Corporations and mainstream media trumpet the “horrors” of higher wages
from Dean Baker
The media have treated us to an array of stories warning us of the terrible labor shortage facing the country. Some of the pieces have been general, such as this CNBC piece on the labor shortage “reaching a critical point,” or this Wall Street Journal article on wage gains “threatening profits.”
Others have been more industry-specific, such as The Washington Post’s highlighting of the trucker shortage that threatens the “prosperous economy.” Then there is this New York Times piece noting that nursing homes have trouble attracting nursing assistants at the $13.23 an hour average pay for the occupation.
It’s clear that many in the media are terrified by the prospect that as the labor market gets tighter, workers might get a larger share of the pie. Perhaps this should not be surprising when billionaires control major news outlets, but it does mean that economic reporting might be getting pretty far out of line with economic reality.
At the most basic level, if workers did see pay increases at the expense of profits, they would just be getting back some of what they have lost in this century. The after-tax profit share of national income rose by almost three full percentage points between 2000 and 2016. That would correspond to an average loss of almost $3,000 per worker per year.
But even this calculation understates the shift from wages from profits. According to new research by Gabriel Zucman, more than a third of the foreign profits of US corporations are actually profits made in US but shifted overseas to evade taxes.
Factor this profit shift into the calculation and the loss to workers is close to $4,000 per worker per year. And this is before factoring in the corporate tax cut passed last year.
In this context, the whining over higher wages seems especially pathetic. Corporations were happy to take advantage of the weak labor market, especially in the years of the Great Recession, to increase their profit share. Now they are warning of disaster if they have to give back some of their gains if the labor market continues to strengthen.
Undoubtedly, many of those complaining about the labor shortage want the Federal Reserve Board to accelerate its pace of interest rate hikes. The hope is that slower economic growth will mean fewer jobs and higher unemployment.
Others are looking for more direct help from the government. For example, Donald Trump’s Mar-a-Lago resort is looking to get permission to bring in 78 foreign workers to fill low-paying jobs such as cooks and housekeepers.
We’ll see soon enough how the battle shakes out, but the basic story should be quite clear to anyone paying attention. The increase in income inequality we have seen over the last four decades has little to do with the intrinsic dynamics of the market. It is a story of the rich riggingthe rules to get all the money.
We see this again and again in different areas of public policy. After running around the country for 18 months yelling about China’s currency policy, which has cost the jobs of millions of manufacturing workers in the United States, Donald Trump has dropped currency from his list of complaints as he sets out on his trade war. Instead, we are supposed to fight China over Boeing and Pfizer’s patent fees.
The Supreme Court has decided it is a “free speech violation” if unions sign a contract requiring the workers who benefit from the union to share in the cost of maintaining the union. However, the court sees no questions of freedom at stake when fast-food companies prohibit their workers from seeking jobs with competitors.
Undoubtedly, we will see many economists doing careful research studying the causes of growing inequality. Major foundations will devote tens of millions of dollars for this work.
But there is no mystery here. The rich control the political process and they are using this control to get an ever larger share of the economic pie. Implying that there is some complex puzzle to be sorted out helps the rich in their pursuit of upward redistribution.
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Real-World Economics Review Blog 
Dean, neoliberalism (“capitalism over national borders” in my mind) wants to reduce costs globally, as well as produce/sell globally. Cost-cuts begin at home as we all know. The script is being followed to perfection so that practice emuates theory. Quelle shock!
Professor. All over the world, the WEALTHY AND THE POWERFUL are driving down wages, so the people of a country can’t afford to buy all the things they produce. They want the savings, so they can export them to another country and build up claims against the people there. The wealthy and the powerful see no advantage to sharing. The counties that share the most, will be the ones that suffer the biggest trade deficits. Neoliberalism = Beggar thy Neighbor.
Hi, Yok, didn’t that very clever man Karl Marx suggest “Workers of the world, unite”, as some workers are doing at this moment in Germany in strikes at Amazon warehouses? Another option is political parties in democracies, but you can see how this is working out in the UK & US at the moment. And, yes, unions have probably been too powerful in some countries such as France, where Macron now seems to want a balance between unions & management. Germany does as well as any democracy in this balance, it seems to me.
Hey Professor. Go back to “6 Lies of Trade.” I caught you in a lie.
Please enlighten me, Yok. Which lie have I innocently supported? I learn in every session here or with my students. Thank you.
Hi Professor. I’d hoped I’d get a response. I’d taken your comments as blunting, negating, trying to find a flaw or mis-perception in Dean. I like him. So I as quickly as you challenged him, I figured I’d challenge you. It seems you’r trying to figure out where I’m coming from. I consider myself a progressive. Maybe a social democrat. I enjoy economics, political economics. I consider economics the most intellectually corrupted field of human endeavor.
Hi, Yok, I accept Dean’s approach in most ways, but I have the inconvenience of 40+ years of teaching/consulting globally. Everything I say is based on observation, although necessarily limited to what events & summary figures I encounter. In some ways I guess I pattern my thinking upon what I learned from Socrates: ask questions about everything, including the meaning of logic/scientific method & the implications of what seem to be hard facts. That’s why these discussions are so valuable, I believe, as we here often act in that Socratic sense, trying to make sense of everything.
practice emulates theory
Professor, as to what I consider a lie. You tout the large volume of foreign goods coming into my country. You tout the benefits of lower prices, enjoyed by elite professionals AS WELL AS PEOPLE in the services industries. You imply they lost their jobs in manufacturing. You imply that they are better off in the service jobs cause they can buy cheap imported products. Dean, don’t freighten these people. There’s nothing to be “afraid” of. For those people who lost their jobs, now they’r better off buying lower priced foreign goods, it was an “opportunity after .” They are better off now, with their cheap foreign goods. Well. THAT’S A LIE. They’r not better off. Over the last 35 years their living standard hasn’t improved at all. Trade, foreign goods, hasn’t done them a bit of good. You project the people who have lost from trade together with the people who have won with trade. A false association. It hasn’t been a win, win. Milton Friedman did what you do. I heard him lump Henry Ford with Albert Einstein as evidence of the success of free enterprise capitalism.
