Thread: How the minimum wage works

[QUOTE=Gun Grape;480886]



Every time I hear stuff like this it makes my blood boil. You see a van of hispanics and assume that they are illegal. QUOTE]

I live in New Haven CT on Orange st. It is like the Capitol of liberal America We the City are pretty welcoming to illegals if you've watched the news. It's their explotation that hurts them and American workers I oppose. I understand they are here to make a better life for themselves. I do not assume every van is illegals. I do know from a friends experience as a Personal manager that a big percentage of "legals" arent. That isnt a moral judgement. My moral disdain is for the people hiring them whether they be Homeowners, construction companies or sweat shops.
Immigration raids target ID thieves - Crime & courts - MSNBC.com
Houston - News - Swift Meatpacking Plant and Illegal Immigrants

Report: 5 Percent of Labor Force Are Illegal Immigrants : NPR
The number of illegal immigrants in the United States has grown to nearly 12 million, according to a new report by the Pew Hispanic Center. Pew says that illegal immigrants make up nearly five percent of the labor force. About 20 percent of that population works in construction, and four percent is employed in agriculture.
Study Links Use of Illegal Immigrants With Construction Site Safety Violations - June 17, 2005 - The New York Sun


The departure of 400 illegal workers before the raid was enough to raise salaries by $1.95 per hour.
The United Food and Commercial Workers filed grievances over the company’s interviews, although after the workers left, the Marshalltown plant raised its starting wage from $9.55 to $11.50 in an attempt to fill the vacancies, said Jim Olesen, the union’s local president
Swift raid largest in American history | DesMoinesRegister.com | The Des Moines Register
9% of Swift's 15,000 meat packers were arrested.

I am not anti illegals but I do live in the real world and I do know many are employed in Construction, Hospitality, Groundskeeping and Meatpacking and I do know their illegal status drives wages down. I am not against them being here I am against allowing them to be exploited which hurts them and American workers and saves me a couple cents on a pork chop. I don't want a fence I want a system that makes them legal and not in an invisible economy that is HUGE

Originally Posted by Gun Grape

SO whos' going to change the light bulbs when they go out over your desk, fix the leaky faucet,clean the restrooms, empty the garbage?

Everyone doesn't need to be in a tech job.

yep we do and if we made an investment in training the many who could have technical skills like mine that create wealth we could pay the lightbulb guy more. trust me there are plenty of people that changing that ligtbulb is as technical as they can get. Hell, we might even be able to raise the minmum wage if we could stop transferring all our wealth overseas and start creating it again.

[QUOTE=ba1025;481027]

Originally Posted by Gun Grape

Every time I hear stuff like this it makes my blood boil. You see a van of hispanics and assume that they are illegal. QUOTE]

I live in New Haven CT on Orange st. It is like the Capitol of liberal America We the City are pretty welcoming to illegals if you've watched the news. It's their explotation that hurts them and American workers I oppose. I understand they are here to make a better life for themselves. I do not assume every van is illegals. I do know from a friends experience as a Personal manager that a big percentage of "legals" arent. That isnt a moral judgement. My moral disdain is for the people hiring them whether they be Homeowners, construction companies or sweat shops.
Immigration raids target ID thieves - Crime & courts - MSNBC.com
Houston - News - Swift Meatpacking Plant and Illegal Immigrants

Did you read the part about Swift using the federal Pilot database to check all their employees. Don't blame the company for this. Blame the federal government. Would you suggest that we just don't hire hispanics to be on the safe side?

The departure of 400 illegal workers before the raid was enough to raise salaries by $1.95 per hour.
The United Food and Commercial Workers filed grievances over the company’s interviews, although after the workers left, the Marshalltown plant raised its starting wage from $9.55 to $11.50 in an attempt to fill the vacancies, said Jim Olesen, the union’s local president

I would say that Illegals had nothing to do with wages. It was the Unions.
$9.55 seemed to be good enough for the unions I assume they did negotiate that in their last contract.

Notice that when Swift thought someone was illegal and they set up/demanded interviews to dig into the persons legal status, the Union filed grievances to get the interviews stopped.

Yet we blame the company instead of the union.:(
Get rid of unions and the US will be a better place. Then individuals can negotiate for what they are worth.

Originally Posted by Gun Grape

I haven't been doing this as long as JAD. In fact I got in the construction business in 2002 and didn't get my GC until 2006.

That's neither here nor there. You've certainly gotten your baptism by fire and you sound like an old hand now.)

