On the other hand I tend to agree with the editors of the Economist:
From mid-2009 to the end of 2017, wages and salaries grew by only 2% a year on average. That outpaced inflation, but mainly because petrol prices slumped in 2014. Today, however, paycheques are fattening faster. In the year to the first quarter of 2018, wages and salaries grew by 2.9%—equal to the average growth, though hardly the quickest, seen during the 2000s.
Plenty of outside opportunities give workers negotiating power even without labour unions, which have been in near-terminal decline. In May 2.4% of workers quit their jobs, the highest figure since 2001—good news in an economy that has been plagued by falling dynamism. Job-switchers are banking median pay rises of nearly 4%, according to the Atlanta Fed. In the jobs boom of the late-1990s, overall wage and salary growth reached 4.3%.
At that time, fast productivity growth enabled wages to boom without provoking inflation. Yet the second benefit of economy-wide labour shortages is that they may precipitate faster productivity growth, which has been disappointing in America—and in other rich countries—since the financial crisis. If less profitable firms have to fold because they cannot pay enough to attract workers, their labour and capital can be put to better use. A similar process can take place within firms. Plagued by resignations, Dunkin’ Donuts, a purveyor of starch, sugar and caffeine, recently asked its ex-employees which tasks they disliked most, and then automated the dullest, such as writing labels and checking the quality of coffee grounds. Less prosaically, worker shortages might encourage firms to adopt path-breaking technologies such as artificial intelligence.
A labour shortage is also likely to reduce inequality. As wages stagnated, corporate profits—and stockmarkets—touched record highs. That has contributed to a feeling that the economy has tilted towards capital and away from labour. From 2000 to 2014 labour’s share of national income fell from just over 57% to below 54%. If rising wages reduce profits, labour’s share could yet rebound. Moreover, the biggest wage gains in a tight labour market tend to accrue to the poorest workers. Full-time employees at the 10th percentile of the income distribution are earning almost 4% more than a year ago.
Firms are also reaching into untapped pools of labour. For years policy wonks have worried about rising disability rolls. Today nearly 10% of disabled workers who were outside the labour force a year ago are employed, a figure that has been steadily rising. There have been scattered reports of firms hiring more ex-convicts. Even a 30-year-old jobless man who recently gained notoriety after his parents went to court to evict him was offered work by a pizza chain as a publicity stunt.
Those are the reasons I’ve advocated the policies I have. They are intended to tighten the labor market. In addition we either need to relax the caps on certain jobs or else tie pay raises in those jobs to increases in productivity.
There will be a difficult transition while whole sectors in which we don’t have either competitive or comparative advantages are de-emphasized while areas in which we can be competitive or have a comparative advantage receive more. The end product will be more efficient, wealthier, and more equal. The alternative is remaining on the road we’ve been on which leads to a small aristocracy, a large impoverished peasantry, and a struggling middle class.







