In the past few days, I’ve read a couple of things that, on the face of it, don’t have a direct connection–but they do.

First, Jared Bernstein at the Economic Policy Institute tells us in a “snapshot” that “Wage growth slows for most workers between 2000 and 2005:
One of the most important problems in the current economy is that, despite strong growth in labor productivity, hourly wages for most workers are not keeping pace with inflation. The source of the problem: a one-two punch of slower nominal wage growth for middle- and low-wage workers and faster inflation.”

That would seem odd: after all, when productivity is strong (meaning, when workers are producing more stuff, whether widgets or something less tangible, in less time), that is supposed to translate into higher wages. I have pointed out in the past that the traditional link between productivity and wages has been broken–workers just don’t have the power to bargain for increased wages and the execs are happy to just pocket the windfall for themselves.

But, it’s not just that executives are greedy. Wages are being forced down because of the harsh global economy that functions based on one thing: finding the lowest cost for workers.

And that’s where the second thing comes in: major newspapers are reporting that China’s foreign currency reserves have hit $819 billion and will certainly reach ONE TRILLION DOLLARS by the end of the year. China will surpass Japan as the country with the largest foreign reserves. The Financial Times reported this story yesterday on its front page, while The New York Times catches up today with a story on page four of the Business section.

It’s not a mystery why China has this horde of foreign cash–it is the global engine for corporate production. The wages of its workers are no match for workers in other countries–you can’t get much lower.

And, as a result, wages in the U.S. are not rising, even with strong productivity. Get used to it–it’s the wave of the future…unless the global system is changed.