Job growth and wages are slowing. Employers added 223,000 jobs in December, the Labor Department reported Friday — lower than the average in recent months.
Average hourly wages rose 4.6% in December, according to Friday’s report. This is a decrease from 4.8% in November.
All of this is music to the ears of Federal Reserve Chairman Jerome Powell, as the Fed blames inflation on rising wages. The Fed has raised interest rates to slow the economy and thereby reduce workers̵[ads1]7; bargaining power to gain wage gains.
At his Dec. 14 press conference announcing the Fed’s latest rate hike, Powell warned that “the labor market remains extremely tight, with unemployment near a 50-year low, job vacancies still very high and wage growth high.”
But is not a higher salary one 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 gone to the top – to managers 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 make workers work even longer. He says “the labor market continues to be out of balance, with demand significantly exceeding the supply of available workers”.
But if the demand for workers exceeds the supply, isn’t the answer to pay the workers more?
Not according to Powell and the Fed. Their answer is to keep raising interest rates to slow the economy and put more people out of work, the workers said can not get a higher salary. In that way, “supply and demand conditions in the labor market [will] come to a better balance over time, and reduce the 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 estimates that as it continues to raise interest rates, the unemployment rate will rise to 4.6% by the end of 2023 – resulting in the loss of more than 1 million jobs.
But fighting inflation by putting more people out of work is cruel, especially when America’s safety net — including unemployment insurance — is in tatters.
As we saw at the start of the pandemic, because the United States does not have a single nationwide system to provide money to unemployed workers, it must rely on state unemployment insurance, which varies significantly from state to state.
Many fall through the cracks. When the pandemic began, fewer than 30% of unemployed Americans qualified for unemployment benefits.
The problem is not it that wages rise. The real problem is that corporations have the power to pass these wage increases—along with record profit margins—to consumers in the form of higher prices.
If companies had to compete vigorously for consumers, they would not be able to do this. Competitors would charge lower prices and take these consumers away.
Companies do not even plow their extra profits into new investments that will generate higher productivity in the future. They buy back their shares to increase share prices. Through the end of 2022, US firms announced share buybacks of over $1tn.
A rational reaction to inflation would therefore not increase unemployment to reduce workers’ bargaining power to get higher wages.
It would be reducing the pricing power of companies to pass these costs on to consumers along with increasing profit margins, by making markets more competitive.
Corporate pricing power is out of control because companies face so little competition.
Worried about sky-high flight prices and lousy service? This is largely because the airlines have merged from 12 airlines in 1980 to four today.
Worried about medicine 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 nearly 22% of the US grocery market. Add Walmart, and the three brands will control 70% of the grocery market in 167 cities across the country.
And so on. The evidence of corporate concentration is everywhere.
It gets worse. There were over a thousand large corporate mergers or acquisitions last year. Each had a merger value of $100 million or more. The total transaction value was $1.4 billion.
The government must stop placing the responsibility of fighting inflation on working people whose wages have not gone anywhere for four decades.
Put the blame where it belongs – on big companies with the power to raise their prices.
One possibility: any large company in an industry dominated by five or fewer giants that raises its prices more than the Fed’s 2% target should be presumed to have monopoly power, and slapped with an antitrust lawsuit.