The official unemployment rate is 4.1%. That’s full employment for mainstream economists. We’d expect to see wages on a long upward path, as employers compete for new hires. But average pay rises one month and falls the next. You may read that it increased 2%+ in the last twelve months, but after inflation is accounted for, much of the increase disappears. Higher minimum wage laws have helped in some places, but for the nation as a whole wages are not on the up-escalator.
President Trump tells us he is fixing everything. But from the inauguration through November, the average real hourly wage of a rank-and-file employee increased half a percent. If she was earning $20.00 an hour in January, she’s earning $20.10 today. And the long-term trend is truly depressing. Real pay today is about where it was in 1972-1973. The U.S. added tons of new income and wealth, but not much filtered down.
To get insight into the wage problem and its causes, I sent our intrepid Untrained Economist (UE) to talk to Republican House Member and Freedom Caucus leader, Jordan Rabid.
Untrained Economist (UE): “Are you Republicans going to reward your working-class supporters by raising the federal minimum wage? It’s just $7.25 and lifting it to $15 would help 40 million workers.”
Rep. Rabid: “Higher minimum wages are a job-killer. You should know that.”
UE: “Many studies show that lifting the minimum wage doesn’t kill jobs or only a few, and that it cures a lot of poverty. It creates jobs too, because people buy more things and services.”
Rep. Rabid: “We believe people should work harder, be more disciplined, go to church, stay married. That’s what our President stands for.”
UE: “I guess you don’t want to encourage unionization, which raises pay and benefits?”
Rep. Rabid: “You are right.”
UE: “When unions were stronger in the 40s, 50s, and 60s, wage growth was better.”
Rep. Rabid. “Don’t distract me. We need more incentives for the filthy rich–oops–wise investors, to create jobs. We have those in our great tax-cut legislation. And, hey, we have the word job in the title of the law; that’s how important jobs are for us.”
UE: “Most corporate leaders say they will use the gifts they are getting in the tax bill not to create jobs but to retire debt and buy back their own stock.”
Rep. Rabid: “Where did you read that? More fake news from the Post and the Times.”
Our reporter decided to tap another source. He phoned a Mainstream Economist (ME).
Untrained Economist: “So, Doctor, why haven’t wages taken off? We’re close to full employment, and the laws of supply and demand say that when workers are scarce, employers have to pay more for them.”
Mainstream Economist: “It’s a mystery. It must have something to do with workers’ skill and schooling deficits. That’s the kind of thing we like to talk about in the econ biz. Employers can’t pay skilled wages for the unskilled. Pay and economic contribution must be equivalent.”
UE: “Are you saying that many jobs cannot be filled due to skill shortages?”
ME: “Maybe. Let me get back to you on this.”
UE: “The skill and education levels of workers have risen over four decades, but wages have stagnated. That’s a fact. By the way, are you saying that people must have specialized skills to earn a living wage in America?”
ME: “Short answer: Yes. I don’t make the rules, buddy. It’s the way markets work. We don’t want people like you tinkering with the dynamic, creative motors of the market system.”
UE: “Some people think that other people have tinkered in very bad ways–killing unions, sitting on the minimum wage, moving plants, violating labor laws, manipulating money markets, and so on. Markets are rigged by companies and rich people…but you probably think that’s a topic for another day.”
ME: “We agree on that.”
UE: “Let me ask you this. Quite a few economists and journalists think that productivity–output per hour of labor input–has to rise if wages are to go up. I guess they can’t imagine where else the money for higher pay could come from. (Pause) “Since the ‘70s, worker productivity has increased by something like 70 to 150%, depending on your measure, but the average wage of the average employee has not increased. Maybe it’s not about productivity, but about inequality and power. The few grab too much.
“Let me preach a little. Capitalists and their servants have pushed policies that disempower workers. Undermining unions and laws that protect organizers, hiring more temps and contract workers, sending work out of the country, and, sometimes, keeping unemployment high–these things eroded workers’ bargaining power.”
ME: “If you want to introduce the class struggle, go ahead. You know that Americans don’t like talking about class. We’re not really a class society.”
UE: “I want to add one more thing that disempowers employees. We are not actually close to full employment. If we estimate the number of people who want a job but are not currently looking for one, the real unemployment rate is twice as high. For most jobs there are plenty of people on the sidelines ready to step in. Employers don’t seem to be having much trouble finding workers. They may have to make an effort–boo hoo–they are not used to doing that any more. If there are shortages, it’s often because employers are addicted to paying low wages.
“I admit that some economists, including Janet Yellen at the Fed, hint now and then that labor markets aren’t as tight as the official unemployment rate says, but they won’t talk about changing the official rate. Just to let you know, the Bureau of Labor Statistics has its own higher alternative rate, and so does the National Jobs for All Coalition at njfac.org.”
ME: “You would have been smarter if you’d have gotten an economics degree, and at a good college like the University of Chicago. You know nothing about globalization, comparative advantage, the skill required to make business investments…so many things. A good economics department would have taught you to respect mainstream economics and capitalism. You’d be less iconoclastic. That kind of thing is not appealing in a middle-aged, middle-class person.”