Dean Baker
Truthout, July 16, 2018

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The media have treated us to an array of stories warning us of the terrible labor shortage facing the country. Some of the pieces have been general, such as this CNBC piece on the labor shortage “reaching a critical point,” or this Wall Street Journal article on wage gains “threatening profits.”

Others have been more industry-specific, such as The Washington Post’s highlighting of the trucker shortage that threatens the “prosperous economy.” Then there is this New York Times piece noting that nursing homes have trouble attracting nursing assistants at the $13.23 an hour average pay for the occupation.

It’s clear that many in the media are terrified by the prospect that as the labor market gets tighter, workers might get a larger share of the pie. Perhaps this should not be surprising when billionaires control major news outlets, but it does mean that economic reporting might be getting pretty far out of line with economic reality.

At the most basic level, if workers did see pay increases at the expense of profits, they would just be getting back some of what they have lost in this century. The after-tax profit share of national income rose by almost three full percentage points between 2000 and 2016. That would correspond to an average loss of almost $3,000 per worker per year.

But even this calculation understates the shift from wages from profits. According to new research by Gabriel Zucman, more than a third of the foreign profits of US corporations are actually profits made in US but shifted overseas to evade taxes.

Factor this profit shift into the calculation and the loss to workers is close to $4,000 per worker per year. And this is before factoring in the corporate tax cut passed last year.

In this context, the whining over higher wages seems especially pathetic. Corporations were happy to take advantage of the weak labor market, especially in the years of the Great Recession, to increase their profit share. Now they are warning of disaster if they have to give back some of their gains if the labor market continues to strengthen.

Undoubtedly, many of those complaining about the labor shortage want the Federal Reserve Board to accelerate its pace of interest rate hikes. The hope is that slower economic growth will mean fewer jobs and higher unemployment.

Others are looking for more direct help from the government. For example, Donald Trump’s Mar-a-Lago resort is looking to get permission to bring in 78 foreign workers to fill low-paying jobs such as cooks and housekeepers.

We’ll see soon enough how the battle shakes out, but the basic story should be quite clear to anyone paying attention. The increase in income inequality we have seen over the last four decades has little to do with the intrinsic dynamics of the market. It is a story of the rich rigging the rules to get all the money.

We see this again and again in different areas of public policy. After running around the country for 18 months yelling about China’s currency policy, which has cost the jobs of millions of manufacturing workers in the United States, Donald Trump has dropped currency from his list of complaints as he sets out on his trade war. Instead, we are supposed to fight China over Boeing and Pfizer’s patent fees.

The Supreme Court has decided it is a “free speech violation” if unions sign a contract requiring the workers who benefit from the union to share in the cost of maintaining the union. However, the court sees no questions of freedom at stake when fast-food companies prohibit their workers from seeking jobs with competitors.

Undoubtedly, we will see many economists doing careful research studying the causes of growing inequality. Major foundations will devote tens of millions of dollars for this work.

But there is no mystery here. The rich control the political process and they are using this control to get an ever larger share of the economic pie. Implying that there is some complex puzzle to be sorted out helps the rich in their pursuit of upward redistribution.