It’s not wage rises that are a problem for the economy – it’s the lack of them

It’s not wage rises that are a problem for the economy – it’s the lack of them
Business chiefs moan about vacant jobs going unfilled and how it threatens the economy – so why don’t they just pay more?
By Thomas Frank
Jul 12 2018
https://www.theguardian.com/commentisfree/2018/jul/12/wage-rises-problem-economy–vacant-jobs-unfilled-threatens-economy

In recent weeks media outlets in the US have been fretting over what would ordinarily be considered good news – the roaring American economy, which has brought low unemployment and, in some places, a labour shortage. Owners and managers have complained about their problems in finding people to fill low-wage positions. “Nobody wants to do manual labour any more,” as one trade association grandee told the Baltimore Sun, and so the manual labour simply goes undone.

Company bosses talk about the things they have done to fix the situation: the ads they’ve published; the guest-worker visas for which they’ve applied; how they are going into schools to encourage kids to learn construction skills or to drive trucks. The Wall Street Journal reports on the amazing perks that plumbing companies are now offering new hires: quiet rooms, jetski trips, pottery classes, free breakfast, free beer.

But nothing seems to work. Blame for the labour shortage is sprayed all over the US map: opioids are said to be the problem. And welfare, and inadequate parking spaces, and a falling birthrate, and mass incarceration, and – above all – the Trump administration’s immigration policies. But no one really knows for sure.

So the labour shortage runs on, frightening and out of control, with journalists trying to build it into some kind of nightmare scenario. There is a “crab crisis” in the Chesapeake Bay region. There’s no one to harvest the strawberries in Ohio. A beloved bakery outside Denver has closed. Plans for a retirement community near Tucson, Arizona, have been cancelled. Managers and officials alike demand that the government furnish them with the cheap workforce to which they are accustomed.

The textbook solution to the labour shortage problem – paying workers more – rarely merits more than a line or two, if it’s mentioned at all. So unwilling are business leaders to talk about or consider this obvious answer that Neel Kashkari, the president of the Minneapolis Federal Reserve Bank, scolded them last year: “If you’re not raising wages, then it just sounds like whining.”

When the necessity of higher wages is acknowledged, however, it only seems to crank the whining to a higher pitch. Take for instance the Washington Post’s front-page panic attack: “Trucker shortage poses economic threat”. Here the problem of trucks sitting idle for lack of drivers is compounded by the even more infernal possibility that those drivers, when they finally do show up, might be in a position to bargain for better pay, a prospect described as “perilous” because it could drive up prices “so quickly that the country faces uncontrolled inflation, which can easily lead to a recession”.

The left-leaning economist Dean Baker immediately pointed out what an outrageous exaggeration this is: even if truckers were to win a huge pay increase it would only amount to a tiny fraction of US GDP – and guess what, they’re not getting such a windfall. Adjusted for inflation, trucker wages are still well below their peak. Still, it is hard to miss the point of the labour-shortage panic: affluent America is terrified by the prospect of increased bargaining power for working people.

The economic reality, however, is not quite there yet. If you study the Bureau of Labor Statistics’ numbers on wages for nonsupervisory workers over the past few decades, you will notice that wage growth has been strangely slow to pick up. Hot economies usually drive wages up pretty promptly; this recovery has been running since 2009 and it has barely moved the needle.

It’s even more perverse on the other side of the Atlantic. According to a 2017 story in the Financial Times, Britain was “the only big, advanced economy in which wages contracted while the economy expanded” – an amazing achievement if you think about it. And UK thinktank the Resolution Foundation has said this decade is “set to be the worst for pay growth since the Napoleonic wars”.

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