This Labor Day, most Americans who need to work for a living still have a long way to go before they recover what they have lost over the past four decades.
The real inflation-adjusted median wage is only about 10 percent above what it was in 1979.
As economist Dean Baker has noted, we can also see part of this transformation of the United States into a more shamefully unequal society if we look at the distribution of national income between profits and labor.
If not for this redistribution from wages to profits from 2000 to 016, the average worker today would have an additional $4,000 a year in annual income.
This historic redistribution of income and wealth was the result of choices made by our political leaders and decision-makers. Among them:
–– They chose to maintain higher levels of unemployment and interest rates than necessary.
–– They subjected workers to increasingly harsh international competition while protecting highly paid professionals and CEOs.
–– They increased protectionism for patent holders, including pharmaceutical companies who charge tens of thousands of dollars for cancer drugs that would sell for a small fraction of these prices in competitive markets.
–– They changed labor law so that unions’ bargaining power would be reduced to levels not seen for most of the 20th century.
The Trump administration claims that workers’ long night is over, as evidenced by the current headline unemployment rate of 3.9 percent; and that it is responsible for the historically low unemployment.
But this reduction in unemployment is the continuation of an economic recovery that began under the Obama administration, and is overwhelming the result of policy decisions by the Federal Reserve, not the president or Congress.
Beginning in December 2008, the Fed kept short-term interest rates near zero for seven years and also created trillions of dollars during much of that period to push down long-term rates.
The Fed is the main determinant of the rate of unemployment; but what the Fed giveth, the Fed taketh way. The Fed began to reverse those policies in 2015; it has raised rates twice this year and is expected to raise them two more times before the year is over.
The Fed has had no valid reason for these interest rate increases. The Fed targets an inflation rate of 2 percent, but its preferred measure of inflation is still 1.9 percent. And inflation has been below target for almost all of the past nine years.
Most Americans don’t know this, but when the Fed raises interest rates it is intentionally slowing the rate of job creation, to make unemployment higher than it would otherwise be; and thereby putting downward pressure on wages.
Since World War II, the Fed has caused all of the recessions in the U.S. except for the last two, which were caused by the bursting of the stock market bubble in 2000 and then the housing bubble in 2007.
Most immediately, the Fed threatens to reverse much of the gains in employment that we have made in the current economic expansion, even though real wages did not even grow over the past year.
For the longer term, Trump and his congressional allies have moved to continue the march towards greater inequality: for example, with the tax giveaway to corporations and the rich and Trump’s selection of anti-labor and right-wing judges for the federal courts –– increasing inequality in education, and other policies.
Reversing labor’s losses over the past four decades will therefore require blocking the Fed from increasing unemployment – or worse, tipping the economy into recession and then undoing some of the structural changes that have created such obscene levels of inequality.
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C., and the president of Just Foreign Policy.
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1 Comment
Good article Mark. Years ago I read a book by Michael Yates called,” Why Unions Matter” Monthly Review Press It’s worth the read. https://monthlyreview.org/product/why_unions_matter/
Blair Phillips
Retired Autoworker
St. Catharines