John Buell

Economic Recovery Should Help Workers

McDonald’s has said that its franchisees are independent owner-operators who set their own policies. The restaurant leader has also said that it respects employees’ right to choose whether they want to unionize and that it offers “competitive pay based on the local marketplace and job level.”

The business press — and the major stock averages — suggest that an economic recovery is well under way. That may be so, but it would be hard to convince most ordinary Americans. Though unemployment has declined, much of the gains derive from workers departing the labor market, thus not adding statistically to the unemployment rate. At the current pace it still seems unlikely that prosperity will trickle down to the working class and the poor. Just how far down the social ladder renewed prosperity will penetrate is likely to depend on two struggles, one public and the other carried on within one of our most insulated institutions, the Federal Reserve. In both cases, advocates of status quo draw on tired Economics 101 arguments.

The most public struggle is the growing push by fast food workers for a wage boost to $15 per hour. McDonalds responds that it “offers competitive pay based on the local marketplace and job level. References to competition and the marketplace call to mind images of a local farmers’ market, with many farmers selling similar, well-known local crops. Ads, if present at all, take the form of a list of raw produce or baked goods and their prices. McDonald’s is one of the largest national corporations, biggest ad spenders, and largest employers-especially in many inner cities. The only perfect competition in the fast food industry is among the numerous workers competing for a relatively small number of jobs in a high unemployment environment. McDonald’s wage offer is hardly determined by some impersonal market. Within limits it can set the bounds of the market. The argument that setting a higher minimum wage for labor would force immediate unemployment is disingenuous. In addition, labor markets differ from other markets in one other way. Labor is a cost of production, but it is also a source of demand. Better pay for its workers might add to cost, but also puts more money in the hands of potential Big Mac consumers.

Just as McDonalds has disproportionate power in labor markets, so does it enjoy considerable leverage in product markets. Though price wars are an occasional feature of the industry, such competition can be destructive and firms are more likely to compete through advertising. Advertising helps shore up demand for the product and serves as a barrier to entry for smaller firms. Unlike the farmers’ market, where many sellers compete, none have much control over prices, and profits are low, McDonalds can count on substantial — though not invariant — year to year profits and has considerable ability to adjust prices without fear of going bankrupt.

Beyond the confines of fast food there is a less publicized drama, one that could affect wide segments of the working class and even change the playing field on which McDonalds negotiates with potential employees. What constitutes “full employment”? To the ordinary citizen it seems somewhat odd or even contradictory to say that 5% or 6%, the apparent Yellen/Bernanke standard, is full employment.

Conventional economists argue there is a natural equilibrium rate of unemployment. Due to frictions in the labor market, striving for a lower level of unemployment would only lead to accelerating inflation. Yet what is presented as a theoretical issue, complete with graphs and intersecting curves, is really a power issue. Real full employment, where every citizen who wants a job has one, changes the power balance within the workplace. As left Keynesian Mical Kalecki pointed out in the late ’40s, genuine full employment deprives employers of the power of the “sack.”

Workers who are protected from arbitrary dismissal might demand more both in wages and in opportunities for self- development on the job. They might also, however, be more productive. There is much evidence from high performance workplaces to support the latter claim.

It is unlikely that there is any fixed unemployment rate at which inflation starts to accelerate. Nor is there much evidence that moderate inflation automatically becomes an extended bout of hyperinflation. In any case, rampant inflation could be zapped by wage/price controls. (Though conventional economists worry that these are inefficient, blunting inflation by permanently depriving large sectors of the workforce, especially the young, is also inefficient) Under Clinton, wage improvement at the bottom of the income distribution did not begin — and then only modestly — until unemployment headed down to 4%. Whether a low unemployment rate leads to inflation is a function of the institutions and organizations within the labor market. In the Clinton era, prior years of union repression and weak employment trends had frayed labor’s nerves. On a happier note, social democratic incomes policies in Europe, under which labor agrees to take some of its productivity gains in the form of profit sharing or equity stakes, have supported full employment and price stability.

Ultimately, struggles over the minimum wage and “full employment” are battles for the soul of US capitalism. Who will run the workplace? Shall employers have full freedom to determine wages and to sack their employees? Fed governors are really talking about an issue of the power of ordinary workers. When “wage pressures are well contained,” that is Fed speak for “there is enough slack in the labor market to keep workers scared of losing their jobs and afraid to demand wage increases commensurate with their productivity gains.” It is nice to hear workers beginning to speak for themselves.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. His books include Politics, Religion, and Culture in an Anxious Age (Palgrave MacMillan, 2011). Email Jbuell@acadia.net.

From The Progressive Populist, October 15, 2014