Before getting to that headline claim, some historical context helps.
Both the Fed and the Bureau of Labor Statistics track the Labor Share. That is, of all of the national income, and how much goes to wages and investment income. The Labor Share has been declining since the 1970s. The Wall Street Journal, in 2019, analyzed the difference, and said “If workers were commanding as much of domestic income as they did in 2001, they’d have nearly $800 billion more in their pockets, or $5,100 per employed American.”
For a full-time, two-income couple, that would be doubled. To the average wage earner, that’s a huge difference, which of course accumulates over years.
The context of the current inflation story is this: For 50 years, the way the pie of U.S. income is sliced has steadily yielded a smaller slice to wage earners. Then, because of a fluke of the rebound from the pandemic, workers briefly had the leverage to begin to turn that story around — though nowhere near enough to regain lost ground. They were just beginning to change direction. Then, based on inflation, an official, powerful, aggressive battle is waged to undermine that new leverage.
Inflation is certainly a serious consideration, but regardless of the reason, whether the fight is being carried out correctly or incorrectly, that story, 50 years sliding downhill, a brief turn-around, the official door slammed shut on it. This should be the buzz on everyone’s lips and a prominent discussion in the news.
That story is all the more important in the context of the ways that the fight against inflation hurts workers. Some of those ways are not obvious until an informed employee’s perspective is considered. See the companion piece to this story “The Harms from Fighting Inflation.”
To get to that headline claim, look again at that historical context story, but with an even clearer perspective. If the Labor Share had stayed as it was 50 years ago, the pandemic still would have caused some economic downturn and then upturn with the rebound, but only to get back to where we were before the pandemic. There still would have been some inflation because production and supply pipelines had to catch up, but that would have passed in a short time since that catching up has already occurred.
All of the inflation pressure of rising wages is about workers briefly having a fluke moment obtaining more leverage, and using that leverage to try to regain a little of the 50 years of lost ground. If the Labor Share had stayed the same, there would be no big pressure for wages to go up beyond simply getting back to where we were prior to the pandemic.
Current inflation is not the fault of wages. Current inflation is the fault of the preceding 50 years of suppressing wages.
If most working people had that dramatically different understanding in their minds, the public conversation would no doubt be much different.
There is one step further to go in peeling back layers of the onion to get a clearer perspective on this historic moment.
It is this: We now have a bitter irony. Current inflation, which was created by suppression of employee leverage, is now to be fixed by suppression of employee leverage.
That, too, would change the conversation.
The case can be made that nothing could be done differently anyway. That inflation must be fought, and fought the way that it is. Regardless, isn’t this total picture a huge story that ought to be part of the common dialog? Aren’t the questions it raises ones that ought to receive a thorough public debate, by all parties, not just economists far removed from the typical wage earner’s life?