Latest Jobs Report Shames the Inflation Hawks

Today on TAP: Wage growth continues to decelerate. Contrary to Larry Summers et al., wages are not driving price increases.

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The Labor Department reported today that job creation increased by 390,000 in May, down slightly from 406,000 in April and dramatically below the blistering monthly average of 561,000 for the previous year. Total jobs in the economy are still half a percentage point below their pre-pandemic level.

Wage growth also continued to slow down, as labor markets are not tight enough to command higher real wages. In May, wages grew at an annualized rate of only 3.8 percent, or less than half the rate of inflation. That’s down from 4.3 percent in the previous quarter.

Both the labor force participation rate, at 62.3 percent, and the ratio of employment to population, at 60.1 percent, remained 1.1 percentage points below their pre-pandemic February 2020 levels.

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How can wages be driving inflation if wage increases are far below price increases? Yet in an extended interview with The Washington Post Tuesday, Larry Summers literally called for higher unemployment based on spurious data and logic. He said: “I don’t see how we can get inflation to substantially decelerate without wage inflation falling substantially, and I don’t see any reason to think wage inflation will fall substantially unless there’s a substantial loosening in labor markets, which would mean higher unemployment.”

So workers are getting whacked on both ends. Their actual wages are lagging far behind prices, but they are getting blamed for inflation. For more detail including charts, see this excellent post from EPI.

If you look at the sources of price increases in the economy, such as higher retail gas prices, or rent hikes, or higher food costs at grocery stores, or higher ocean shipping charges, the lack of wage pressure as the culprit is only common sense. It’s not as if filling station attendants or grocery clerks or container-ship crews are getting big raises.

The ills driving inflation are elsewhere—the supply chain mess, corporate concentration that leads to monopoly price-gouging, and excess profits in industries such as ocean shipping and airlines taking advantage of scarcity. The usual suspects who blame workers’ wages are conspicuously silent on the windfall gains of Wall Street billionaires, for whom the pandemic was a bonanza.

It has been decades since workers got wage increases commensurate with productivity growth. The fact that earnings for some low-wage service workers, in routine and often hazardous occupations, actually rose during the pandemic is cause for celebration, not concern.

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