Business

The US jobs report was a warning sign – even before the Omicron surge | Robert Reich

FThe Labor Department’s REDAY jobs report was a warning sign about the US economy. That should cause widespread concern about the Federal Reserve’s plans to raise interest rates to control inflation. It should prompt policymakers to rethink ending government subsidies such as Extended Unemployment Insurance and the Child Tax Credit. These will soon be needed to keep millions of families afloat.

Employers added just 199,000 jobs in December. This is the lowest number of new jobs added in any month last year. In November, employers added 249,000. The average for 2021 was 537,000 jobs per month. Also note that the December survey was conducted in mid-December, before the recent spike in the Omicron variant of Covid caused millions of people to stay at home.

But the Fed is focusing on the fact that average hourly wages rose 4.7% over the year. Central bankers believe that these wage increases have pushed up prices. They also believe that the US is approaching “full employment” – the maximum possible employment rate without sparking further inflation.

As a result, the Fed is on the verge of prescribing the wrong drug. That will raise interest rates to slow the economy — even though millions of former workers have not yet returned to the labor market, and job growth has slowed sharply. Higher interest rates will cause more job losses. A slowing economy will make it more difficult for workers to get real wage increases. It will put millions of Americans at risk.

The Federal Reserve has it the other way around. An increase in wages did not lead to an increase in prices. cause prices to rise true Wages (what wages can actually buy) come down. Prices are rising at a rate of 6.8% annually but wages are only growing between 3-4%.

The most important cause of inflation is the ability of companies to raise prices.

Yes, supply bottlenecks have led to higher costs for some components and materials. But large companies use these increased costs to justify increasing their prices when there is no reason for them to do so.

Corporate profits are at a record level. If firms face stiff competition, they will not pass on these wage increases to customers in the form of higher prices. They will absorb them and reduce their profits.

But they don’t have to do that because most industries are now an oligopoly made up of a handful of big producers coordinating the price increases.

Yes, employers have felt compelled to raise nominal wages to keep and attract workers. But this is only because the employers could not find and keep the workers at the lower nominal wages they were offering. They will have no problem finding and retaining workers if they raise wages in real terms – that is, above the rate of inflation They themselves create.

Surprisingly, some lawmakers and economists still worry that the government is contributing to inflation by giving too much help to workers. Few, including some Democrats like Joe Manchin and Kirsten Senema, are unwilling to support Biden’s package to rebuild better because they fear additional government spending will drive up inflation.

Here again, the reality is quite the opposite. The economy is in imminent danger of slowing, as December jobs numbers (collected before the Omicron rush) reveal.

Many Americans will soon need extra help because they can no longer count on additional unemployment benefits, stimulus payments or additional child tax credits. This is not the time to press the financial brakes.

Policymakers at the Federal Reserve and Congress continue to ignore the idea in the room: the power of big business to raise prices. As a result, they’re on their way to hurting the people who took it on the chin decades ago – the normal working people.

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