For about a year now, the unemployment rate has been around 4%. That's supposed mean full employment, labor shortages, and rising pay. But the latest earnings report is the same old story: no gains in real hourly wages from June of 2017 through June of 2018. Most employers have been able to find new workers without having to raise pay offers much.
What's going on? There are screwball right-wing diversions and explanations. A Trump economist, D. J. Norquist, opines that it will take time for the Republican tax-cuts to work their way through the economy. This is nonsense. Just because the lords of creation get more money doesn't mean more will filter down to workers. We have the evidence of forty years on that issue. Then we have Stephen Moore at the Heritage Foundation. He suggests that the economy might be creating a disproportionate number of low-wage jobs, which could outweigh rising wages higher on the job ladder. But this compositional shift is not happening. And if it were, we would be right back to asking why a booming labor market was generating more lousy jobs.
It's true that scattered labor shortages are lifting wages and employment opportunities for some people. California farm workers' average pay is now about $14 an hour. More prisoners and ex-prisoners are getting regular jobs and the unemployment rate for disabled people has fallen to 7%. These are positive events. But average real wages have been stuck for two years.
So what are the causes for the general wage drag? Here are the important ones.
1. There is still a plentiful supply of jobless workers. The official unemployment rate tells us nothing about millions of people who are essentially unemployed and ready to work, but who are not currently searching for work and are not labeled as unemployed. Five million people came off the sidelines to take jobs in June. We are not close to full employment.
2. Few workers are unionized; most do not have collective power to take full advantage of good labor markets. Employers love dealing with workers one at time. Most employers don't want unions. Quite a few don't want regular employees. Millions of employees are involuntary part-timers, temps, or "independent" contractors who get no company contributions for Social Security and health insurance and may earn less than the minimum wage.
3. U.S. employees have less job security than employees in other rich nations. They are more likely to be laid off or fired, and less likely to get enough unemployment benefits to carry on a careful search for a better-paying job.
4. Capitalists and their financial overlords are more determined than ever to limit pay raises for rank-and-file workers. Everything, including executive pay, is about corporate earnings, stock prices, and shareholder gains. When American Airlines offered wage increases to employees, there was bitching and boo-hooing on Wall Street. "Labor is being paid first again," said Citigroup's analyst. "Shareholders get leftovers." Really? In what evil parallel universe do people like this guy live? Shareholders have been making out like bandits for years, and they are benefitting now from the Republican tax-cut giveaway which lowers rates on personal and corporate income, and gives companies tons of money for share-buybacks. Yes, I am aware that capitalism is inherently self-interested and amoral. But American capitalists seem more parasitic than ever. The invisible hand of self-interest does less to promote the general welfare than it once did. Wages are too low, poverty rates too high, global warming races ahead, and so on.
5. Another factor keeping wages down is akin to serfdom: employers rig labor markets with non-compete and no-poaching contracts. Employees must promise not to move to a competitor, even within the same company. Franchise owners pledge not to hire employees from other franchisees in the company. Company arguments are that employees have trade secrets, and also that employers must protect their investments in worker training. But the average fast-food worker doesn't get trade secrets, and there can't be a lot of training for fast-food workers. The real issue is that when employees have more freedom to search for a better deal, average wages are more likely to rise.
How restrictive are these contracts? In 2014 Jimmy John's required low-level employees to sign non-compete contracts that prohibited them from going to work for any business that earned more than 10% of its revenue from "selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches" within three miles of any JJ's franchise anywhere in the United States. This meant, for example, that a Jimmy John's employee in Chicago would not be able to take a new job making sandwiches in the Chicago area.
These anti-competitive contracts occur in many occupations, but they have been common in the fast-food industry. And truly wicked: you are an owner and you are paying very low ages--the median hourly rate at six fast food chains is $9.58--and now you and your company are barring employees from searching for a better job in the industry.
There's some reform at the state level. As I composed this article, the Attorney General of the State of Washington announced binding agreements to end no-poaching practices with McDonald's (which had stopped enforcing its contracts last year), Auntie Anne's, Arby's, Carl's Jr., Jimmy John's, Cinnabon, and Buffalo Wild Wings. Meanwhile, Democratic Attorney Generals in ten other states and Washington, D.C. announced investigations of six companies, including Panera Bread and Burger King.
So here's a little good news at a time when the Supreme Court, the White House, and Congress are dominated by people whose main labor policy is to limit the power and the living standards of workers. So treasure small victories. But remember other, bigger things that make for more subtle forms of modern serfdom.
Frank Stricker is on the board of the National Jobs for All Coalition, and emeritus professor of history and labor studies at California State University, Dominguez Hills. He has just finished What Ails the American Worker: Unemployment and Crummy Jobs: History, Explanations, Remedies.
Useful sources
Abrams, Rachel, "Why Aren't Paychecks Growing? A Burger-Joint Clause Offers a Clue," New York Times, September 27, 2017, accessed at nytimes.com on 7/11/2018.
Bureau of Labor Statistics, U.S. Department of Labor, "Real Earnings--June 2018," USDL-18-1114, released July 12, 2018.
Cohen, Patricia, "Paychecks Lag as Profits Soar, and Prices Erode Wage Gains," July 13, 2018, accessed at nytimes.com, 7/13/2018.
Dougherty, Conor, "Losing the Right to a New Job," New York Times, May 14, 2017, 1, 4-5.
Hiltzik, Michael, "Labor Losing Out to Wall Street," Los Angeles Times, July 12, 2018, C1, C5.
Krueger, Alan B., and Eric A. Posner, "A Proposal for Protecting Low-Income Workers from Monopsony and Collusion," Hamilton Project Policy Proposal 2018-5, February, 2018.
Stein, Jeff, "Fast-Food Hiring Practices Are Probed," Los Angeles Times, July 10, 2018, C6
Van Dam, Andrew, "Why Many U.S. Workers Feel Left Behind in Hot Economy," Los Angeles Times, July 6, 2018, C3.
Velshi and Ruhle, MSNBC, July 11, 2018, "What 'No Poach' Rules Mean for Fast Food Workers."
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