plans to have them installed in all 14,000 US-based stores by 2020.

When the machines come in, jobs disappear.

6. Contract Arrangements are Common

Today, 20% of the US workforce is contract. The numbers are higher in some industries than others, but the trend is expected to continue growing indefinitely.

Contract arrangements are simply easier for employers. They can hire skilled workers with no implication of permanent employment. Nor do they have to pay benefits. Best of all, contract workers can fit neatly within the just-in-time strategy most businesses use today. A contract worker will be on a job only as long as the job is necessary. When it isn’t, the contract worker will be gone.

Contract work may be getting more popular, but it transfers all the power squarely to the employer. It also puts greater pressure on permanent workers, since they can easily be replaced by contractors. And I’m going to take it a step farther, and suggest the temporary nature of contract workers is spilling over to the permanent staff.

In today’s job market most jobs are temporary. Even the ones nominally considered permanent.

7. Importing of Workers

In certain industries, particularly IT, it’s become common for employers to bring workers in from other countries. A friend of mine, who runs an IT placement firm, told me that employers would prefer experienced but non-degreed tech workers from India over degreed but less experienced American tech workers. Foreign workers will work for less money, they don’t demand benefits and better working conditions, and they’ll put in more hours.

This is a situation that’s unlikely to change, and it’s putting greater wage pressure even on the most skilled workers in the economy.

8. Serial Economic Crises and the “Happy to Have a Job” Syndrome

We have recessions every few years. But what’s making that situation more pronounced is that each recession seems to be more severe than the one before it. The Dot-com bust was being labeled “the worst economic crisis since the Great Depression”. That was only until the Financial Meltdown hit, and took the title.

Two serious recessions – which might’ve been called depressions in more honest eras – have left worker shell-shocked. Workers are afraid to lose their jobs, out of fear of prolonged unemployment.

But it’s also a double-edged sword. Employers are only too well aware of that fear, and use it to subtly put the squeeze on any employee who asks for a substantial raise.

It’s produced a happy to have a job syndrome. As in an employee thinking I’m happy to have a job, or an employer saying or implying you should be happy you have a job.

The unspoken threat is you could just as easily be jobless. And it keeps salary expectations to a minimum.

9. The Online Job Boards

We might think this is a major advantage in an economy with a very low unemployment rate. But it’s likely that’s been offset by the automation of the job hunting process. Since one individual can apply for dozens of jobs in a single day with the push of a few buttons on the web, competition for jobs is severe.

300 people may apply for a single posted job. Even though only a small sliver of the 300 are actually available to take the job should it be offered, the heavy application responses cause the employer to believe it has more choice than it really does.

It’s convenient for job hunters to apply for jobs online. But the financial benefit seems to be going entirely to employers.

10. The Bogus Inflation Statistics

This is a theme I’ve touched on before (Am I the Only One Who Thinks the Published Inflation Rate is Bogus?) but it’s a major factor with income suppression.

If the Bureau of Labor Statistics reports that the rate of inflation is 2%, raises in tens of millions of jobs will be based on that number. In today’s job market, a pay increase of 3% or 4% is considered a big win. But 2% is much more common. Employers cite the official inflation statistics as the basis of their raises.

But if the real rate of inflation is 4%, and you only get a raise of 2%, your pay has actually declined by 2% in real terms. Over 10 years, your real income will have declined by more than 20%.

This is why so many people feel as if they’re falling behind, despite making more money. They’re making more money based on dollars received. But those dollars buy incrementally less each year. The net result is feeling poorer on a bigger paycheck.

John Williams of Shadow Government Statistics has been tracking inflation based on the way it was calculated in the early 1980s. That was when the government began employing various techniques to minimize the number. His tracking, which I believe to be fairly accurate, shows the real rate of inflation has been running 2% to 4% above the official rate for the past 15 years or more.

This sounds like the stuff of conspiracy theories, but it perfectly explains why so many households feel so financially squeezed. Their raises are based on the official under-reported inflation rate, while their actual cost of living is based on real-world inflation – which never gets reported.

Once again, it’s a win for employers.

11. There’s No Shortage of College Educated Workers

In 1970 1 in 7 US adults held college degrees. Today it’s one in three. That means the percentage of Americans with college degrees has more than doubled in less than 50 years.

As much as we’re being fed the narrative that we need more education to compete, the reality is that there’s no shortage of college educated workers. This helps to explain why an unusual number of college grads are working at Starbucks or driving for Uber.

By at least one estimate, 34% of college educated workers are under-employed, working in jobs that don’t require college degrees.

Mike Shedlock, former worker in the much heralded STEM fields (Science, Technology, Engineering, and Mathematics) chronicled his transition from STEM worker to blogger back in 2014. A brilliant writer and analyst, I count him as an authority on this topic, and well worth reading.

The end result is an oversupply of college graduates. But this extends to the general workforce. Many fields today are in oversupply, which has a depressing effect on wages.