You brought up the part I didn't mention, namely the incredible increases in materials during the boom, like in steel. A 50# box of 12d sinkers went from $18 to $36 in about a year. And vinyl and any petroleum based product soared, I was getting notices from my supplier every 6 months of another 7-10% increase, and when you're in the middle of a job, there's nothing you can do but eat the loss. And shingles...forget it. Concrete went from $69 a yard to over $100 in a year. For those who don't know, a yard is 27cu.ft. and will cover an area of 3x27 by 4" deep. The only constant right now is framing lumber and plywood.

You spoke of residential hookups to public water & sewer. They were $2,500a house in my locality for years and then climbed to $8,000 in the space of two years. They are $25,000 closer to DC. Impact fees are anyone's guess. They change from project to project. Now we have to do silt fences even on the upper slopes...insane.

The fees you cited for permits seem to missing a decimal point. At $25/sq.ft. and up the cost of building a house would be prohibitive.

I am not being hassled for hispanics on job sites like you are. Maybe that's because my area has a long history of migratory workers, it being an major apple growing region. Still, I have begun insisting that they show me proof of being legal. People would be amazed at how many do have papers. They sometimes send in a front guy who has papers but when the job starts, several new faces come in with them...hmmm.

Well, yes, the money is good, but rising costs have more or less negated our gains, wouldn't you say?

However, in 2001 a frame carpenter with little experience could expect to start at around $8 Hr. Now the going rate is around $12. So the workers have seen an increase in pay.

The word up here is avoid Florida...lol. The pay sucks, and I can see why. A junior framing carpenter here was making $8 an hour in 1980. By 1995, they were making $12-15, and a lead was up $18. Now a lead is $20-30/hr with truck supplied, and higher if you're union.

As for all that GC studying, Virginia assumes you're learning by experience, and while they're tight on the initial testing, they don't put us through continuing courses. Geez, where would we find the time to run a biz and go to school?

Studies in California claim that most illegals are hired by homeowners vice businesses.

I agree. Homeowners don't realize the incredible risk they take when they act as their own contractor. They are always one step away from liability suits. Their insurance can refuse to cover damages from, say a faulty plumbing job that wasn't permitted and inspected, and was performed by an unlicensed plumber. And if the plumber is hurt at the house, he can sue the homeowner. Every once in awhile I hear of a horror story, like the homeowner who was sued by a gardner because the latter torn a ligament while diginga flower bed. Doesn't seem fair, but that's the law...

I emphasize with you, brother. But ain't it fun being your own boss? Not for everyone, but I love the pressure...

Originally Posted by Gun Grape

Yet we blame the company instead of the union.:(
Get rid of unions and the US will be a better place. Then individuals can negotiate for what they are worth.

Thugs and sleazeballs always find comfort in numbers but they are quick to use the law for their own behalf while denying that right to others. Jaundiced? Me? You must be dreaming )

[QUOTE=Gun Grape;481031]

Originally Posted by ba1025

Did you read the part about Swift using the federal Pilot database to check all their employees. Don't blame the company for this. Blame the federal government. Would you suggest that we just don't hire hispanics to be on the safe side?



I would say that Illegals had nothing to do with wages. It was the Unions.
$9.55 seemed to be good enough for the unions I assume they did negotiate that in their last contract.

Notice that when Swift thought someone was illegal and they set up/demanded interviews to dig into the persons legal status, the Union filed grievances to get the interviews stopped.

Yet we blame the company instead of the union.:(
Get rid of unions and the US will be a better place. Then individuals can negotiate for what they are worth.

Anyway you slice it illegal immigration is a downward pressure on wages.

Union negoiate based on their bargaining position. With the number of illegals available for hire that was the best they could do. Funny how when the labor pool didnt include illegals wages went up and the company was still profitable. Well, it wanst funny it was market forces.


I think it's a real stretch to blame the union for Swift's poor personnel management


In America we respond to challanges we dont fall back on we did the best vetting we could WINK WINK.

Like my friends firm Swift and other meat packers "vet" their applicants with a cursory glance. They want the cheap illegal labor. They want workers who have no real recourse beyond that union due to their legal status. My friends issues with the social security numbers she had been given started when she saw many guatamalians who didnt speak english with anglo names. That govt program is a joke it was met to assauge people not solve any problems. Do you think having 5% of our workforce made up of ilegals good for America? I am sure it was the same there but once it was a "valid" number Swift didnt care.

It's not like Swift bothered to ask for two forms of ID when John Brown/ Phill kendrick/ Bart Starr or whomever's identity was used showed up speaking spanish and gave them his social security to get the job and offered to work cheap... the govt doesnt verify who the applicant is is it so much to want a second form of ID?????

