It’s our old friend Karl Marx who called the thing about the workers’ wages right. Full employment is indeed the workers’ best friend and now that we’ve got it we can see wages rising at their strongest rate for a decade, 3.1% year on year. We can also run this the other way around, if we’re seeing such strong wage growth then we’ve got to be pretty much at full employment.
We can also use this as an example of both classical and neoclassical economics being right. Marx himself being a classical of course, and the neoclassicals being those the modern left likes to sneer at. It’s all much more complicated etc, yet here we have the old assertions being proven right. Get to full employment and we’ll see wage growth:
Workers are reaping the benefits of the lowest unemployment rate since the late 1960s: Wages, salaries and benefits are rising at the fastest rate in a decade.
Yep, quite so. The details being:
The employment-cost index, a measure of wages and benefits for civilian workers, rose a seasonally adjusted 0.8% in July through September, the Labor Department said Wednesday. The gain was an increase from the second quarter’s 0.6% advance and matched expectations of economists surveyed by The Wall Street Journal.
Wages and salaries rose 0.9%, and benefit costs—which include health coverage, retirement benefits and paid leave—advanced 0.4%.
From a year earlier, compensation increased 2.8% in the third quarter.
The effect upon wages, not compensation, being:
For what feels like forever now, economists have been wondering and debating why pay isn’t rising faster, given the low unemployment rate. Often you hear this described as the “wage puzzle.” But at least a few economists—most notably Adam Ozimek of Moodys Analytics and Ernie Tedeschi of Evercore ISI—have argued that there really isn’t much of a mystery at all, if you look at the right data. Wages have been rising at roughly the rate you’d expect, given tightness of the labor market.
Wednesday offered a bit more data supporting their theory. The Bureau of Labor Statistics reported that, tracked by the employment cost index, wages and salaries for workers in private industry had increased by 3.1 percent during that year that ended in September.
All of which is just as Marx predicted it would be. Assume that there are capitalists making profit out of employing labour – not too far from what we see out the window. So, their profits rise and the workers decide they’d like them some of that. Here comes the strike, or the wage negotiation, and our capitalist fires them all – Ronnie Reagan and the air traffic controllers – and hires some of those starvelings out there in the reserve army of the unemployed. Or perhaps demand for the capitalists’ production rises, he needs more labour to exploit. Hire from those unemployed again, happy to be inside in the warm with a whole crust, each, each day.
Now, what happens when there’s no reserve army? The capitalists are in competition with each other. They’re competing with each other for the labour they can exploit. Anyone needing more workers – or different ones after a strike – needs to tempt them away from another job. Tempting them with higher wages. And the other capitalists have to raise wages in order to keep these they can expropriate the profits from. Thus, at full employment, where we’ve no reserve army of the unemployed, wages rise. A simple enough economic concept that even Marx got it right.
What are we seeing out the window? Full employment and rising wages. Which works the other way around, too, we’re seeing rising wages so we’ve got full employment. That is, contrary to certain modern day commentators, there really are some things which standard and classical – even neoclassical – economics has right, the determination of wages being one of them. Get to full employment and wages rise, simples.