The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers by Michael Perelman
Authors: Michael Perelman
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evasiveness, blamed the resulting growth in inequality on technology and education, excusing his own contribution:
It is a development which I feel uncomfortable with. There is nothing monetary policy can do to address that, and it is outside the scope, so far as I am concerned, of the issues with which we deal. 44
I do not believe that Greenspan ever used the expression “traumatized worker” in his public pronouncements. He always chose his words carefully, and he perfected a language that was legendary for its obscurity. Still, his less inflammatory words still conveyed the same message. For example, he testified before Congress: “The rate of pay increase still was markedly less than historical relationships with labor market conditions would have predicted. Atypical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity.” 45
Greenspan was correct in his assessment of the situation facing workers. He had numbers to back him up, reporting:
As recently as 1981, in the depths of a recession, International Survey Research found twelve percent of workers fearful of losing their jobs. In today’s tightest labor market in two generations, the same organization has recently found thirty-seven percent concerned about job loss. 46
Greenspan was not the only official at the Federal Reserve who appreciated the benefit of low unemployment without wage increases. One of the governors of the Federal Reserve, Edward W. Kelley Jr., spoke at a meeting of the Open Market Committee about “the good results that we are getting now.” He went on to say:
I don’t know how much has to do with the so-called traumatized worker. How long is the American workforce going to remain quiescent without the compensation increases that it thinks it should get? When employment is as strong as it is right now, I don’t think we can depend on having permanently favorable results in that area. This has been a rather big key to the present happy macro situation where we have a high capacity utilization rate and a relatively low inflation rate. We all feel rather good about that. 47
Economists also realized what was happening to labor. Not long after Greenspan’s comments about identifying speculative bubbles, Nobel Laureate Paul Samuelson told a conference sponsored by the Federal Reserve Bank of Boston that “America’s labor force surprised us with a new flexibility and a new tolerance for accepting mediocre jobs.” 48
Work stoppages offer a quantitative measure that suggests how effectively labor was tamed. Between 1966 and 1974, the number of work stoppages involving a thousand workers or more never fell below 250. The average was 352, with a peak of 424 in 1974. Work stoppages then began to fall off rapidly, reaching a low point of fourteen in 2003, and rising slightly to twenty-one in 2007. 49 Then as the economic crisis took hold, many workers had to accept serious declines in wages and benefits.
One might expect that lower wages would cut into consumer demand, but, according to a study in the
Journal of Consumer
Research
, “people use consumer purchases to compensate for psychological states of insecurity.” 50 Many families had to take on considerable debt to maintain their standard of living, and this debt reinforced the dangers of unemployment.
Worker acceptance of mediocre jobs at modest wages paid handsome dividends for business, creating more demand (through debt) while making workers even more fearful of losing their jobs. In addition, workers’ insecurity also meant that they were less likely to quit in search of better employment, allowing employers to avoid the costs of recruiting and retraining replacement workers. Perhaps best of all, employers could enjoy this bounty without having to call upon the Federal Reserve to slow down the economy.
William McChesney Martin, chairman of the Federal Reserve between 1951 and
It is a development which I feel uncomfortable with. There is nothing monetary policy can do to address that, and it is outside the scope, so far as I am concerned, of the issues with which we deal. 44
I do not believe that Greenspan ever used the expression “traumatized worker” in his public pronouncements. He always chose his words carefully, and he perfected a language that was legendary for its obscurity. Still, his less inflammatory words still conveyed the same message. For example, he testified before Congress: “The rate of pay increase still was markedly less than historical relationships with labor market conditions would have predicted. Atypical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity.” 45
Greenspan was correct in his assessment of the situation facing workers. He had numbers to back him up, reporting:
As recently as 1981, in the depths of a recession, International Survey Research found twelve percent of workers fearful of losing their jobs. In today’s tightest labor market in two generations, the same organization has recently found thirty-seven percent concerned about job loss. 46
Greenspan was not the only official at the Federal Reserve who appreciated the benefit of low unemployment without wage increases. One of the governors of the Federal Reserve, Edward W. Kelley Jr., spoke at a meeting of the Open Market Committee about “the good results that we are getting now.” He went on to say:
I don’t know how much has to do with the so-called traumatized worker. How long is the American workforce going to remain quiescent without the compensation increases that it thinks it should get? When employment is as strong as it is right now, I don’t think we can depend on having permanently favorable results in that area. This has been a rather big key to the present happy macro situation where we have a high capacity utilization rate and a relatively low inflation rate. We all feel rather good about that. 47
Economists also realized what was happening to labor. Not long after Greenspan’s comments about identifying speculative bubbles, Nobel Laureate Paul Samuelson told a conference sponsored by the Federal Reserve Bank of Boston that “America’s labor force surprised us with a new flexibility and a new tolerance for accepting mediocre jobs.” 48
Work stoppages offer a quantitative measure that suggests how effectively labor was tamed. Between 1966 and 1974, the number of work stoppages involving a thousand workers or more never fell below 250. The average was 352, with a peak of 424 in 1974. Work stoppages then began to fall off rapidly, reaching a low point of fourteen in 2003, and rising slightly to twenty-one in 2007. 49 Then as the economic crisis took hold, many workers had to accept serious declines in wages and benefits.
One might expect that lower wages would cut into consumer demand, but, according to a study in the
Journal of Consumer
Research
, “people use consumer purchases to compensate for psychological states of insecurity.” 50 Many families had to take on considerable debt to maintain their standard of living, and this debt reinforced the dangers of unemployment.
Worker acceptance of mediocre jobs at modest wages paid handsome dividends for business, creating more demand (through debt) while making workers even more fearful of losing their jobs. In addition, workers’ insecurity also meant that they were less likely to quit in search of better employment, allowing employers to avoid the costs of recruiting and retraining replacement workers. Perhaps best of all, employers could enjoy this bounty without having to call upon the Federal Reserve to slow down the economy.
William McChesney Martin, chairman of the Federal Reserve between 1951 and
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