TO say you believe Swift had clean hands is to choose to live in Cognitive Disssonance

Now, excuse me my chaep pork roast is almost done

[QUOTE=Gun Grape;481031]

Originally Posted by ba1025

Get rid of unions and the US will be a better place. Then individuals can negotiate for what they are worth.

Yes we would be like China!

[QUOTE=ba1025;481114]

Originally Posted by Gun Grape

Union negoiate based on their bargaining position. With the number of illegals available for hire that was the best they could do. Funny how when the labor pool didnt include illegals wages went up and the company was still profitable. Well, it wanst funny it was market forces.

How do you figure? Swift is not in a position where they can just kick the union out of the factory and hire cheap labor.

I think it's a real stretch to blame the union for Swift's poor personnel management

Are you saying that they didn't block interviews of union employees when the company was trying to determine questionable employment documents or other things that raised a red flag?

The union rep said that they did. So yes I do lay blame on them.

In America we respond to challanges we dont fall back on we did the best vetting we could WINK WINK.

Oh, BS. We follow what the law says. Which is what Swift meats did and if you followed the story you would see that they were not fined or charged with any crime in regard to hiring illegals.

Like my friends firm Swift and other meat packers "vet" their applicants with a cursory glance.

Do you know the requirements? Are you willing to give a "Cursory glance" when YOUR name goes on the document saying that you have seen the required documentation? Knowing that your signature lays the blame at your feet? You pay the fine, you go to jail.

Sounds like some urban union myths about the big bad businessman boogie man.

It's not like Swift bothered to ask for two forms of ID when John Brown/ Phill kendrick/ Bart Starr or whomever's identity was used showed up speaking spanish and gave them his social security to get the job and offered to work cheap... the govt doesnt verify who the applicant is is it so much to want a second form of ID?????

Once again, you show that you have no idea of what you are talking about. What are the INS requirements for employment? Do you even know the form that you are talking about?What documents must the employer see, certify that they look real, make copies of and keep on file?

Swift did everything that was/is required by law. In fact being part of the Pilot program they actually did more.

What would you have them do? Deny someone employment because they are Hispanic with an Anglo name? Will you pay my lawyer bill when I get my tail sued by every civil rights group in the United States to include the US Government.

Originally Posted by ba1025

Originally Posted by gun grape

Get rid of unions and the US will be a better place. Then individuals can negotiate for what they are worth.

Yes we would be like China!

Wish to state why you think that?

Originally Posted by JAD_333

Lost in all this is what method is used to collect the statistics.

Unrelated to the above but of similar interest is the official poverty rate. When we say more people are slipping into poverty or escaping it, what is the dividing line and how is it set. And if there is a national definition used by gov't, does it take into account regional influences. An annual income of $25K in NYC goes a lot less farther than it does in Capon Bridge, WV.

Anectodal evidence may not count, but it seems to me just from conversation in my neck of the woods, benefits are being pared back, especially medical. Employers are struggling to keep up with rising premiums with the share they pay and workers are shelling out more for their part. I assume that employers who do pay the higher premiums are more reluctant to increase wages. I read an article about a company that is using full medical benefits as an incentive to lure tech workers, but the pay is less. Ostensibly, there is a tax advantage since med benefits are not taxed.

JAD,

Here's a paper on the Bureau of Economic Analysis' website that talks about how they use multiple sources to calculate the National Income and Produce Accounts information that underlay our calculations of GDP, balance of payments, etc., to include the information to determine labor's share of GDP.

http://www.bea.gov/papers/pdf/china_...ng_methods.pdf

As with any statistic that is an average, there will be values above and below the average, so it's quite possible that you have anecdotes that don't jive with the average, as there will be others out there that will have an anecdote that also doesn't jive with the average, but fall out on the opposite side as yours.

However, I think that it was the way I expressed "benefits" that may be throwing you off, or at least accounting for a lot of whatever difference you see. I was referring to the monetary value of benefits as opposed to the real value of benefits. Thus, as a particular benefit is getting more and more expensive, e.g., the cost of medical services is increasing faster than inflation, an employer can either try to maintain pace with the rising costs and then reduce wage/salary growth as you mentioned, they can try to keep monetary costs of benefits constant with inflation and provide less real value of benefits, or something in between.

