An article in Politico looks at the gains and losses—actual and potential—for lower-wage workers in the current economic climate. Katrin Kark, LISC’s director of workforce innovations, who is quoted in the piece, cautions that increased wages don’t suffice to stabilize finances or create economic mobility across the board. “Higher entry wages alone aren’t enough to close…opportunity gaps,” she says.
The excerpt below was originally published by Politico
Historic gains: Low-income workers scored in the Covid economy
By Victoria Guida, Economics Reporter, Politico
....Meanwhile, consumers are still getting hammered by inflation. The cost of living in the U.S. rose 4.9 percent during the 12 months ending in April, according to the consumer price index, well above where the Fed wants it to be.
For the median worker — in contrast with low-income workers — increases in pay and prices have essentially been a wash, underscoring why the central bank is willing to sacrifice the former for the latter.
And even for the lower-wage workers who have seen the biggest gains, inflation is denying them the full benefit of raises, with many of them going into debt to cover basic expenses.
“We are definitely concerned that even those modest gains could even be eroded even further if the labor market gets worse,” said Katrin Kark, who is director of workforce innovations at Local Initiatives Support Corp., a community development financial institution.
The policy debate around the interplay between inflation and wages is also, in part, a proxy fight about government aid to the economy, particularly the $1.9 trillion American Rescue Plan that passed soon after Biden took office. To supporters, the booming job market looks like an endorsement of that choice, especially in contrast to how long it took workers to recover in the wake of the 2008 financial crisis.
“Having a scarred economy because you don’t want to stoke inflation is one where you’re also keeping a lot of people out of the labor market,” said Skanda Amarnath, executive director of worker advocacy group Employ America. “It’s better to hit the accelerator to get back to full employment. We have lots of experience with sluggish recoveries after recessions.”
Indeed, for the first time since the government has been keeping data on racial gaps in employment, Black men are roughly as likely to participate in the labor force as white men.
Amarnath acknowledged that there will always be an “inflationary speed limit,” underscoring the need to build more resilience into supply chains to avoid aggressive price spikes as demand surges, as it did in the wake of Covid. “But fiscal policy worked in terms of pulling off a really rapid recovery,” he added.
But not everyone is convinced, particularly more centrist economists who warned that the spending package in early 2021 was too big and would help stoke painful price increases. Now, they say, there are few alternatives to higher interest rates to prevent out-of-control inflation.
“I don’t think anyone would want the inflation rate to be permanently rising in exchange for this,” said Jason Furman, who served as chief economist to former President Barack Obama. “A lot of people are like, ‘Oh, I love workers, and therefore inflation can come down.’ It doesn’t really matter whether the Fed loves workers or doesn’t love workers. The economy is going to behave the way it’s going to behave.”
Higher-income gains for low-income workers are not, on their own, particularly inflationary because those people don’t make enough money to budge the whole economy. But those workers have benefitted from an economy where job openings far outweigh available workers, a symptom of a too-hot economy, argued Furman.
“If the only way to have this is to have high and rising inflation, this probably isn’t the recipe we want to have that income distribution,” he said.
Instead, Furman said it would be better to have the trajectory that the economy was on just before the pandemic, where wage gains had finally begun to speed up even as inflation remained low.
“The way we heated the economy in ’17, ’18 and ’19 was one log on the fire each year,” he said. “No one was talking about, ‘We might have to have a recession to deal with this.’”
This time, “we just threw so many logs in the fire at once,” he added.