Biden’s delivering more leverage for workers, if not in the way he planned

Analysis by John Harwood

Candidate Joe Biden promised to help American workers bargain for higher wages. For a while, at least, President Biden is delivering.

It’s not by substantially strengthening the labor movement, as the self-described “union guy” intended. His proposal to ease union organizing languishes in Congress; so do his plans to create high-paying jobs with infrastructure investments and enhance worker skills with expanded education opportunities.

Instead, the ongoing recovery from coronavirus has created an unusual moment of leverage for workers. The hunt for labor among businesses scrambling to reopen, and the choices that relief checks and expanded unemployment benefits have provided, have sharply bid wages up.

“When it comes to the economy we’re building, rising wages aren’t a bug; they’re a feature,” Biden explained recently in Ohio. “We want employers to compete to attract workers.”

Some of that competition would happen under any president overseeing a massive economic restart. As businesses shut down during the last 15 months, many workers scattered, retired, or explored new occupations. In the world’s largest economy, that creates unprecedented mismatches between labor supply and demand that take time to even out.

Biden’s policies have contributed. His administration’s acceleration in coronavirus vaccinations smooths the path for faster recovery; fiscal relief in his American Rescue Plan sustains demand for goods and services while helping state and local governments not only avoid layoffs but hire new workers.

As a result, restaurants, hotels, retailers and other business have been raising pay to lure employees back. Harvard professor Jason Furman, who headed President Barack Obama’s Council of Economic Advisers, calculates that wages in April and May grew at a “stunning” 7.4% annual rate, including the fastest growth for production and non-supervisory workers in more than 30 years.

The President’s proposed federal minimum wage increase from $7.25 an hour to $15 failed in the Senate earlier this year. But current circumstances provided a different near-term route toward an objective Biden has favored for years.

“He and I have long talked about the relationship between tighter labor markets and bargaining power, particularly for the lower half of the income scale,” said Jared Bernstein, a longtime Biden aide who now serves on the Council of Economic Advisers.

Not without risks

But Biden’s approach also carries potential vulnerabilities. Amid a rising debate over whether the President’s costly rescue plan may spark dangerous inflation, Furman sees a 40% chance of workers ultimately falling behind as consumer prices rise even faster than wages.

The White House and Federal Reserve both call inflation a short-term phenomenon rather than a long-term threat. Biden last week touted forecasts by the global Organization for Economic Co-Operation and Development that US output will swell 6.9% this year — making it the only advanced economy for which projected future growth is now higher than before the pandemic.

Persistent labor shortages, however, could slow the recovery. The 559,000 added payroll jobs the government tabulated for May fell short of predictions for the second consecutive month, despite high demand from employers. While the official unemployment rate fell to 5.8% from 6.1%, the share of Americans seeking jobs also fell.

Economists don’t know for sure why some Americans are delaying re-entry into the work force. They believe continued anxiety about the pandemic plays a role even as normal life returns.

Many Democrats have long assumed that lack of available child care has held some potential workers back, especially with many schools still closed to in-person learning. Yet a recent study co-authored by Furman concluded that child care woes, while burdensome for parents of young children, have had a “negligible” effect on employment levels.

That amplifies questions about whether the enhanced federal unemployment benefits extended in Biden’s Rescue Plan are keeping potential workers at home. Republican attacks on those benefits as excessive, counter-productive spending have discomfited White House aides, who resist acknowledging they may be slowing job growth.

Yet even outside economists sympathetic to Biden’s agenda concede the point.

“It’s possible it’s having an effect — I think any fair-minded person would say that,” said MIT labor economist David Autor. “It’s possible more people are saying unemployment’s pretty good — what’s the rush?”

The decision by two dozen Republican-led states to eschew those benefits, while other states maintain them, may help answer the question. Biden signaled his desire to move past the issue Friday by saying their scheduled expiration after August “makes sense.”

Even without them, the uneven pattern of recovery will temporarily give workers in high-demand sectors extra clout. But in an era of rising automation, labor shortages won’t provide the long-term solution for Biden’s quest to make workers better off.

“We don’t want businesses with small profit margins to decide workers are too expensive,” said Melissa Kearney, a University of Maryland economist.

After decades of wage stagnation, that’s a risk Biden is willing to take for now.

“There’s no reason to think vibrant businesses of any size in this country can’t afford to pay a fair wage,” Bernstein concluded. “Perhaps that simple truth has been forgotten.”