11 Reasons Why You’re Not Making More Money – Where Do We Go From Here?

I just provided an exhaustive list of the reasons why you’re not making more money. But the real issue is where do we go with this?

I have some thoughts:

  • Don’t assume any of this is temporary. We’re dealing with multiple causes, that make the direction clear. Future plans should be based on a continuation of the current trend. If we’re lucky, it won’t get much worse.
  • Spending plans should be based on the most conservative income numbers. In particular, you should have a backup plan in case you lose your job and have to take one that pays even less.
  • Minimize expenses on an ongoing basis. That should be especially true for major living expenses, like housing and autos. Basic living expenses should be minimized, to create greater flexibility at the margins.
  • Work to be the best you can be at whatever job you have. That means taking on greater responsibility, and adding new skills. It doesn’t guarantee a higher income, but it does increase the chances.
  • Look to broaden your income base. Most jobs today only pay so much. Your ability to increase your income may come from outside your job. Inventory your skills, abilities, and desires, and see what you come up with.
  • Starting some sort of side business should be a consideration. Avoid generalizations like “I’m not cut out to be self-employed”, or “I’ve never done that before”. Anyone can become self-employed. It’s just a matter of finding what it is you like to do – or do best – and monetizing it. You don’t have to quit your job, a side business will work just fine.

Have you been stuck in a limited pay level? What are you doing to deal with it?

( Photo by Frankieleon )

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12 Responses to 11 Reasons Why You’re Not Making More Money

  1. Another great article, well written and extensively researched.

    Another reason for lower pay could be the increased cost of having employees. The increase in healthcare cost effects both employee and employer, add in rules on maternity leave and sick leave, increase local payroll taxes increased government regulations, it really adds up quickly. The larger companies can absorb these cost pretty easily but the local mom and pop selling yogurt really take a hit.

    Also a possible reason for lower pay could be related to last weeks article on the aging population still working. Now they may not be in the high pay high stressed jobs but they are willing to take on part time work at lower pay to “fill in” the gap in their retirement. I know several “retired” workers that work 20 hours a week at bare minimum wage, $11.40 here in WA. Some companies are taking these responsible part time employees and using them instead of full time worker.

    And the last thing is the real unemployment rate, the U6 number, which still is around 7%. I am not sure if that is anything significant or not.

    Great job,
    rick

  2. Thanks Rick! You’ve added three good reasons. I did think about the cost of employment, but I had to stop at 11 and the article was already well over 2,000 words. The ones I did include I wanted to discuss at some length. I had not thought about the impact of people working in the retirement years, but that ironically could be depressing wages. As to the 7% U6, my sense is it’s a lot higher than that. Government uses contorted counting methods to keep numbers better behaved. In fact, a couple of years ago George Gallup called BS on the U6, saying their surveys indicated it was much higher.

    We can probably come up with 20 or more reasons why raises are hard to come by. But the take away is that we need to

    1) acknowledge the problem
    2) realize it isn’t going away, as it now seems built into the economy and job market
    3) recognize there are no political solutions, under the assumption politicians even know what’s going on with the average person
    4) we have to adjust both strategy and tactics to deal with it

    #4 is particularly important. Normalcy bias causes people to assume the future will be just like the past. But it’s clear we’re moving in a very different direction. This is clearly one of those situations were forewarned is forearmed. And being prepared with new strategies is even better.

    My bigger concern is it will all accelerate in the next recession, which is why preparing now is more important than we think.

  3. John Williams is great. I believe his numbers also. I can tell you unemployment is around 15 to 20 percent where I am. I am a business also with no employees. My wife and I do it all. I cannot or will not pay the cost of having employees in New York. It does limit my growth but I don’t care. I maximize what I make and keep my expenses low.
    We have been checked every two years by an insurance auditor because they have a hard time believing I don’t have employees based on what I make.
    It’s a shame because I would have loved to help out a few of my friends with some jobs but I can’t absorb the cost.

  4. I’m right there with you Tim. I’m at a point where I need to hire an assistant, but that’s a hornet’s nest I don’t want to step into. Better to find ways to up my game, while lowering my expenses. Plus I’ve always been the type who has my plate full managing myself, I’ve never wanted to manage others, even when I was in my 20s and 30s. That brings people problems into the mix, and that’s when things get complicated.

    I think a lot of self-employed are aware of that and it explains the solopreneur phenomenon. There are too many costs and liabilities when hiring. I also think simplifying life is a reward all its own, and that works better when you work alone.

    I wish it were otherwise, but it’s the world we live in. Doug Casey has dared to contemplate where the economy would be today without all the government imposed taxes and complexities. It boggles the mind, but that’s not the world we live in.

    After writing this article, it hit me that things are even more complicated than I think, and that’s pretty bad! Our problems really are systemic. Notice I didn’t even include the most common “bad guy” – immigration. I don’t think that’s close to being the major problem it’s made out to be. But the media and the politicians like nothing better than us-versus-them scenarios, so they play for all it’s worth.

