Full Employment Without Unions

The Federal Reserve Bank, among others, has been made much of the anticipated inflation as the unemployment rate has fallen. It hasn’t happened, and speculation as to why has focused on a variety of possible factors, including whether our way of calculating unemployment—by only considering those actively seeking employment as unemployed and leaving off “discouraged workers”—gives an overly rosy picture. Perhaps those potential workers are discouraged by their poor prospects for decent pay? The demise of labor unions, especially in the private sector, may contribute to lower inflation. The prolonged conservative wave that has been swamping us for decades has left employers determined and able to hold wages down, and without unions, there is little pressure for them to raise them. Similarly, they would prefer to whine about the lack of specialized skills imparted by public educational institutions rather than invest in training their own workforce. In the past, strong unions forced wages up for all kinds of jobs, but it was no accident that good paying jobs in manufacturing were replaced with poorly paying jobs in the service sector; most of the former were union jobs, the latter are not.

For the Federal Reserve, of course, all inflation is not created equal. Rising housing prices are just fine, but let wages rise, and it’s time to tighten the screws. I wonder who figured that out?