The figures show that they are trying to stay towards the spectrum of maintaining the real value of benefits, with the tradeoff being slowing down the size of the growth of the paycheck that hits the bank account. At least within the health insurance context, it is actually a good thing for employees, since 1) trying to get health insurance on their own would most likely be more expensive since businesses can pool risks to keep costs down and 2) since benefits don't show up in the paycheck, you won't have Uncle Sam levying as big of a tax whammy on you in 3 days.

For the purposes of the original discussion (labor's share of national income), the fact that the real cost of some benefits is rising isn't pertinent (this is somewhat misleading from the standpoint that the capabilities of medicine is increasing, although there's plenty of cost structure issues with the setup of the health system, but that's best left for another thread). Whether or not the real costs are remaining constant or rising, the fact remains that employers are spending more on this and labor's total compensation share has remained in a pretty tight band around the long-term average.

Originally Posted by JAD_333

You brought up the part I didn't mention, namely the incredible increases in materials during the boom, like in steel. A 50# box of 12d sinkers went from $18 to $36 in about a year. And vinyl and any petroleum based product soared,

I'm was planning on building my son a "Clubhouse" in the back yard. Thought I would vinyl it. Last time I bought siding was 3 yrs ago. A box (2 Sq) went for $90-120 or $45 to $60 a square. Went Friday to a vinyl supplier
and for a medium grade siding it was $270 a box. The cheap (Lowes/HD grade) was $193. I can Hardy plank and paint it for less. Holy crap. It use to be easy to sell a siding job. At the prices now it would take a really good salesman. Paint prices didn't jump that high.

The fees you cited for permits seem to missing a decimal point. At $25/sq.ft. and up the cost of building a house would be prohibitive.

Starts in Oct. The State told counties to roll taxes back to what they were 10 yrs ago. This is one of the "Alternate" means that the county is going to use to make up for the lost property taxes. Right now it is a sliding fee based on "Valuation" of the property/work.

What they plan to do is incorporate the Building permit, Hivac permit,911 address fee, fire inspection and a few others into one set rate. This is the $65 SqFt rate.

I am not being hassled for hispanics on job sites like you are. Maybe that's because my area has a long history of migratory workers, it being an major apple growing region. Still, I have begun insisting that they show me proof of being legal.

Our local sheriff was running for reelection and after the national fiasco with the "Boot camp beating death" decided that he would get "Tough on Immigration". Like everything else, these things will pass. Much better that when he started the program. Didn't need a complaint. he would have a few patrol cars wheel into a job site with lights and sirens. If someone ran, they stopped all work and ran background checks on everyone. Like there has never been a worker on a site that might be a little late on child support, have a little dope in his pocket or have an outstanding warrant. That turned out to be illegal for him to do. Now someone has to complain.

Well, yes, the money is good, but rising costs have more or less negated our gains, wouldn't you say?

Yea, there is a large amount of cash flow. But I'm not any richer

The word up here is avoid Florida...lol. The pay sucks, and I can see why. A junior framing carpenter here was making $8 an hour in 1980. By 1995, they were making $12-15, and a lead was up $18.

We may be talking apples and oranges. I mean a kid right out of school that might know how to read a tape measure. A good junior carpenter starts around $17

Now a lead is $20-30/hr with truck supplied, and higher if you're union.

A good carpenter won't pick a hammer up for less than $25 around here. Some of the big builders around here are paying their leads in the $50 range.

As for all that GC studying, Virginia assumes you're learning by experience, and while they're tight on the initial testing, they don't put us through continuing courses. Geez, where would we find the time to run a biz and go to school?

We have to take continuing credits every year and a seminar every 2 yrs.

I emphasize with you, brother. But ain't it fun being your own boss? Not for everyone, but I love the pressure...

Its the closest thing I know to being a company Gunny. And I love it. There are days that I say that I just want to find me a job where I sit in an office and collect a check every 2 weeks. But I'd go nuts.

Originally Posted by ba1025

Why are you ignoring the decline in TOTAL compensation this decade? It's back to 1996 levels now

Total compensation has dropped as well as wages.

No, I haven't ignored it. I've stated that this is 100% normal. If you look at every other expansion, you see where you have total compensation declining over a substantial period of the expansion. You see peaks of total compensation during recessions. This is exactly what I meant by the fluctuations acting in a countercyclical manner.

Also, I have a quibble on the 1996 thing - 2006 was actually nearly a half of a percentage point greater than 1996, and it was exactly a half a percentage point greater than 1997.