  5. No imagration is not really an issue at all. It’s no where near what the government makes it out to be. It’s a convenient scape goat. In my opinion you have to be totally desperate to come here anymore. There is no opportunities for people who can barley speak the language. They are hopelessly taken advantage of. I am talking about coming here legally. I live in a neighborhood that is twenty percent refugees. They have so many problems being taken advantage of. Anyway that’s another topic.

  6. In response to some working later into life, I never, ever, ever dreamed I may have to work after I retire but I do believe I am going to. I did a lot of the right things in life to save and lived frugally but it just isn’t going to be enough. A divorce and raising the kids alone set me back. Good news is that I got the kids:)
    Our local swimming pools hired senior citizens, this year, for life guards. It was great!

  7. Hi Ruth Ann – That’s very interesting about life guards. Maria Rose mentioned that in a comment on another article today. It’s good news when you think about it. Opportunities are opening up for older workers that weren’t there a few years ago, mainly due to the fact that younger workers are less likely to hold jobs (the emphasis today being on education, and no longer working while going to school).

    It’s good to have more options, though that isn’t one I’d want to take. But there are more opportunities than we generally think. It’s really about expanding our minds and adapting to the new realities of our time.

    Please don’t feel bad that you may have to work in the retirement years. Even if you did everything right, life still can get in the way. It’s messy much of the time and that has consequences. But it doesn’t mean you’re abnormal. Quite the opposite, you’re very normal. Count yourself lucky you’re aware of what the future holds, and not walking around with rose colored glassed like millions are. Better to be aware and prepared than to be caught off guard. My own strategy has always been that if you know something unpleasant is likely to happen, it’s best to do what you can to manage the situation to your advantage, rather than letting circumstances determine your fate.

    You’re halfway there if you’re facing reality.

  8. Interesting article. And so sad/scary.
    I am in a field where I, luckily, get paid for what I produce.
    However, I am very worried about the future of my sons, who are currently 10 and 12. I do not want them to end up working in retail, etc…and even worry that college is not the answer, either. I say learn a trade. That’s what I did. I am more knowledgeable about the world than a lot of college grads (a lot of my learning is due to the nature of my job) and I earn more than most college grads. I work for myself, but I do have the option to work for an entity or government if I choose to. Trades are looked down on, unfortunately, but learning a skill, advancing your knowledge and training throughout career, enables one to make good money and be in charge of themselves if they desire. Then, one can always take “college” classes of interest to further one’s mind expansion.

  9. I’m completely onboard with what you’re doing Jandriene. It’s when you learn a tangible skill – one that you can sell to the general public or small businesses – that you regain control over your occupation. Cookie-cutter occupations are the ones most subject to all the limitations we’re talking about. I only developed that ability late in life, and I’m seriously glad I did. There was no career path for me with blogging, but even with such a loosely defined occupation, you find you can adapt and learn what you need to. It takes courage, relentlessness, and a willingness to find something deep inside and let it out. And I know the hand of God was with me, as always.

    I also fully understand your concern for your kids. Mine are in their 20s and my wife and I worry for them. They’ve been taken by the media portrayal of the good life, so we feel they underestimate the challenges they face. Our son was never academically motivated so college was out for him. We’ve been encouraging him learn a trade but he’s been resisting that. I’ve been encouraging self-employment, but he has no concrete ideas. Our daughter flat out refused college. She says everyone she knows who went is buried in debt and working two or three jobs. (A slight exaggeration, but I’ve seen plenty of that too.)

    A few years ago, a high school principal said to me and another gentlemen, “I’m a high school principal and I don’t know what to tell these kids, or my own kids, what they should do with their lives. Everything is so uncertain.” That’s just the reality of the world we’re in, and I applaud him for acknowledging it.

    It’ll all work out for them and for us, as long as we stay on top of what’s happening and adjust accordingly. And naturally we should expect some of it will be uncomfortable. But a lack of comfort isn’t terminal.

  10. Your daughter is smart Kevin. She just needs to find her path now. I applaud her for refusing a life time of slavery with college worthless debt. Finally I hear a smart young person think in reality.

  11. She’s actually doing quite well for herself. She works in a privately owned restaurant where she’s a server and sometimes bartender. But she makes pretty good money, saves regularly, and lives well. Her work ethic and money management skills in my opinion are worth a college degree by themselves. We’re both of the opinion (as are others) that she’ll do well for herself, regardless of where life takes her. She has a lot of the skills (especially people skills, logic and the willingness to heed good advice) that you can’t teach. She’s much more mature than other 22 year olds, at least in most respects. But there are times when we’re reminded she’s only 22. But otherwise she makes us look good as parents.

  12. I know. All three of my kids are on the honor roll. I barley got out of high school. I wonder how that happened. Lol
    She sounds like a smart girl. Good for her!!!

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