A Bank of America executive stated in a recent private memo that they hoped working Americans would lose their leverage in the labor market. Predicting the U.S. economy over the next several years should help push up the unemployment rate, according to a memo.
A memo from June 17 was written by the head of global economics research for the corporation. The goal is to get the ratio of job openings to unemployed down by the end of next year.
The Federal Reserve wants to cool down the economy due to the fact that high wages are driving inflation. The Fed increased interest rates this year. The Commerce Department reported Thursday that the GDP has fallen for the second quarter in a row, indicating that a recession may have already begun.
At the time of the memo's release to clients, parts of the mid-year review were covered by the media. The document has been published in full.
The ratio of job openings to unemployed is usually calculated the other way around. One measurement of the balance of power is offered by the more widely used ratio. The lower the number, the more options unemployed people have when searching for work and the more opportunities employed people have to switch to better paying jobs. There were two job openings for every unemployed person as of May, according to the Bureau of Labor Statistics.
During the worst moments of the economic calamity that followed the collapse of the housing bubble, there were more than 6 unemployed workers for each open job. After a decade of decline, it reached 0.8 in February 2020 before Covid-19 started.
Bank of America was worried about the recent moment of worker leverage. Wage pressures are going to be hard to reverse as a result of the tight labor market. There may have been some one-off increases in some areas of the labor market, but the upward pressure is still on.
The Bank of America memo warns that the economy would not just hit but blow through full employment. Today's trends have been worse than anticipated.
Adam Smith was correct in describing the politics of inflation in his 1776 work, "The Wealth of Nations."
Smith argued that high profits increase the price of work. Merchants and master-manufacturers complain about the effects of high wages on prices. They don't talk about the effects of their own gains. They don't complain about anyone else.
Smith would have predicted that Bank of America would complain about the effects of high wages on raising prices, but not about the effects of high profits.
Corporate profits have played a part in the recent increase in inflation. At the beginning of 2020, after-tax corporate profits stood at 8.1 percent of the economy, but have since shot up to as high as 12% of the GDP. An economy the size of the U.S. has an increase of more than $700 billion in profits per year. Over half of recent price increases have been caused by higher corporate profits.
The memo focuses on the prospect of the Federal Reserve raising interest rates and slowing the economy.
The perspective of Americans who work would be different. Employers are competing for you, so it is great to have lots of jobs. The tight labor market is great. The wage pressures are very high. The main issue right now is how to lower inflation while keeping employment high. Attempts to reduce supply chain issues would be included in the tack.
Bank of America's enthusiasm for the Fed going on the attack against working people gets the basic facts wrong, as it claims, "hard to reverse."
Dean Baker, senior economist at the Center for Economic and Policy Research, a liberal Washington, D.C. think tank, said in an email that wage-growth would be a problem if it continued to accelerate. It would most likely mean a wage-price spiral. Wage growth has slowed from 6.0 percent annually to just over 4% in the last few months.
We suspected that the most powerful economic actors in the U.S. don't like working people to have power. It makes sense to have it in their own words. The author was unavailable for comment.
The article has been changed to reflect that some of the memo had been written before.
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