The January jobs report from the United States Department of Labor has heightened concerns that a so-called “tight” labor market is fueling inflation and that, as a result, the Federal Reserve must put the brakes on inflation by increasing interest rates.
In fact, this line of reasoning is completely incorrect.
Workers in the leisure, hospitality, retail, transportation, and warehousing industries were among those who saw the most job growth in January, despite the fact that they are typically temporary and paid low wages.
Employers laid off fewer of these employees in January than they had in previous years, owing to increased customer demand combined with Omicron’s negative impact on the supply of workers.
Because of the “seasonal adjustment” implemented by the Bureau of Labor Statistics, cutting fewer workers than usual for this time of year appears to be “adding a large number of jobs.”
Policymakers at the Federal Reserve are expected to raise interest rates at their March meeting, and then to raise them further in order to slow the economy. They are concerned that a labor shortage is driving up wages, which in turn is driving up prices – and that this wage-price spiral could spiral out of control if the situation continues in this manner.
It’s a huge miscalculation. Increased interest rates will have a negative impact on millions of workers who will be forced into the inflationary fight by losing their jobs or receiving long-overdue pay raises.
There is no “labor shortage” that is pushing wages upward. There is a scarcity of good jobs that pay a living wage that is sufficient to support working families. The shortage will worsen if interest rates continue to rise.
There is also no “wage-price spiral,” despite the fact that Federal Reserve Chairman Jerome Powell has expressed concern about wage increases driving up prices. On the contrary, real wages for workers have actually decreased as a result of inflation.
However, despite the fact that overall wages have increased, they have failed to keep pace with inflation, leaving the vast majority of workers worse off in terms of the purchasing power of their dollars.
Wage-price spirals were once a source of contention. Recall when President John F. Kennedy “jawboned” steel executives and the United Steelworkers in order to keep wages and prices under control? Such spirals, on the other hand, are no longer a concern. This is due to the fact that the average worker today has little or no bargaining power.
Only 6% of private-sector employees are represented by a labor union. More than a third were more than half a century ago. Because capital is now available everywhere, corporations can increase output by outsourcing virtually anything to any location.
A half-century ago, corporations in need of increased output were forced to bargain with their own employees in order to obtain it.
With these changes, the balance of power has shifted from labor to capital, with an increase in the share of the economic pie going to profits and a decrease in the share of the economic pie going to wages. Wage-price spirals were brought to an end as a result of this power shift.
Slowing the economy will not address either of the two primary causes of today’s inflation – the persistence of global supply bottlenecks and the ease with which large corporations (who are making record profits) are able to pass on these costs to customers in the form of increased prices.
Supply bottlenecks can be found everywhere. You only have to take a look at all of the ships with billions of dollars worth of cargo idling outside the Ports of Los Angeles and Long Beach, which handle 40% of all seaborne imports into the United States.
The rising costs of such supplies provide no incentive for large corporations to absorb them, even with profit margins at their highest level in nearly seven decades. They have sufficient market power to pass on these costs to consumers, sometimes invoking inflation to justify even higher price hikes than are otherwise justified.
When it comes to our business, “a little bit of inflation is always good,” said Kroger’s chief executive in a statement last June.
Earlier this year, the chief executive of Colgate-Palmolive stated, “What we are extremely good at is pricing.”
As a matter of fact, the Federal Reserve’s plan to slow the economy is the exact opposite of what the country needs right now or in the foreseeable future. Covid is still alive and well.
Even after it has passed, we will be dealing with the negative consequences for years to come: everything from long-term Covid to schoolchildren who are months or years behind in their studies.
According to the jobs report released on Friday, the economy is still 2.9 million jobs short of where it was in February 2020. Given the rate of population growth in the United States, the country’s population is 4.5 million people short of what it would have been by now if the pandemic had not occurred.
Consumers are almost completely depleted. It is not only that real (inflation-adjusted) incomes are declining, but also that pandemic assistance has come to an end. Extra unemployment benefits are no longer available.
The child tax credit has been phased out. Rent moratoria are no longer in effect. It’s no surprise that consumer spending fell 0.6 percent in December, marking the first decline since February of last year.
Many people have a pessimistic outlook on the future, which is understandable. According to the University of Michigan Consumer Sentiment Survey, consumer confidence fell in January to its lowest level since late 2011, when the economy was still struggling to recover from the global financial crisis.
In addition, the Conference Board’s index of consumer confidence fell in January.
The last thing that the average working person needs is for the Federal Reserve to raise interest rates and cause the economy to slow even further. Inflation isn’t the primary issue that most people are dealing with. It is due to a scarcity of good jobs.