One of the bright spots in the current economy has been the low unemployment rate and the increase in wages. It is an open secret that corporations likes to have high unemployment because it makes workers powerless and thus can be forced to accept lower wages and less likely to ask for better working conditions or (horror of horrors) form unions, since they can be scared by the prospect of getting fired. But businesses rarely say that out loud because it looks bad to say that you want to see more people out of work. So they usually find ways of directly avoiding doing so and do not really need to since business owners are aware of this open secret. But a recent report from Bank of America actually said that it hopes for higher unemployment in the future.
A BANK OF AMERICA executive stated that “we hope” working Americans will lose leverage in the labor market in a recent private memo obtained by The Intercept. Making predictions for clients about the U.S. economy over the next several years, the memo also noted that changes in the percentage of Americans seeking jobs “should help push up the unemployment rate.”
The memo, a “Mid-year review” from June 17, was written by Ethan Harris, the head of global economics research for the corporation’s investment banking arm, Bank of America Securities. Its specific aspiration: “By the end of next year, we hope the ratio of job openings to unemployed is down to the more normal highs of the last business cycle.”
There are six common measures of unemployment labeled U1 to U6, with U3 being the most commonly used.
To calculate the U-3 unemployment rate, the number of unemployed people is divided by the number of people in the labor force, which consists of all employed and unemployed people. The ratio is expressed as a percentage. The January 2022 U-3 unemployment rate as reported by the BLS was 4.0%.
There are yet other ways of looking at unemployment. The BoA report focuses on one particular measure that it views with concern.
What the memo calls “the ratio of job openings to unemployed” is generally calculated the other way around – i.e., the ratio of unemployed people to job openings. The more widely used ratio offers one measurement of the balance of power between workers and employers. The lower this number, the more options unemployed people have when searching for work and the greater opportunities employed people have to switch to jobs with better pay and conditions. According to the Bureau of Labor Statistics, this ratio stood at 0.5 as of May, meaning that there were then two job openings per unemployed person.
In 2009 – at the worst moments of the economic calamity that followed the collapse of the housing bubble during the end of the George W. Bush administration – the ratio climbed as high as 6.5, so there were more than six unemployed workers for each open job. It then slowly declined over the next decade, reaching 0.8 in February 2020 before Covid-19 lockdowns began.
The memo is an uncanny demonstration that the economist Adam Smith was right when he described the politics of inflation in his famed 1776 work, “The Wealth of Nations.”
“High profits tend much more to raise the price of work than high wages,” Smith argued. “Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price… They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
Thus, exactly as Smith would have predicted, Bank of America complains loudly about the bad effects of high wages in raising prices, but appears to be silent about the pernicious effects of high profits.
What about the much-feared so-called wage-price spiral, the idea that rising wages lead to higher costs of products that leads to inflation that leads to higher wages and on and on?
“If you did see continually accelerating wage-growth, it would be a problem,” Dean Baker, senior economist at the Center for Economic and Policy Research, a liberal Washington, D.C., think tank, told The Intercept in an email. “That would almost certainly mean a wage-price spiral with ever higher inflation. However, [nominal] wage growth has slowed sharply from around a 6.0 percent annual rate to just over 4.0 percent in recent months… So, [Bank of America wants] the Fed to raise rates (and unemployment) to attack a problem (accelerating wage growth) that doesn’t exist in the world.”
The memo therefore tells us what we suspected all along: The most powerful economic actors in the U.S. – entities like Bank of America and its clients – do not like working people to have power. But it’s nice to have it in their own words. Harris, the author, was not available for comment.
When there is low unemployment, we tend to see a lot of stories about the difficulties of employers to find workers whereas when there is high unemployment, the focus tends to be on how workers should adjust. This cartoon by Ted Rall that I posted some time ago captures this difference.