Professor. How’d you like my analysis of trade surpluses. I hit the nail on the head didn’t I. A country can’t have a trade surplus unless the working people of that country are denied the enjoyment of the product of their work. And the wealthy and powerful people in control are already consuming all they can. So they export it. Why share when you can get even wealthier.
Yot, you are on point. The politicians have not taken care of the people who have lost out to globalization. American job-training is generally missing, as is free medical care for those who can’t afford it, which is most Americans. Yet realize that America & Australia for that matter are filled with folks who couldn’t make it economically where they once lived. Many European nations do far better with health care & job training.
That’s why I find it easy to place foreign engineers here in
Germany & why most young immigrants will find work at the bottom, working their way up over time. If you were a young German you would have free education or you pick of work
apprenticeships in factories, construction & other areas.
Hi, again, Yok, as foreign exchange rates come into view determining, for example, how much a South Korean washing machine costs stateside for those machines still assembled there. Those foreign exchange rates involve stuff sold in both directions, as well as services (travel, financing, etc) & currency transfers for investment or to send home from work abroad, etc.
The model today of course is that goods manufactured totally abroad or assembled here using parts mfg abroad will cost us less as consumers. That is great as you agree–but only if Americans have adequate income. And that’s what I have been mentioning to you in earlier posts. I repeat, the politicians are not helping us, while businesses just do what they are supposed to, making profits. Kick your local elected officials in the butt if they are not doing their job for you, I suggest
Prof. Beckman, I enjoy reading your posts. Much appreciated.
Hi, Meta, I hope to add to our discussion from my vantage here in the Frankfurt, Germany area. I’m an American guy who has lived/worked overseas much of his life, so my eyes are filled with some different experiences, I suspect.
Dear Dean
When writing something like “The media have treated us to an array of stories warning us of the terrible labor shortage facing the country.” on a blog that is read around the world, you need to specify *which* country. It took me a while to figure out that your remarks were only about the USA.
The issue you write about is mercantilism 101. As Prof. David Spencer puts it:
“Mercantilism states that a country will grow richer by increasing its net exports. To achieve this goal, the original mercantilist writers recommended that wages be kept at the subsistence level, not just to minimise the direct cost of labour, but also to maximise the pressure on workers to work. They believed that workers were lazy and had to be coerced to work.” (David Spencer LSE Blog http://blogs.lse.ac.uk/politicsandpolicy/six-centuries-of-vilifying-the-poor/)
Trump is a mercantilist and is trying to increase net exports, partly by depressing wages to give exporters an advantage and partly by addressing the USA’s massive trade imbalance by instituting a trade war. The USA imports a lot more from Russia, to take a topical example, than it exports too Russia. This is a consequence of being the richest country and having a culture of conspicuous consumption. .
One of Trump’s problems is that we might ally against him, If Europe, Russia, and China mounted a coordinated response to Trumps’s trade war, he’d be in deep trouble. So of course he’s going around stirring up trouble between us – siding first with one and then another. Allying with enemies and alienating allies so that we all forget that Trump himself (not the USA) is the enemy.
Note also that mercantilists are willing to pay top dollar to anyone who can squeeze more work out of fewer workers at lower pay. And also to those entertainers (including sports and media personalities) who contribute to the pacification of the wage slaves. Fries and superbowl have replaced bread and circuses, but also as Frank Zappa quipped, Government is the entertainment wing of the military industrial complex.
Descriptions of the problem are easy and one can make sense of it in different ways. We have a million commentators and no demonstrators. So we can all see what’s happening and get a million opinions on it, but nothing ever changes because were talking not marching.
I think more than marching is needed. Just as the millionaires and billionaires set forth their doctrine in print, designed it through “think-tanks,” and advertised their beliefs amongst us all by capturing the government, so must the workers seek alliances with other workers to bring about change. Knowing how the rich captured the wealth and educating others would help define the problems that beset working people. A massive strike by all workers who are not paid enough to live on would be a good start. A new political party unaffiliated with the present parties would be another good step. Education and organization would be a beginning.
There are plenty of feel good marches. What we lack is organizing people to strengthen democracy starting with taking power from the rich. We need focus, unity and commitment to government for and by all the people. Legislation by walking has not done the job. We need to do what is necessary to socialize campaigns for public office so we can begin to change our political and government system in the interest of political equality, fairness and sustainability.
Dean, in a democracy we get the kind of society we’ll willing to fight for. In other words, the rich didn’t come to control the political processes and use that control to obtain an ever-larger share of the economic pie (the money) without a corresponding failure to protect both the processes and the pie by many ordinary Americans. The early unionists in the US used many tools to fight the corporations and the rich. Including some distasteful and even violent tools. This is a fist, knife, and gun fight. We should not pretend otherwise. There should be hundreds of thousands of people surrounding the Koch estate in Kansas every day. And no opposition politician should ever feel s/he controls town halls. Blunt threats and insecurity are effective ways to control the rich and corporations. This is how laws protecting unionizing, worker rights, and fair pay were enacted and protected.