Dissent - Inflation Is No Excuse for Squeezing Workers
Legal director Sandeep Vaheesan and chief economist Brian Callaci co-authored an article the labor market in the midst of inflation.
With the unemployment rate at a historic low of 3.6 percent, American workers have enjoyed a rare moment of increased bargaining power. Employers in many sectors are confronting a truly tight labor market for the first time in decades and face the threat of workers leaving for greener pastures. Service-sector workers have received wage increases that they have never previously experienced, raising expectations for more. In the leisure and hospitality sector, worker compensation grew at an annual clip of 9.1 percent between June 2021 and June 2022. Fast-food employers have begun offering minimum hourly wages of $15 an hour—more than twice the federal minimum wage, and a previously fiercely resisted demand of the Fight for $15 campaign that began a decade ago.
After forty years of deflationary, wage-suppressing neoliberal policies, just a few months of inflation was all it took to cause some influential economists and policymakers to abandon their brief commitment to boosting worker power. We would be foolish to follow their lead. Instead, we should be focused on consolidating and institutionalizing the fragile gains workers have made during the pandemic.
A generation of employers conditioned by deflationary policy had become accustomed to a ready supply of cheap and always-available labor. Tight labor markets produce very different dynamics. Higher labor costs can lead to more innovation and productivity growth: employers need to run their operations more efficiently and invest in both training and labor-saving capital equipment. Rising wages also help shift workers from low-productivity employers who depend on cheap labor to high-productivity employers who have more robust sources of competitive advantage. Most important, full employment increases the bargaining power of workers. Employers must compete to recruit, retain, and motivate workers. That competition bids up wages, increases job security, and mitigates the ultimate power of bosses: the threat of termination.
The recent union election wins at Starbucks and Amazon are likely due in part to these conditions. Workers have been emboldened to take on the challenge of organizing new unions at large multinational employers—something virtually unheard of in recent decades in the United States. As a management-side labor lawyer recently put it, “I’ve been doing this for 40 years and this is unlike anything I’ve seen in my career.”
The backdrop to these labor market conditions is the expansionary fiscal and monetary policy pursued by Congress, the White House, and the Federal Reserve in the wake of the COVID-19 recession. Congress passed the $2.2 trillion CARES Act in 2020 and followed up with the $1.9 trillion American Rescue Plan in 2021, which included extended unemployment benefits, cash payments to all Americans, and an expanded Child Tax Credit for families with children. Combined with the Federal Reserve’s accommodation of fiscal policy with its commitment to what Chair Jerome Powell called “maximum employment,” these policies proved that the painfully slow recoveries from recent recessions were the result of policy choices, not deep economic causes. The question facing those who want to continue to foster worker power is this: how do we make the federal government’s embrace of these policies the norm, rather than an exception allowed only because of a global pandemic?
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