Mike Konczal, aka Rortybomb, has a very interesting post asking questions about the impact of Federal Reserve policies have had on wage stagnation. He finds a 2005 paper that examined the Fed’s paranoia about wage inflation via two decades of Fed board transcripts:
For some people there is no “After the Cold War.” Even though the Cold War had ended, its mindset must continue. One way to phrase Mitchell and Erickson’s argument is that from 1980 through the end of the 1999s is no “After the Professional Air Traffic Controllers Strike.” Even though unions were declining since 1980, even though unions weren’t striking anymore, the Federal Reserve described the labor market as if it was dominated by unions. Every wage increase in the private, non-union sector was hawkishly monitored for the potential of wage-push inflation.
At the same time, he notes this Greenspan quote from 1994 that describes the effects of deunionization:
I think the interesting question is why wages are not responding to what is a very rapidly tightening labor market. After speaking to some labor leaders and others who talk to their members and have a sense of this, I get the impression that long-term job insecurities are quite pervasive especially with respect to the portability of health insurance and pensions that make workers more cautious about changing jobs. The layoff rates are very low; the turnover rates are really quite low by American standards; and there is a tendency among workers just to stick with what they have. The effect of this, I suspect, is a major factor in holding wage increases to a very sluggish pace considering all the evidence we have been getting in recent months of labor market tightness. This is crucial because so long as that is the case and productivity is positive, unit costs are very well contained.
Sometimes health care wonks will write about how the lack of portability of health insurance creates “job lock”, and how “job lock” reduces an employees bargaining power to get raises since they can’t credibly threaten to leave their job. Alan Greenspan agrees, and though he doesn’t say its awesome, he does note that it is keeping unit costs well contained. Unit costs being your paycheck, that is.
I’d like to read more on this. Can anybody answer Konczal’s question?
Here’s a question I’ve been trying to find research on lately - how much is the post-Volcker era of monetary policy responsible for stagnating wages and high-end inequality? I’m pretty familiar with the stories and arguments surrounding these two topics, and the Federal Reserve never shows up… Which is weird, since when you read transcripts of their FOMC meetings, released years after the time when they were recorded, the board members are obsessed with wages.
&mdsah; The revolving door keeps on spinnin’.
Yves Smith of Naked Capitalism builds off reporting from Bloomberg a few weeks ago that a Federal Reserve official, Brian Peters, is joining AIG. Peters isn’t just any Fed official, though:
… the NY Fed official who was responsible for overseeing Fed loans to TARP recipients, including the AIG loan, Brian Peters, joined AIG in late January. See this letter to the Committee on Oversight and Government Reform, based on subpoenaed information from the Fed, p. 8, the e-mail cited in footnote 31, for a sighting of Peters in action. Given the extensive interactions between the Fed and Treasury on the fight with Ken Lewis over his threat to walk from the Merrill purchase (the two were working in tandem here, and pretty much on all the major TARP recipients who got Fed loans), and the continued close cooperation between the Treasury and the NY Fed, it isn’t hard to imagine that Peters has good knowledge of and relationships with the key actors at the Treasury as well as at the NY Fed.