Where’s Our Money?

Unemployment is low. People are talking about what a great economy this is. Is it? Because I sure don’t see it. What I see is the greatest level of inequality in a century. There’s money to be made but the people who need it aren’t making it, even if they are struggling in 3 part-time jobs. What’s going on here? Gabriel Winant has a good discussion of it, especially over the issue of monopsony, or the flip side of monopoly, where there are many sellers but only one buyer.

When unemployment goes down, wages are supposed to go up. That’s just supply and demand. Quite puzzlingly, though, this mechanism seems not to be working today. Unemployment stands at a modest 4%, but paychecks aren’t growing. Although today’s is the best-educated workforce in history, employers just insist that workers need more training.

In other words, they’re gaslighting us. Meanwhile, over decades, employers have built and maintained a massive collective political apparatus to hold down wages. To call it a conspiracy would be only slight embellishment.

The symptoms of the problem are not hard to miss. In February, for example, the American economy posted its biggest one-month jobs gain in a couple years, but wage growth stayed stalled out. For months, economists and financial journalists have been puzzling over the question, as Bloomberg put it, of “why the economy grows but your paycheck doesn’t”.
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Economists will tell you that wages generally increase with productivity – that you’re paid in line with the value of what you do. This was credible from the end of the second world war to the 1970s, when productivity and hourly wages rose almost perfectly in sync. But according to research by the Economic Policy Institute, from the early 1970s to 2016 productivity went up 73.7%, and wages only 12.3%.

Similarly, there used to be a positive relationship between stock prices and wage increases. But some initial signs of wage growth in February sent the market spiraling over inflation fears – until it became clear that the reported wage gains were all concentrated among top earners. Then everyone calmed down and stopped selling.

Meanwhile, the Federal Reserve just announced that it’s taking the next step in its plan to raise interest rates. This will suppress wages to prevent inflation, although inflation is minuscule and wages aren’t showing signs of life.

Another apparent culprit is what’s called “monopsony”. Monopoly occurs when sellers are so concentrated that they don’t really have to compete. Monopsony is when the buyers – in this case, employers – are concentrated.

A recent paper from the Roosevelt Institute found that the average level of concentration in labor markets is 45% higher than the threshold for “highly concentrated” markets used by antitrust regulators. If the government went after employer monopsony the way it does other kinds of markets, regulators might have their hands quite full.

What’s worse, as Alan Krueger and Eric Posner pointed out in the New York Times recently, one in five workers with a high school degree or less is subject to a non-compete clause – a tool for employers to push wages down by forbidding workers from getting jobs with their competitors.

Many major franchises also forbid their franchisees from hiring workers away from each other. So a McDonald’s on this corner isn’t allowed to hire away workers from the McDonald’s on the other corner by offering 25 cents more. (Such rules were a classic tool of white landlords in the Jim Crow South to keep down the pay of black sharecroppers.)

And even employers that don’t have such a commanding position can still hire workers through contractors who do. Temp agencies, for example, can function like bottlenecks, forcing workers into monopsonistic labor market conditions on behalf of smaller, less powerful employers.

These are huge problems. The way to solve them is a combination of direct action tactics and political moves to undermine the power of employers. Much easier said than done! But as Winant points out, the actions of the teachers in recent weeks is part of the answer and has a big impact on their lives. Moreover, while the internal struggles over the future of the Democratic Party can be incredibly tedious, attacking corporate control and forcing politicians taught for decades that centrism that impresses Tom Friedman and David Brooks is the way to go to shift significantly to the left is having a really important impact. We have decades of attacks to overcome, a Supreme Court that seems to hold Melville Fuller up as a model justice, and a corporate lobby operating in total class war. But we have to start the fight somewhere. Understanding the problems and taking action to use what leverage we have to fight back is critical.