The Fight on Inflation Creates Unseen Struggles on Workers
The way the story of fighting inflation is known runs something like this: Inflation hurts employees’ paychecks, but the Fed (Federal Reserve) is working to bring it down. It will require hitting the brakes on the economy so that the number of job openings will go down, and employers will no longer have to offer higher wages. It could even create some economic hard times for all, such as a recession. But, the Fed is trying to avoid that if possible. What the Fed is doing to fight inflation is the only game in town. Nothing to do but wait and see the end results.
There is a lot that is missing in that. A big part of it can be stated as, employees will lose leverage in their dealings with employers. As noted, putting the brakes on the economy is intended to result in fewer job openings, so there will be more applicants per opening, and employers won’t feel they have to offer higher wages. But losing leverage is about more than just what wage is offered in a job opening.
Leverage affects how large and frequent raises are over time, and how much the company contributes to your 401(k). If you are salaried, it can affect how many hours are expected of you. For hourly jobs it can affect whether the company will give you a consistent schedule, or if it is a surprise every other week. It can affect whether the number of hours is consistent. If the boss is harassing, it can affect whether you are confident you don’t have to put up with that and can just go get a different job.
In recent times, there have been more strikes and more gains in contract negotiations. Lost leverage would affect those too. A little less success in those negotiations on wages, benefits and raises over time could have a big effect on the career-long economics of people starting out now.
All of that might mean that losing leverage is more costly over time than the impact of inflation on your paycheck. So where is the sweet spot? That would be a good question to have in the public debate, involving not just economists, but the workers’ perspective too. But the public debate is not sorting any of that out, because none of the main public dialogue seems to include awareness of how these other issues fit in the mix.
Another missing piece is about how to fight inflation. There has been little coverage on how some companies raised their profit margins under the cover of inflation. The question of how much of inflation is related to profits gains importance with the perspective of 50 years of history during which a growing proportion of national income has gone to investment income. That is in the companion piece that will soon follow with this one, “Inflation is Fault of Past Wage Suppression.” Profits are also related to the growing consolidation of industries toward something closer to monopolies.
The Fed is open about the fact that workers will need to feel “pain,” in the fight against inflation. So, what is a fair degree of pain to expect those corporations to pay who have headroom in their profit margins? The Fed affects the job market by indirect measures. Are there indirect measures to discourage profit margin growth during inflation? That would be a good thing to debate. But there is no public debate of these issues when the common understanding is the very simplistic one described in that first paragraph.