Low unemployment rates in the US, UK, and Japan have not fueled much wage pressure, and this is vexing policymakers. They are unable to normalize monetary policy because inflation remains subdued, and it is difficult to envision a sustained and durable increase in price pressures without higher wages.  

There may not have been any other time in the post-WWII era that major central banks were encouraging higher wages. Companies in the US, Europe, and Japan have enjoyed a bounty of good earnings growth, and collectively are sitting on record levels of cash. Meanwhile, income and wealth disparities have emerged as a potent political force in the US and Europe.  

Former US Treasury Secretary Summers has taken up our call to strengthen the one institution whose raise d’etre is to boost employee wages:  trade unions. Summers’ recent op-ed pieces put the economic security of the middle class as the central issue in US politics today. Summers argues that the most important factor reconciling the strong corporate earnings growth and low wage growth lies in the disparity of bargaining power between employers and employees.  

On the one hand, Summers recognized that technology and the trade allow employers greater opportunity to replace workers with the machine, lower cost domestic labor, such as in the gig economy, or foreign workers. At the same time, Summers recognizes that leverage of the employees has been reduced for numerous reasons, including diminished savings. To his credit, Summers also recognizes that years of M&A activity and consumers increasingly have to purchase from monopolies or oligopolies.  

Summers see that trade unions help “even out the bargaining power between employers and employees.” Their success means higher wages, better conditions, and more protections for mistreatment. There is a political implication too from which Summers does not shy away. Employee associations (unions) provide important support for programs like Social Security and Medicare, which benefit non-union members as well.