Washington Post columnist Catherine Rampell wrote last week that those pointing to the role of fatter profit margins in driving price inflation are engaged in “conspiracy theories,” and argued that the conspiracy theorists are distracting attention from things that could really lead to lower inflation: faster immigration and removing import tariffs. It’s a pretty unconvincing column all around.

First, the alleged inflation cures that attention is being pulled away from are really weak tea. The case for faster immigration helping to quell inflation runs through its effect on labor markets. If faster immigration increases labor supply this could in theory dampen wage growth. But wage growth has not been the source of the current inflation. And recent readings on wage growth have it roughly consistent with relatively normal rates of inflation. Putting further downward pressure on wage growth that is already lagging far behind inflation would just increase the burden of adjustment to more normal inflation that will be borne by workers.

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The U.S. tax system is deeply flawed. While millions of working-class Americans pay their fair share, corporations are dodging more and more of their tax responsibilities. Despite record profits, corporate taxes are way down, as corporations exploit loopholes that allow for offshore profit-shifting and various tax breaks and deductions. Specifically, the 2017 Tax Cuts and Jobs Act (TCJA) decreased the statutory corporate income tax rate from 35% to 21% and simultaneously introduced new tax loopholes. Consequently, the TCJA has slashed the effective tax rate for corporations almost in half, further damaging the progressivity of the overall federal tax system. In turn, this erosion of corporate liability and the proliferation of tax avoidance have exacerbated inequality, with the working class facing starved social services, reduced household incomes, and lower standards of living.

One proven tool to combat this rise in inequality is unions. By bringing workers’ collective power to the bargaining table, unions are able to win better wages and benefits for working people—reducing income inequality as a result. Yet data show that U.S. employers are willing to use a wide range of legal and illegal tactics to frustrate the rights of workers to form unions and collectively bargain. And much like our overall tax system favors corporations over working people, the tax code functionally rewards corporations for anti-union activities that suppress worker power.

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Yesterday’s inflation data for April 2022 was a mixed bag but had some encouraging seeds in it. Measured year-over-year, overall and core inflation (inflation minus the influence of volatile food and energy prices) both ticked down slightly. Measured just over the past month, the overall index decelerated significantly, but the core index rose back up to the level it had plateaued at in the five months before March. This post is about why wage trends—both throughout the inflationary burst and in very recent months—should make us even a bit more encouraged that inflation can be brought back under control without the Federal Reserve having to move interest rates to a radically more contractionary stance. 

There has been a lot of discussion—and confusion—recently about the role of tight labor markets (“the Great Resignation”) in the rise of inflation we’ve seen since early 2021. In this post, we make the following points about the wage/price relationship:

• To date, the rise of inflation has unambiguously not been driven by tight labor markets pushing up wages.
• Nominal wage growth has been fast over the past year relative to the past few decades, but it has lagged far behind inflation, meaning that labor costs are dampening—not amplifying—price pressures. Last week’s jobs report showed that average hourly earnings growth over the last quarter was 4.4% (at an annualized rate), with wage growth actually slowing in the last three months to under 4%.
• If the only change in the economy over the past year had been the acceleration of nominal wage growth relative to the recent past, then inflation would be roughly 2.5–4.5% today, instead of the 8.6% pace it ran through March. In short, nonwage factors are clearly the main drivers of inflation.
• Claims that the Federal Reserve needs to shift into a much more hawkish mode to keep wages from amplifying inflation and to bring inflation back down to more normal levels are often greatly overstated and understate how much damage this strategy could cause.
  • As long as wage growth is dampening inflation (and it is), then the question of how hawkish the Fed must be is not a question of whether inflation will return to more normal levels, but just how quickly we want that happen.
  • A much quicker return to more normal inflation would require sacrificing important gains that stem from low unemployment, even though a return to more normal inflation is quite likely to occur on its own. This makes the cost of a more hawkish stance (more joblessness) high and the benefits (a few months of slightly lower inflation as we get back to normal) pretty low.

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The COVID-19 pandemic showed how critical unemployment insurance (UI) is for sustaining workers and the economy during times of crisis, while also revealing deep fissures and inequities in UI systems. Federal programs that expanded UI eligibility, benefit levels, and benefit duration kept local economies afloat and became a lifeline for millions during the early stages of the pandemic, but the crush of UI claims at peak levels of unemployment also exposed the poor condition of state UI systems. From backlogs and delays caused by insufficient administrative capacity and outdated technology to inadequate benefit amounts, many state UI systems operate in a chronic state of underfunding that results in inequity and dysfunction.

One of the root causes of these problems is rarely discussed: Lawmakers have structured state UI financing in a way that permanently starves the UI system. UI is currently funded through a combination of federal and state taxes paid by employers, where state UI taxes pay for benefits during normal economic times. However, in most states, the amount of employee wages on which employers pay state UI taxes, i.e., the taxable wage base (TWB), is extremely low. At present, 14 states and Washington, D.C. have taxable wage bases below $10,000 and a remarkable 36 states have their bases set below $25,000. This means that in 71% of states, employers pay UI taxes at most on the first $25,000 of an employee’s annual earnings.

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Below, EPI economists offer their initial insights on the jobs report released this morning, which showed 428,000 jobs added in April.

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May 1 is International Workers’ Day, a day workers around the world mark as Labor Day with marches, demonstrations, and renewed calls for workers’ rights. “May Day” got its start in 1886, when U.S. workers rallied in support of ongoing campaigns for an eight-hour day, setting May 1 as a deadline to begin mass strikes if employers failed to adopt shorter hours.

In 1886 Chicago, where tens of thousands joined May Day actions and thousands went on strike, subsequent police shootings of striking workers escalated into the well-known Haymarket Tragedy. Months of state-sanctioned, anti-immigrant repression of labor organizing followed. Police raids of union halls and arrests of organizers culminated in a sham trial, eight guilty verdicts, and public hanging of four prominent immigrant, working-class movement leaders (a fifth died by suicide prior to the execution date). The trial and executions were followed closely by workers across the country and around the world. In memory of the Haymarket Martyrs, labor and socialist organizations declared May Day International Workers’ Day, now an official public holiday in many countries.

Over 100 years later, our May Day 2022 economy has much in common with that of May Day 1886—rising inequality, economic upheavals affecting those with the least financial security, xenophobia, market concentration, and an upsurge in workers taking matters into their own hands while facing intense employer resistance. U.S. factory workers and railroad workers are still campaigning for shorter hours, in some cases striking (or threatening strikes) to challenge inhumane 12-to-14-hour shifts and unpredictable forced overtime. New generations of workers, including many immigrants, are breaking through barriers of employer union-busting to organize unions in warehouses, hospitals, nursing homes, coffee shops, retail stores, media outlets, universities, and beyond.

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“Our health is just as essential,” read the homemade sign Chris Smalls carried in front of the Amazon JFK8 Staten Island warehouse on March 30, 2020, a moment when it had become clear that exposure to coronavirus could be deadly. After a week of appealing to management for masks, gloves, and a temporary shutdown to sanitize exposed areas, several JFK8 workers walked out and called on Amazon to take steps to protect those inside the warehouse where positive cases were known but not always being reported to employees.

This Workers Memorial Day, policymakers should listen to and follow the lead of workers at Amazon and elsewhere who are organizing to build the power necessary to demand safe work, often in the face of long odds and intense employer union-busting. With pandemic losses still mounting and untold numbers of worker deaths to mourn, it’s past time to ensure effective regulation of workplace safety and the protection of all workers’ rights to form a union.

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