Job growth and wages are slowing down. Employers created 223,000 jobs in December, the Labor Department said Friday – less than the average in recent months.
Average hourly wages rose 4.6 percent in December, according to Friday’s report. That’s a slowdown from 4.8% in November.
All of this is music to the ears of Federal Reserve Chairman Jerome Powell, as the Fed blames rising wages for inflation. The Fed raised interest rates to slow the economy and thus reduce the bargaining power of workers to get wages.
At his Dec. 14 news conference announcing the Fed’s latest 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 with increased wages”.
But aren’t higher salaries a good stuff?
The wages of the typical American worker have been stuck in the mud for four decades.
Most of the gains from a more productive economy have gone to the top – executives and investors. The richest 10% of Americans now own more than 90% of the value of stocks owned by Americans.
Powell’s solution to inflation is to screw up workers even more. He says that “the labor market remains out of balance, with demand far exceeding the supply of available workers.”
But if demand for workers exceeds supply, isn’t the answer to pay workers more?
Not according to Powell and the Fed. Their answer is to keep raising interest rates to slow down the economy and put more people out of work, meaning workers can not get higher wages. In this way, “conditions of supply and demand on the labor market [will] come to a better balance over time, easing upward pressure on wages and prices,” says Powell.
Putting people out of work is the Fed’s tool to reduce workers’ bargaining power and “upward pressure on wages and prices“.
The Fed predicts that as it continues to raise interest rates, unemployment will rise to 4.6% by the end of 2023 – resulting in the loss of more than a million jobs.
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 beginning of the pandemic, because the US does not have a single national system for getting cash to unemployed workers, they must depend on state unemployment insurance, which varies greatly from state to state.
Many fall through the cracks. When the pandemic began, less than 30% of unemployed Americans qualified for unemployment benefits.
Issue it’s not that wages are rising. The real problem is that corporations have the power to pass those wage increases—along with record profit margins—onto consumers in the form of higher prices.
If corporations had to compete vigorously for consumers, they would not be able to do so. Competitors would charge lower prices and grab those consumers.
Corporations do not even invest their extra profits in new investments that would generate higher productivity in the future. They buy back their shares to raise share prices. By the end of 2022, American companies have announced share buybacks in the amount of more than 1 trillion dollars.
Therefore, a rational response to inflation would not increase unemployment to reduce the bargaining power of workers to obtain higher wages.
This would reduce the pricing power of corporations to pass those costs on to consumers along with increasing profit margins, making markets more competitive.
Corporate pricing power is out of control because corporations face so little competition.
Worried about high airfares and poor service? This is largely because airlines have consolidated from 12 carriers in 1980 to four today.
Worried about drug prices? A few pharmaceutical companies control the pharmaceutical industry.
Upset about food costs? The 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. Together, they would control nearly 22% of the US grocery market. Add Walmart, and the three brands would control 70% of the grocery market in 167 cities nationwide.
Et cetera. Evidence of corporate concentration is everywhere.
It’s getting worse. Last year there were over a thousand major corporate mergers or acquisitions. Each had a merger value of $100 million or more. The total value of the transaction was 1.4 trillion dollars.
The government must stop putting the onus of fighting inflation on workers whose wages have not gone anywhere for four decades.
Put the blame where it belongs – on the big corporations who have the 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 2% target should be presumed to have monopoly power and be subject to an antitrust lawsuit.