Next, a discussion of statistics is helpful. You'll notice that the chart is sized to provide the ability to more clearly see movements in the shares. However, this provides a false sense that the fluctuations are large. The band of fluctuation post-WW2 is only 4 percentage points wide. The average labor total compensation share is right at 70.5%, which is centered almost exactly in the center of the 4 percentage point band of fluctuation.

Thus, during this expansion, one can say that labor's share has on average been above average (although it has been declining towards the mean value). The numbers and statistical description of the numbers along with the fact that we see this countercyclical movement can lead to only one conclusion. This expansion statistically looks like the typical expansion except that labor's share of total compensation is greater than average. A conclusion that this expansion is somehow different than prior expansions cannot be supported.

Originally Posted by ba1025

Here is another uh oh factor.
In 1993 63% of Employers offered some form of health insurance. In 2003 45% did. During that time most added big increases in deductibles and co pays. So, many of those people recieving the lower wages didnt get increased compensation in other forms they lost that type of compensation.

At the same time the level of compensation recieved by the rest only dropped slowly yet the percentage of workers recieving those "extra" wages dropped. 15% a year healthcare inflation is a boat anchor on our economy. it's caused some to build in Canada rather than here because we have 3 times the cost per employee for healthcare. i sure dont have answers but there seems to be an unsolved challange to us as a society and a nation.

Another thought is many of those who loose insurance loose preventive care. Not only do they become less productive employees but when they get emergent care it cost many times what preventive care would of cost thereby driving up the cost of those who still provide ins. and increasing the pressure to stop providing ins. It's a snowball rolling down a hill

At some point don't we really need to address this systemically? Or do we wait til the system just collapses under the weight of 15% yearly inflation?

First, your numbers are bad. You can go to the CPS numbers put out by the Census Bureau and find that "Employment Based" insurance was at 60% in 2006: http://www.census.gov/prod/2007pubs/p60-233.pdf

If you were to go to the 1993 Census Bureau stats, you'd find that "Group Health" insurance coverage was at 57%. The Census Bureau shows that employee based coverage has increased by 3%.

Given that you numbers appear to be bad for employer health plans, I'd like to see you source your 15%. When you look at the CPI, medical expenses have grown at 5 1/2% in this century. While this will understate the rise in prices since the CPI only reflects out of pocket expensives and not expenses born by employers, we'd have to >15% cost increases to employer health plans, which I sincerely doubt is the case.

There's got to be a better way out there to match patient needs and controlling costs, so I'd agree that there's room to fix it, but at the same time, the available quality of medical services/care has increased as well, and so you should expect that real costs would have risen some.

Originally Posted by ba1025

Not only has total compensation fallen steadily the last 6 years but the number of workers whoose wages have lagged while they also lost much if not all of the extra compensation they recieved beyond salary has increased. People have not owned so little equity in their homes since right after ww2. Did they use equity to make up the differences? I am not chicken little but is our middle class majority paradigm cracking?

Can you source your home equity claim? From what I've got, it doesn't hold. Look at this post: How the minimum wage works, and we'll compare 2004 to 1989, the median home value has increased from $102.6K to $160K in 2004 for an increase of $57.4K. At the same time, mortgage debt has increased from $46.9K to $95K for an increase in $48.1K. Thus, we can show that 2004 saw more equity in homes than 1989 (and it's possible that with home prices dropping down to 2005 levels that this may no longer hold, although mortgage debt would have had to have shot through the roof as well since 2005 prices are much greater than 2004 home prices). Anyways, the ball is in your court on home equity prices.

Your broader claim that the middle class paradigm is cracking is shown to be false in that very same post. Net wealth is increasing (i.e., assets have grown faster than liabilities, so simply stating that liabilities, e.g., mortgages, have increased doesn't cut it, as that is only half of the equation). Lastly, it should come as no surpise that wage share of GDP has decreased (at an average of 0.1% a year over the long haul), with the recession of 1970 being the high point in wage share in post-WW2 history.

Originally Posted by Gun Grape

Yea, there is a large amount of cash flow. But I'm not any richer

I saw that in the DC area while I lived there and fixed up my place (my best friend from high school was a GC, and so I got to hear about the perspective on the business from his vantage in addition to being on the consumer side as well as from another friend who was working for his brother-in-law as the kitchen contractor for some of the local Home Depots). Many of the contractors that came and gave bids for different things around my house had a hard time keeping their subs/leads around because of how strong the market was booming.

