The ‘supply-and-demand model of labour markets is fundamentally broken’

  • We have full employment in the US and the UK but extremely low wage growth.
  • The “gig economy” is structured to keep wage levels down even when there are shortages of workers.
  • Underemployment – part-time work – has replaced the role that mass unemployment used to play in the US and the UK.
  • Work now creates inequality, and workers know they cannot get ahead merely by working.
  • That has political consequences: It makes the minimum-wage level one of the most important political issues.

Troy Taylor, the CEO of the Coca-Cola franchise for Florida, was asked at a recent conference of the Federal Reserve’s Dallas branch whether he expected pay raises in the future. The context to the question is that America has ultralow unemployment. In fact, it has even reached what policymakers consider to be full employment, in which essentially everyone who wants a job has one. Wages ought to be rising as workers take advantage.

But Taylor said he didn’t see wages going up anytime soon. “It’s just not going to happen,” Taylor said. “Absolutely not in my business.”

The reason Taylor can be so confident is that employers – and, belatedly, economists – are waking up to the fact that the old-fashioned supply-and-demand model of the labour market is dead. Employers have gained enough power in the marketplace to permanently hold down wages, even when unemployment is as low as 3.9% in the US and 4.2% in the UK. Read more

Jim Edwards – Business Insider Australia – 19 June 2018