Re(3): RE: Wages and Panic Buttons

[Ellen Frank]

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Doug writes:  
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>Between 1997 and 1998, union members had an average weekly wage 
>increase of 3.0%, vs. 4.4% for nonunion workers. I suspect that's a 
>reflection of a higher unionization rate in manufacturing, where the 
>real wage is virtually flat; for the last two years or so, private 
>service workers have seen real hourly wage increases in the 2-3% 
>range, despite low union density. Obviously this service 
>outperformance is a function of tight labor markets without 
>significant import competition.
What I meant is that the weakness of unions in general (along with
other institutions like contractual raises) has made it difficult to
bargain for real wage increases without productivity increases. 
The old radical inflation story goes that inflation is caused by
conflict over income distribution that can't be resolved politically and
is displaced into the economic arena.  When unions are strong
and/or labor markets are tight, workers try to resist
real declines in income (rising oil prices for example) by 
using institutional power to increase nominal wages.  But of
course employers do the same thing, as does every other
organized group with some pricing power.  Often wages
fall in real terms.  The impact is often uneven, depending
on the strength of wage-setting instituions.  Tight labor markets are 
an important part of this story in the US.  In some South American 
countries though inflation gets going at very high rates of unemployment
simply because of powerful institutions with pricing power.   
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>In the U.S., debt substitutes for the social wage. Free tuition! Free 
>healthcare!

You're right.  Limit the cash economy and we limit the power of wealth.
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>I think it'd be more productive to talk about the tightness or slack 
>in labor markets than about inflation. That's what Wall Street means 
>by inflation - the balance of class power. That's what Greenspan 
>means when he's talking about the dwindling supply of new workers.
>
But the question remains.  What if BLS announced a 0.5% CPI increase for
July?  What's the liberal-progressive line?  In arguing against NAIRU,
a number of people have essentially said - the Fed shouldn't tighten
because rising wages doesn't lead to inflation.  But what if it did?  Does
that 
mean the Fed SHOULD tighten?   I'm not accusing you of painting
yourself into this rhetorical corner, Doug, but some prominent 
commentators have.  

				Ellen


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