Chapter 1: The Debate on Wage Gouging

Is labor responsible for wage gouging? The question arises whether, if corporations engage in price gouging, labor might be guilty of similar practices.

Democratic presidential contender Kamala Harris has attributed inflation to corporate greed, claiming that businesses are inflating prices. In contrast, corporations argue that they are simply adjusting their prices to reflect market demand and their supply costs. They assert that rising labor costs are a significant factor contributing to increasing prices, with wages being a primary focus.

For a decade leading up to 2021, inflation rates were stable, averaging around 1.5% to 2%. Wage growth was similarly modest, typically ranging from 2% to 2.5%. Both consumers and workers were generally content, as wage increases outpaced inflation.

However, starting in January 2021, inflation began to surge, largely driven by substantial government spending and a growing deficit. The Federal Reserve, during this period, seemed to overlook its fundamental goal of maintaining price stability.

Throughout 2021 and into mid-2022, the Fed maintained near-zero interest rates and significantly expanded the money supply through a bond-buying program, culminating in inflation peaking at over 9%.

The logical approach to curb inflation would have been to reduce government expenditures. Nevertheless, the Biden Administration argued for increased spending, particularly in initiatives to combat climate change, thus placing the onus on the Fed to manage inflation.

From June 2022 to September 2023, the Federal Reserve implemented substantial interest rate hikes, which by 2024 successfully lowered inflation to approximately 3%.

Despite the evident causes of inflation, Harris insists that corporate price gouging is the culprit, suggesting companies raised prices purely out of greed. Conversely, corporations maintain that their price increases are linked more closely to rising commodity and energy costs, as well as wage gouging.

For instance, the average price of a new vehicle has exceeded $48,000, compared to under $40,000 in 2020, largely due to escalating labor expenses. Future car prices are likely to rise further due to ongoing wage pressures.

In 2023, auto workers pushed for a new four-year contract, arguing that the previous year’s 9% inflation warranted wage increases significantly higher than in the past. If inflation is, as Harris claims, a result of price gouging, then the increased costs of vehicle production must similarly be attributed to wage gouging. Is it then the case that workers are inflating wages out of their own greed?

After a prolonged strike, auto workers reached a new agreement with manufacturers, resulting in an average wage and benefit increase of 33% over the four-year term. This development is likely to exert additional upward pressure on vehicle prices as automakers strive to protect their profit margins.

Following this trend, workers across various sectors began demanding wage hikes that exceeded historical norms. Healthcare workers in California, for instance, received a 21% wage increase over four years. Meanwhile, a teacher shortage prompted educators in numerous regions to double their wage demands, seeking increases of 3.5% to 5% annually rather than the typical 1.5% to 2%.

Workers contend that these wage hikes are essential to keep pace with inflation. However, in a capitalist system, wage increases should be based on productivity rather than need. In contrast, a communist framework ties wage increases to individual needs. To paraphrase Karl Marx: "Contribute according to ability; compensated according to need."

In a capitalist context, we might assert, "Contribute according to ability; compensated according to the value of that contribution."

It appears that workers may be acting out of a sense of greed, recognizing that due to a labor shortage, they can demand considerable wage increases. The public often sympathizes with their plight, believing that workers deserve these raises and pressuring companies to comply.

Yet, the reality is that higher labor costs will likely lead to increased prices for products. The pressing question remains: What drives inflation more significantly—corporate price gouging or labor wage gouging?

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