Job growth and wages are slowing. Employers added 223,000 jobs in December, the labor department reported on Friday – lower than the average in recent months.
Average hourly wages rose by 4.6% in December, according to Friday’s report. That’s a slowdown from 4.8% in November.
All this is music to the ears of Federal Reserve chair Jerome Powell, because the Fed blames inflation on rising wages. The Fed has been increasing interest rates to slow the economy and thereby reduce the bargaining power of workers to get wage gains.
At his press conference on 14 December announcing the Fed’s latest interest rate hike, Powell warned that “the labor market remains extremely tight, with the unemployment rate near a 50-year low, job vacancies still very high, and wage growth elevated”.
But aren’t higher wages a good thing?
The typical American worker’s wage has been stuck in the mud for four decades.
Most of the gains from a more productive economy have been going to the top – to executives and investors. The richest 10% of Americans now own more than 90% of the value of shares of stock owned by Americans.
Powell’s solution to inflation is to clobber workers even further. He says “the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers”.
But if the demand for workers exceeds the supply, isn’t the answer to pay workers more?
Not according to Powell and the Fed. Their answer is to continue to raise interest rates to slow the economy and put more people out of work, so workers can’t get higher wages. That way, “supply and demand conditions in the labor market [will] come into better balance over time, easing upward pressures on wages and prices,” says Powell.
Putting people out of work is the Fed’s means of reducing workers’ bargaining power and the “upward pressures on wages and prices”.
The Fed projects that as it continues to increase interest rates, unemployment will rise to 4.6% by the end of 2023 – resulting in more than 1m job losses.
But fighting inflation by putting more people out of work is cruel, especially when America’s safety nets – including unemployment insurance – are in tatters.
As we saw at the start of the pandemic, because the US doesn’t have a single nationwide system for getting cash to jobless workers, they have to depend on state unemployment insurance, which varies considerably from state to state.
Many fall through the cracks. When the pandemic began, fewer than 30% of jobless Americans qualified for unemployment benefits.
The problem isn’t that wages are rising. The real problem is that corporations have the power to pass those wage increases – along with record profit margins – on to consumers in the form of higher prices.
If corporations had to compete vigorously for consumers, they wouldn’t be able to do this. Competitors would charge lower prices and grab those consumers away.
Corporations aren’t even plowing their extra profits into new investments that would generate higher productivity in the future. They’re buying back their shares to boost stock prices. Through the end of 2022, American firms announced stock buybacks exceeding $1tn.
A rational response to inflation, therefore, would not increase unemployment in order to reduce the bargaining power of workers to get higher wages.
It would be to reduce the pricing power of corporations to pass those costs along to consumers along with rising profit margins, by making markets more competitive.
Corporate pricing power is out of control because corporations face so little competition.
Worried about sky-high airline fares and lousy service? That’s largely because airlines have merged from 12 carriers in 1980 to four today.
Concerned about drug prices? A handful of drug companies control the pharmaceutical industry.
Upset about food costs? Four giants now control over 80% of meat processing, 66% of the pork market, and 54% of the poultry market.
Worried about grocery prices? Albertsons bought Safeway and now Kroger is buying Albertsons. Combined, they would control almost 22% of the US grocery market. Add in Walmart, and the three brands would control 70% of the grocery market in 167 cities across the country.
And so on. The evidence of corporate concentration is everywhere.
It’s getting worse. There were over a thousand major corporate mergers or acquisitions last year. Each had a merger value of $100m or more. The total transaction value was $1.4tn.
The government must stop putting the responsibility for fighting inflation on working people whose wages have gone nowhere for four decades.
Put the responsibility where it belongs – on big corporations with power to raise their prices.
One possibility: any large corporation in an industry dominated by five or fewer giant corporations that raises its prices more than the Fed’s target of 2% should be presumed to have monopoly power, and slammed with an antitrust lawsuit.
