Introducing Labor Share as a Key Economic Metric Could Track American Workers’ Progress
As I’ve noted in previous pieces, The Harms From Fighting Inflation and Progressive Leaders Are Missing the Damage From the Fight on Inflation, there is a great deal of damage that happens to working people as a side effect of fighting inflation. The reason, which is not much understood, is mostly social psychology — our minds being captured by a top-down way of looking at things. It could help, though, to change what measurements we use and pay attention to.
The Federal Reserve (Fed) has a dual goal of keeping inflation low but also keeping unemployment low. They’re not automatons just looking at the inflation and unemployment numbers and stopping there. They look at all types of other indicator data. Still, in August 2022, Powell said their methods of reducing inflation will, “bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Bingo! There it is. “Greater” pain. Yeah? By what measure? Did they calculate that somehow internally? Did they put a number on it? Did they calculate that people starting off with lower wage offers are likely to stay on a trajectory lower than they would have for many years? Unions negotiating in a weaker job market are likely to get less out of those negotiations. Did they calculate what that will cost those union members for years to come? Did they calculate some dollar cost of jobs that jerk the schedules around because the managers aren’t worried about employees finding better positions?
Here’s a value to track and consider: employee confidence. How confident are employees that if their current job doesn’t treat them well that they can go find a job that appreciates them more? That might seem like a squishy thing to track, but then a commonly cited value is consumer confidence. That is measured and used.
Something that has been measured for decades is the labor share — both the Fed and the Bureau of Labor Statistics track it. Of all the national income, how much goes to wage earners and how much to owners and investors? In other words, how is the pie sliced?
For decades labor’s share has drifted down. I wrote about this in my book US, Everything is Done By US, We Can Make it For US in 2020, but had been suggesting the idea in email exchanges with various economists for years. Labor share doesn’t change as quickly as inflation so it’s hard to make exciting news about it, but if the government, in official form, tracked and reported on it much as we do inflation, and had an official policy of trying to nudge it when headed in the wrong direction as we do with inflation, it would do several things.
Firstly, tracking labor share would serve as sort of a “how are the regular people doing” economic indicator. It would force the government to track and report that, and give legal grounds for pushing the government to be active about improving it. Just as importantly, this measure would give people several influential pieces of information, and also serve as a reminder that they shouldn’t just pay attention to news of how the economy is doing — which can thrive while leaving many working people struggling behind. This would remind people that government can and should work not just on the economy, but on how it’s doing for most people.
There are probably other measurements that could fine-tune and combine with the labor share, but first it would take media and progressive advocates to look beyond their blinders, and even be aware that a search for such tools is needed.
The Fed is not the problem, just a part of our collectively having gotten so accustomed to certain blinders that narrow our focus, we’re not even aware of them. Fully viewing from the bottom up is actually encouraging because so many opportunities for improving things regarding working people come into view.
