Karl Marx wasn’t the most persuasive at describing what the economic world should be like, but he was pretty perceptive about how the economy of his day actually worked. Not in the grand sense of expropriation and exploitation, but in how the nuts and bolts of it all worked. We can therefore use the correct parts of Marx’s work — as opposed to all that dreary democratic socialism stuff — to predict that wages are about to start rising strongly in the U.S.
To do so, we need just this one piece of information from the Labor Department: Job quits are up. Job openings are up to near 7 million but that’s not our useful metric here. It’s also true that “churn” — people losing or leaving a job then being hired elsewhere — is up, but that’s always high in an economy as vibrant as this one. It’s those increased quittings that are our real indicator of rising wages to come.
And yes, it was the Bearded One, Old Karl himself, who gave the explanation for how this happens. Imagine there are a lot of unemployed people around. If you, the capitalist, need more workers, then you can just go hire some of that reserve army of the unemployed. If your workers start to militate for a share of your ever growing profits, you can just fire them and again pick up some of those starveling destitutes outside the factory gates. You know, like former President ,Ronald Reagan did to the air traffic controllers.
Now think of what happens when there’s no such reserve army. Everyone who wants a job already has one. The only unemployment we’ve got is that irreducible number of people waiting for Human Resources to do the paperwork and give them a start date. That’s what is called frictional unemployment, and yes, there always will be some. There’s almost no one sitting at home thinking they’d quite like a job, but it’s not worth looking — the employment-to-population ratio is pretty high (once we correct for the general aging of the population structure).
So you the capitalist know that in today’s economy you can make more money by exploiting more labor. If only you could get the warm bodies, you could expropriate that surplus from more people and cackle wildly as the gold piles up. But there isn’t any spare workforce out there. You’re now in competition with all the other capitalists for the labor you can profit from.
Further, if your current workers get a bit bolshie and demand a better deal, you can’t just get rid of them and replace them with those more pliable. In this situation, you have to poach from other employers.
And that’s what our quits rate is, the number of people who have been tempted from one employer to another by a better offer. Depending on how high the quits rate is, that will translate into us recording higher wages in the near future. A high quits rate is Marx’s prediction that competition between employers for workers, in the absence of that reserve army of the unemployed, raises wages. That’s where we are now, therefore wages are about to start rising.
This is also the explanation for McDonald’s, Walmart, and Target, among others, raising their entry-level wages over the past couple of years. That quits rate represents the same pressure to find workers when there aren’t any to spare, but just at the low end of the labor market.
There is an amusement here in that Marx himself pointed out that we don’t need minimum wages and unions to raise the workers’ wages, we just need full employment. Well, full employment, free markets, and the capitalist lust for profits — those three are doing the job for us. No Marxist today would admit that’s what makes life better for us all, but then again, they understand the economy rather less than their prophet did.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
