Joe Biden and the 'great rebalancing' of the US economy

President Joe Biden delivers remarks on the economy in the State Dining Room of the White House. Photo / AP

OPINION:

"It's time to reward hard work in America — not wealth." That statement from US president Joe Biden is perhaps the most concise expression of the new administration's economic policy plans. Biden wants to increase the national minimum wage, raise taxes on corporations, and start to tip the balance of power between labour and capital.

The labour share of national income — the amount of gross domestic product paid out to workers, in wages and benefits — has been declining in the US and many other developed countries since the 1980s. The fall since 2000 has been particularly precipitous, leading to stagnant pay, growing inequality and a loss of consumer purchasing power.

But, in many ways, this is a difficult moment for the Biden administration to turn the tide. With unemployment still high due to the pandemic, there is no natural upward pressure on wages. And some economists argue that intervening to raise minimum wages now would discourage hiring.

In addition, many companies that survive the pandemic will be looking to cut costs by replacing workers with technology. Indeed, automation is one of the key factors behind the multi-decade decline in labour's share of GDP, according to a 2019 study by the McKinsey Global Institute.

However, there are three big reasons why we may still be at a key inflection point in the US labour-capital divide.

First, the Biden administration has just invoked the Defense Production Act to force the private sector to speed up vaccine production and distribution. This will immediately create more demand for jobs — a trend that could continue beyond the pandemic, as there are bipartisan calls to strengthen domestic supply chains for other pharmaceutical products, and for food.

Second, there is a trend towards increased unionisation, particularly in high-growth industries such as technology. While the impact of a few hundred Google workers in California forming a union should not be overblown — they are still a fraction of the 100,000 workforce there — it was an important cultural marker. Labour activists are now having similar discussions with other Silicon Valley companies.

Amazon workers in Alabama will vote on unionisation in February. At the same time, global labour organisations, such as the International Trade Union Confederation, are pushing the US and EU to include provisions for workers' rights in any new regulation of Big Tech.

Biden is already using his powers as president to insist that private companies awarded federal contracts use better-paid labour — something unions are lauding.

And the power of organised labour is likely to expand. Some policymakers believe it could play a role in helping individuals — not just workers, but also consumers — recapture the value of their personal data, by forming "data unions".

These unions would act as independent overseers of data pools, realising their commercial value for members. While snippets of data from individuals are not worth much, data pools are — and a more equitable sharing of the intangible wealth held in such data could change the balance of power between corporations and individuals.

Third, global demographic trends that have disadvantaged workers are finally reversing — and, for labour in the US, this may prove the biggest tailwind of all. As Charles Goodhart and Manoj Pradhan explore in their book The Great Demographic Reversal, the balance of power between labour and capital is all about supply and demand.

Over the past four decades, the full entry of baby boomers into the workforce, including a growing proportion of women, plus the rise of China and other emerging markets, has created the largest positive labour supply shock ever seen. Given this, a weakening of labour relative to capital was inevitable.

Now, all of those trends that so depressed wages for 40 years are largely tapped out. Birth rates in most countries are falling. Geopolitical and economic shifts have led some nations, such as China, to create more independent supply chains. Baby boomers are ageing. All of this means that the deflationary headwinds to labour are at last decreasing.

What's more, an ageing population will make the healthcare industry a huge net job creator. While roles in remote diagnosis — so-called "telemedicine" — can be outsourced to lower-wage countries such as India, most healthcare positions are close-contact jobs that cannot be sent abroad. No wonder six of the 10 jobs that the US Bureau of Labor Statistics expects to grow fastest in the next decade are in nursing, therapy and care services.

These jobs are part of what the new Biden administration has dubbed "the caring economy" — a key economic campaign plank. The president has proposed bolstering not only healthcare for the elderly, but also childcare for families — another task that cannot be offshored. He suggested that the spending might be paid for by closing loopholes in real estate transactions.

Of course, rising labour costs would hit corporate profits. But, in rich countries — where consumer spending is the majority of the economy — business also stands to benefit. There is much to be gained, then, from a rebalancing of power between labour and capital.

Written by: Rana Foroohar

© Financial Times