The Biden Boom Has Been Great For Workers

The “Biden Boom” has been good for workers, even though too many Americans are of the self-centered attitude of “what have you done for me lately?”

Yes, there has been inflation, the direct consequence of a global pandemic, the Russo-Ukraine War, and the impact of extreme weather around the world due to climate change – all issues that Republicans have either no answer to, or the wrong answer to (anti-vaxxer Covid denialism, climate change denialism, and appeasement of the autocratic war criminal Vladimir Putin).

The alternative to inflation would have been to do nothing (and not even Donald Trump and his “do nothing” Republicans did this, passing the first three Covid relief bills worth trillions of dollars in relief funds). It would have meant another Great Depression with massive unemployment and an economy so crippled that it would have taken a decade or longer from which to recover. Would you have preferred another Great Depression? Because this was your alternative to a relatively brief period of inflation in the grand scheme of things.

Instead we have had a steep “V-shaped” recovery, the fastest recovery from a steep government induced recession caused by shutting down the global economy in 2020 and much of 2021 (China is still following its “Zero Covid ” policy). The unemployment rate currently stands at 3.7 percent, what economists for decades would have described as full employment (the “churn” in jobs was generally pegged at 4 percent). And if July’s inflation data holds over the next few months, we will have hit “peak inflation” in June, and we are on the downward slope of the peak with disinflation.

Only time will tell with events that are beyond our control, e.g., another Covid 19 variant surge (or even a monkey pox pandemic), the Russo-Ukraine War, and the impact of extreme weather around the world due to climate change.

Economist Paul Krugman explains at the New York Times, Has Bidenomics Been Good for Workers?

President Biden has presided over a huge employment boom that, according to Friday’s employment report, is still in progress. That’s simply a fact, although stating it (like pointing out that we aren’t in a recession at the moment) guarantees that I will receive a truckload of hate mail. By Biden’s second Labor Day, the U.S. economy had added substantially more jobs on his watch than it did in the Trump administration’s first 37 months — that is, before Covid-19 put the economy into a temporary coma.

To be fair, many of the job gains under Biden probably reflected a natural recovery from lockdowns, and in general it’s easier to add many jobs when you start, as Biden did, from a position of depressed employment. On the other hand, employment has recovered faster than almost anyone expected. In late 2020, professional forecasters expected average unemployment in 2022 to be 5.2 percent; so far, it has averaged only 3.7 percent.

But while the Biden boom was and is real, has it been good for U.S. workers? Ask many American workers, and they’d probably answer in the negative. After all, hasn’t inflation eaten up all their wage gains and then some? (Although their answers might be a bit different now that gas is back under $4 a gallon.)

As of August 23, 2022 (the last reporting I can find), Gas prices drop 70 days in a row in the second-longest streak since 2005. According to Gas Buddy, today you can find gas in Tucson in the $3.10-$3.20 range. By way of comparison, Russia invaded Ukraine on February 24, 2022. As of February 24, 2022, average gas prices in Tucson were up 23.19% compared to the previous year at $3.882 a gallon (in February 2021 we were still in the throes of an economically depressed Covid economy, and had just barely survived a coup d’état by Donald Trump and his private militia of MAGA/QAnon thugs, so not a fair comparison).

In fact, the global monopoly of oil producers (OPEC+) and oil retailers are currently conspiring to reduce what they see as a glut of oil on the market in order to keep gas prices high. OPEC+ slashes oil production by 100K barrels per day as prices fall: “OPEC and its allied producers on Monday agreed to reduce oil production by 100,000 barrels per day amid concern regarding falling oil prices and lingering fears of a global recession.”

Krugman continues:

Well, inflation has definitely been a big problem. And if controlling inflation ends up requiring a long period of high unemployment — I don’t think it will, but I could be wrong — workers could end up worse off, despite the current employment boom.

So far, however, Bidenomics has been good for American workers, whether they know it or not.

There are two big conceptual issues you need to deal with when assessing the impacts of rising employment on American workers.

First, do we look at the wages of only fully employed workers, or do we consider the gains to Americans who would have been unemployed or working reduced hours but for the Biden boom? Second, how much of the inflation the U.S. economy has suffered since Biden took office do we attribute to the boom, as opposed to things that would have happened whatever his policies had been?

If we include wage gains due to the rising share of Americans with jobs and the rising number of hours for those employed, the Biden boom has, unambiguously, been good for workers’ incomes. Thomas Blanchet, Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley have a new website, Real Time Inequality, that tracks American incomes by source on a monthly basis. They found that overall labor income per working-age adult, adjusted for inflation, rose 3.5 percent from January 2021 to July 2022.

Furthermore, the biggest gains went to the lowest-paid workers. So the Biden boom didn’t just increase overall incomes; it reduced inequality.

But what about workers who already had jobs when Biden took office? Haven’t they seen the purchasing power of their wages fall, thanks to inflation? The answer is yes, but.

Look at the hourly wages of nonsupervisory workers — that is, workers who aren’t managers. Adjusting for consumer prices, those workers’ wages fell about 3 percent from January 2021 to June 2022.