Anytime the profits started to get fatter, the subs/leads would strike out on their own, increasing competition and keeping bids/margins down some. My friend who was the GC was probably doing better than average, but he worked higher end stuff with a lot of custom work, and so he was able to demand higher margins. What the boom allowed him to do (just like JAD, it sounds like), was to be much more picky about which jobs he'd accept. If you seemed like a high maintenance customer during the bid process, he'd either jack up the bid or just not submit to save himself the hassle up front.

[QUOTE=Gun Grape;481269]

Originally Posted by ba1025

How do you figure? Swift is not in a position where they can just kick the union out of the factory and hire cheap labor.


Are you saying that they didn't block interviews of union employees when the company was trying to determine questionable employment documents or other things that raised a red flag?

The union rep said that they did. So yes I do lay blame on them.


Oh, BS. We follow what the law says. Which is what Swift meats did and if you followed the story you would see that they were not fined or charged with any crime in regard to hiring illegals.

Do you know the requirements? Are you willing to give a "Cursory glance" when YOUR name goes on the document saying that you have seen the required documentation? Knowing that your signature lays the blame at your feet? You pay the fine, you go to jail.

Sounds like some urban union myths about the big bad businessman boogie man.




Once again, you show that you have no idea of what you are talking about. What are the INS requirements for employment? Do you even know the form that you are talking about?What documents must the employer see, certify that they look real, make copies of and keep on file?

Swift did everything that was/is required by law. In fact being part of the Pilot program they actually did more.

What would you have them do? Deny someone employment because they are Hispanic with an Anglo name? Will you pay my lawyer bill when I get my tail sued by every civil rights group in the United States to include the US Government.



Wish to state why you think that?

Actually since my friend who was a Personnel manger made me aware of this type of stuff 5 years ago I do know their can be consequences by law. Now can you show me where anyone signing that paper actually recieved those consequences?

Well if Swift had locked the Union out and hired all illigals dont you think it might of come out in the press and forced teh govt to act sooner?

As to the interviews. Hey, if it's the law it's the law. Unions follow the law the same as Swift. Swift had the chance to interview EVERYONE when they hired them and chose not too

Wll, if Swift did everything by the books then how did they get hired? Are you saying we have a system in this country that allows companies to hire illegals? Aren't you making an argument for increased regulations?

BTW my employeer required birth cerificates of EVERYONE after they discoverd the company they had out socurced janitorial service too had illegals...how awesome illegals walking around a defense contractor. No interviews just birth ceritficates. We had a year to comply or face termination. If my company did it why couldnt Swift of done something that simple? I could care what someone's name is. it's not prejudice to want U.S. employers to stop hiring illegals'





Well since I dont know what I am talking about can you tell me how we are going to prevent illegals from being hired by large corporations in this country? Do you think the system is working now???

Home equity falls below 50% for first time on record
from Mcpaper
Home equity falls below 50% for first time on record - USATODAY.com

from ABC

Home equity falls below 50% for first time on record
By Sandra Block, USA TODAY
March 6, 2008 9:23:24 AM PST
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Home equity for the average American has dropped below 50% for the first time since World War II, reflecting a widespread decline in home values and relatively loose mortgage practices during much of this decade.

The average homeowners' equity — the market value minus mortgage balance — fell to 47.9% at the end of 2007, the Federal Reserve reported Thursday. The Fed also issued revisions to earlier reports indicating that, for the first time in record keeping dating back to 1945, home equity was below 50% for the last nine months of 2007.

The drop below 50% is partly symbolic: Average home equity was declining even as the last housing boom approached its peak in 2005. But the newly issued number underscores the problems for millions of Americans struggling to hang onto their homes as their mortgage rates adjust upward and their property values decline. It also has broader implications for consumer spending in the USA's sputtering economy, up a paltry rate of 0.6% in the last quarter.

As the "wealth effect" powered consumer spending across the economy during the housing boom, declining home equity fosters consumer caution.


"Consumers are growing more cautious, first, because they are now worth less, and they know it," says Mark Zandi, chief economist for Moody's Economy.com. mco "And secondly, because they can't borrow against their homes as aggressively as they did."

Economy.com estimates that by the end of March, 8.8 million homeowners, about 10% of homes, will have mortgage balances that equal or exceed the value of the property. The situation "is only going to get worse," Zandi says.

The decline in home equity reflects several factors, including the popularity of low- and no-down payment mortgages and the surge in home equity lines of credit and cash-out refinancing during the housing boom, says Keith Gumbinger, vice president of rate tracker HSH Associates. That left many homeowners with no cushion when prices started to crumble.

Home foreclosures rose to an all-time high in the fourth quarter of 2007, the Mortgage Bankers Association reported Thursday.