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December 8, 2016


In these days of worsening wage inequality in which all worker productivity gains are hijacked to the bottom lines of the rich and corporate class, reductions in the rate of unemployment mean little. What difference does it make as expressed in macro terms if more people are employed when they are not paid for what they contribute to the economy? Most nearly all of the recent gains in employment are in areas that are not well-paying in the first place, so how is aggregate demand enhanced in any meaningful way with such puny additions of additional workforce and the puny income they bring to the demand table, if any?

Demand is not enhanced by more employment when the income from new hires is so little as to be scarcely noticed and subject to savings, payment of tuition debt, credit card debt and other such detours from the demand column in any event, some or all of which are very likely to be problems for those just coming out of the ranks of the unemployed. So they have a paycheck – so what? It’s already spoken for, and that adds nothing to demand. It goes to retire prior debt and reduce the hounding of bill collectors.

These newly employed can’t afford to go to market; they remain broke though employed. There are millions of employed workers who are so grossly underpaid these days (see especially Wal-Mart, our biggest domestic employer) who work full time and have to have taxpayer support through government programs to survive, even as the heirs of Sam Walton have more wealth than the bottom 40 percent of all Americans. This points up the fact that there is untold wealth available in this country but that we have a big problem in its equitable distribution, a continuing problem due to wage inequality, the (in my opinion) number one domestic issue we badly need to solve – and soon – this cancer on our economy has been growing for four decades as Wall Street continues to gobble up worker productivity gains to a point to where I fear a loss of social cohesion in our country among the workforce.

There is also, as always, the subsisting problem of unemployment. When comparing monthly unemployment rates, we look to see improvement from the previous month’s numbers as signals of success. The fact is that any number represents a failure of our ability to fashion an economy where only full employment at decent wages is a real signal of success. The reason why we don’t have full employment is, again, a matter of wage inequality. If people who are working today were paid for what they are worth by sharing their own productivity with Wall Street, thus giving a big boost to demand, the economy would take off and the unemployed would be employed, thus achieving the goal of full employment. Can’t be done because of market ups and downs? Wrong. It happened for some 35 years following WW II in which worker productivity was shared, big corporations were appropriately taxed and regulated, economic growth was off the charts, and everyone prospered, including corporations.

One of the big but relatively unreported problems in labor economics is underemployment, as in 20 hour weeks or shifts of work that are broken up during the workday that make it especially hard for employees to work and arrange and pay for childcare (read women). These are people who work at or near minimum wage and the only way they can survive without government help is to have more and knowable work hours. Fast food jobs are notoriously susceptible to broken shifts of work where (especially women) may have children at home and who are uncertain of just what their workday looks like. All of us are contributing food stamps and other government services to such workers, the costs for which amount to nothing more than corporate welfare to such workers’ employers and the owners of their businesses (as though the heirs of Sam Walton with their billions need taxpayer help).

Finally, there is also the problem of labor contractors. These are people who sign contracts with workers and send them off to offices and factories as independent contractors, not employees, though those who run the offices and factories tell such workers what to do and in general perform as employers do while denying those who carry out their orders under a labor contract are employees in the technical sense of the term. The distinction between an independent contractor and an employee can be crucial in sorting out the rights of the parties where, for instance, a worker’s compensation claim is litigated. I at one time wrote a brief to a state supreme court on the subtleties involved where my client was severely injured in an industrial accident and where his employer claimed to be a “fellow employee” and not his employer, and fortunately, my client prevailed.

Our economy is not going to show substantial growth until we have either solved or mitigated the effects of wage inequality, and we may safely ignore the arguments of the rich and corporate class that if we would only reduce their taxes and quit regulating their activities that the economy would take off and everybody would be happy. Wrong; that’s just another version of long since discredited trickledown economics. We’ve tried that and it didn’t work; the economy went south rather than taking off, thus fulfilling Stiglitz’s findings that trickle down doesn’t work and that the austerity economics we are practicing today “never works in large economies,” – and ours is large.

Economic growth comes almost solely from demand, and demand only comes from a heightened ability of consumers to consume, and such a heightened ability can only come from increased wherewithal workers earn in the workplace since they have few other capital resources. It’s not complicated, as the business press and apologia for Wall Street would have you believe, so don’t be misled. It’s Introductory Economics 101, or as an old judge used to tell me, “You can’t get a quart out of a pint jar.” He was and is right.      GERALD      E





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