But that decline was entirely caused by rising prices for food and energy, which have a lot to do with global forces and little, if anything, to do with U.S. policy — even if right-wing commentators love to point out how cheap gas was during the Trump years. (Oil tends to be cheap when the world economy is flat on its back.) And real wages have stopped declining for the time being; in fact, they rose about half a percentage point in July, largely thanks to falling gas prices, and probably rose again in August.

If you want to assess the impacts of Bidenomics on wages, you should probably compare wages with prices excluding food and energy. And on that basis, real wages have basically been flat since Biden took office.

So, yes, the Biden boom has been good for workers. More Americans — a lot more Americans — got jobs, and while those who were already employed suffered a decline in real wages, that decline reflected events in global food and energy markets, not U.S. policy.

Beyond that, a strong labor market seems to have helped reduce inequality. And the Biden boom may also have indirect effects that will raise wages and reduce inequality further in the future. For the sellers’ market for labor may have helped revive America’s long-moribund labor movement.

There has definitely been a surge in attempts to organize workplaces, although there haven’t yet been enough successes to show up in overall unionization statistics. Still, attitudes have clearly changed, and not just among workers. Gallup recently reported that public approval of unions has reached 71 percent — its highest level since 1965.

So it is at least possible that Bidenomics will lead to a revitalization of unions in America. And yes, unions do raise wages, especially the wages of less-skilled workers.

Again, whatever gains American labor has made will be lost if controlling inflation requires that the economy go through an extended period of high unemployment. But so far, Bidenomics has indeed helped workers.

The Federal Reserve Board had been trying to thread a needle by squeezing inflation out of the economy without causing a recession. The Fed, however, is now OK with higher unemployment, which goes directly against one of its two policy goals: the Fed is choosing inflation over employment.

Business Insider reports, The Fed has decided the US will need a ‘growth recession’ to rein in inflation. Here’s why it’s bad news for job seekers.

In an ideal world, the Federal Reserve has already vanquished pandemic-era inflation while keeping unemployment at historic lows and avoiding a recession.

Hopes for such an outcome are all but entirely dashed, and the Fed has switched to plan B.

The central bank’s message at its annual conference in Jackson Hole, Wyoming, this year was a simple and stark one. In remarks on August 26 that lasted less than 10 minutes, Jerome Powell, the Fed’s chair, warned that cooling inflation would “bring some pain” to Americans through layoffs, weaker pay growth, and higher borrowing costs. He said that while the side effects are “unfortunate,” a failure to slow price growth and normalize the economy “would mean far greater pain.”

The speech laid to rest the idea that the US can enjoy a so-called soft landing, in which the Fed can bring inflation back to its 2% target without driving up unemployment. The central bank has been raising interest rates at the fastest pace since the 1980s in an attempt to ease Americans’ demand and slow inflation. Powell clarified in the speech that additional rate hikes are on the way, further eroding optimism for a soft landing.

In its place is the likelihood of a “growth recession,” which describes a period of slow economic growth and higher unemployment. It’s not quite stagflation, as that scenario requires high inflation in addition to those two conditions. But it’s a brute-force way to stamp out inflation, and Powell’s remarks signal it’s what the Fed is turning to after more than a year of faster-than-usual price growth. Americans about to return to the labor market and look for a new job are going to feel the brunt of the pain.

“Reducing inflation is likely to require a sustained period of below-trend growth,” the chair said, adding that there “will very likely be some softening of labor-market conditions.”

[A] growth recession could even drive the unemployment rate sharply higher if enough companies lay off workers to bolster their balance sheets. The rate sits at 3.7%, just a hair above the five-decade low seen before the pandemic. A swift easing of labor demand could put Americans out of work at a time when firms are no longer hiring at the voracious pace they’ve kept up throughout the past year.

Joe Brusuelas, the chief economist at the consulting firm RSM US, said soon after Powell’s speech that it’d be tough to get inflation lower without “triggering a recession” and losing 5 million to 6 million jobs. “That is about as close as one may get to what can charitably be called a soft landing,” Brusuelas said.

The latest growth recession is already emerging

Employment data published Friday offered the first sign that the economy is settling into its phase of slow growth and rising unemployment. The economy added 315,000 jobs in August, barely surpassing the median forecast but slowing significantly from the July increase of 526,000 nonfarm payrolls.

The June and July gains were collectively revised lower by 107,000 jobs. Though job creation remains extraordinarily strong, the August data hints that the months of above-trend growth are coming to an end.

To be sure, the uptick in the unemployment rate came from an encouraging trend. Labor-force participation — which tracks the share of Americans either working or actively seeking work — edged higher last month, to 62.4% from 62.1% in July, signaling that more workers came off the labor market’s sidelines. Since the headline unemployment rate counts only participating Americans who aren’t working, the gain in participation drove the measure higher.

Still, the jobs report perfectly matches the kind of economy the Fed aims to usher in. Higher interest rates would curb job creation further, especially as rates rise to levels considered restrictive to the overall economy. Easing demand for workers would also slow the pace at which newly participating Americans can find jobs.

The “softening” Powell spoke of weeks ago is on the horizon, and with it will likely come higher unemployment, cooler inflation, and a period of below-potential growth.

The Fed will own the results of its policies.