“Wage Inflation” — what do these code words mean?

Back in the ’80s, a friend told me, “If you really want to know what’s going on, pay more attention to the business pages than the front page.” By and large, he was right. I’ve been following business news for decades, because it’s often refreshingly forthright about what the multinationals and their minions in government are up to, and what they’re planning to do to us.

That’s often so, but not always. Business reporters sometimes use the same types of euphemisms, propaganda terms, and code words as politicians.

Which brings us to the topic at hand: “wage inflation.”

These seem to be the code words of the week on CNBC’s “Nightly Business Report,” where the hosts and correspondents tend to use that ominous sounding term (rather than the more honest “wage growth”) to explain why the Fed is going to raise interests rates — probably more than once — this year.

But what does “wage inflation” actually mean? It means that unemployment is low; that wages are going up faster than the rate of inflation; that it’s relatively easy to find a job or dump a loathsome one and (hopefully) find a better one; that rising wages will increase demand, which in turn will spur creation of new businesses and expansion of existing businesses to meet that increasing demand; and that that growth spurred by increased demand will lead to something approaching full employment and even higher wages.

Sounds pretty good, doesn’t it? Well, it is — for most people.

But not for the multinationals, big banks, their executives, and their shareholders. Why?

In theory, we have an economy based on competition. In many areas that’s no longer the case — think utilities, Internet providers, “defense” suppliers with cost-plus contracts, agribusiness subsidies/”price supports.” These monopolistic entities can simply pass along the cost of wage growth to customers, because customers have little if any choice.

But there still is competition in some areas of the economy. There, wage growth corresponds to lower profits. Why? When they have choice, customers will generally buy the lowest cost product or service. As well, importantly, there are two primary places where businesses can cut costs to remain competitive: wages and profits. (They can also cut corners, using for example inferior components, but there tends to be blowback from this, sometimes quite quickly and quite severely.)

So, in competitive areas of the economy in times of full or near-full employment and rising wages, there’s only one place where there can be significant cost savings: profits — dividends to stockholders and the now-routine gross overcompensation to executives (which would otherwise go to stockholders).

That’s why there are alarmed cries of “wage inflation” and “the economy might ‘overheat!'” every time it even seems like there might be full employment (or something close to it) and wage growth.

This is why even though the GDP rose at a relatively modest 2.6% last year (slightly lower than expected), business economists and commentators were alarmed: wages rose at 2.9%, a full .3% above GDP growth and (gasp!) a full .8% above the rate of inflation, with the prospect of more wage gains as the economy grows. And we just can’t have that, even though corporate profits are at or near all time highs. (Second quarter 2017 profits were at 9.5% of GDP, with analysts forecasting 11% in 2018.)

So, what to do, what to do? It appears that the usual “remedy” will be applied this year and next: the Federal Reserve Board will likely increase the prime lending rate several times. The purpose of these increases? To slow economic growth.

How do rate increases do this? One way is that it makes the cost of borrowing higher for businesses, making them reluctant (or more reluctant) to spend money on infrastructure, on new physical plant. The other way is that interest rate increases make it more expensive for consumers to borrow money, the two primary places being higher mortgage rates and credit card rates.

Both of these things take money out of the pockets of consumers and put it into the pockets of the big banks and the credit card companies. Since consumers have less money to spend on actual goods and services, this decreases demand. Then, since the monopolistic (or oligopolistic) companies (think your lovely Internet or cable TV provider) are under no constraints not to pass along the interest rate increases, they’ll pass along the entire cost to the consumer, again decreasing the amount consumers have to spend on other goods and services, and again decreasing consumer demand (roughly 70% of the economy).

The end result? Decreasing consumer demand, a slowing economy, higher unemployment, stagnant wages, and continued sky high profit margins for the banks and corporations.

 

 

 

Anti-Minimum Wage Madness

by Chaz Bufe, editor See Sharp Press

(Note: I wrote this in 1914, and the figures for unemployment rate, etc., have changed since then. But there have been no major changes, and the arguments here still hold.)

In what passes for political debate in this country, one of the current hot topics is whether or not to raise the minimum wage (currently $7.25 an hour). Those arguing against raising the minimum wage express concern for low wage workers and speculate that paying them higher wages would somehow hurt them. Their argument is that higher wages would reduce the number of ultra-low-paying jobs.

Well, guess what. Wages have fallen drastically since G.W. Bush stepped foot in the White House, and that hasn’t produced a bonanza of jobs, nor income growth for those fortunate enough to have a job. In the period since Bush took office through 2011, median income fell a staggering 12.4%. And, since 1973, wages for the bottom 60% of working men have actually fallen. Especially since the start of the recession, almost all wage growth has benefited the top 1% of wage earners. According to the New York Times, in 1979 the top 1% received 7.3% of all wages; in 2010, they received 12.9%. As for the minimum wage itself, half a century ago it was $1.25 an hour, equivalent to $9.50 an hour today; a few years later, in 1968, it went up to its peak, $1.60 per hour, which is equivalent to $10.84 today. Today’s minimum wage of $7.25 is almost exactly a third lower than that peak minimum wage.

At the same time,  productivity per hour worked has been rising at a fairly steady rate of roughly 1.5% – 1.75% per year for over half a century. Increases in wages and productivity almost exactly matched from the end of World War II through 1973, when wages began to stagnate as productivity continued to rise. Since then, productivity has gone up roughly 80%, while wages have been nearly flat. As for wealth, the percentage owned by the top 1% has steadily risen since Reagan took office, and now exceeds 40% of total national wealth.

In other words, the “job creators” are doing just fine. So, where are the jobs? According to the Bureau of Labor Statistics, the official unemployment rate in February was 6.7%. The actual unemployment rate, counting “discouraged workers” and those involuntarily working part-time, is roughly twice that, and even that’s probably understating the matter. The percentage of working-age adults participating in the labor force is only about 63%, very near a historic low.

Given all this, let’s take a closer look at the argument that keeping wages at just above starvation level is somehow good for those looking for work.

Many on the right actually argue that there should be no minimum wage law, and that workers would be better off without it. They’re seriously arguing that wages already so low that many workers can’t even afford to rent a studio apartment (and instead must sleep in their cars or in homeless encampments) are beneficial to workers. And that workers would benefit from even lower wages.

They argue that earning $3 or $4 an hour is better than having no job at all. At the same time, they never argue against laws restricting labor organizing and tactics — Taft-Hartley, “right to work” laws, laws against boycotts and secondary boycotts, etc. In other words, they’re in favor of laws restricting the rights of workers, and against laws guaranteeing worker rights.

Let’s take the right-wingers’ argument a step further. If labor for any compensation at all, no matter how minimal, is preferable to unemployment, there’s an obvious solution to the jobs crisis. There’s a tried and true way to guarantee every able-bodied worker a job, food, and a place to live: slavery.

Some Republicans are already arguing for it.

Related articles

• New Study: Minimum Wage Hikes Have “No Measurable Negative Impact on Employment”
• Harold Meyerson: Eight Ways to Raise American’s Wages