This is a repost from Forbes.

Economists are pinching themselves. When demand runs ahead of supply, prices are supposed to go up. Then how can the labor market be so tight and wage growth so flat? The 4% unemployment rate we have now is about as tight a labor market as you can get, but the “prices” of workers, their wages, are not rising as once predicted in a relationship called the Phillips curve.

Real wages have been practically flat during this expansion. Wages rose 2.7% from a year earlier in June, below the 2.8% increase economists had expected. Over the last 30 years, executive and professional pay for the top 1% more than doubled. The bottom 90% of workers only got a 15% raise.

The typical worker received less than one half of one percent annual increase in real wages since the 1970s. And, no, increasing health care costs aren’t the reason. Heath and pensions are substitutes. Total labor compensation including health insurance has not kept up with labor productivity.

After being stable for decades, the share of national income received by workers fell from about 65 percent in 1974 to about 57 percent in 2017. Labor share has been falling in the Euro Zone also, but the decline is worse in the U.S.

A few months ago, the New York Times posted six reasons and the Brookings Institution had 13 why wages weren’t increasing despite the drop in the unemployment rate. In the interests of simplification,  I have reduced these to two. One reason is about measurement; the second reason is about power.

The first possible reason wages are not increasing is superficial and bypasses the capital-labor conflict. The puzzling wage stagnation could be no puzzle at all. Labor market tightness could be mismeasured and many people who want jobs are not counted. The claim is weak, though. The unemployment rate has always underreported people looking for work and we have no reason to think the mismeasurement is any worse.

The second reason is more profound: labor lost, capital won. Proof: Productivity has been running ahead of wages, which put little pressure on prices but boosted profits. Consumers and shareholders won, workers lost. From 1973 to 2013, hourly compensation of a typical worker rose just 9 percent while productivity increased 74 percent.

So, why is capital stronger than labor? Four reasons.

First, labor’s bargaining power falls as unions weaken. Between 1979 and 2013, the share of private sector workers in a union fell from about 34 percent to 10 percent among men, and from 16 percent to 6 percent among women. A 60-year-old so-called “Right to Work” movement has won policies that weaken labor bargaining power in states across the nation. The movement lobbies states to ban voluntary union security clauses, which reduces union revenue, making it harder to organize and even function. This strategy also attacked public sector unions. Last month the Supreme Court, in Janus v AFSCME, voted 5 to 4 to hobble those unions as well.

Unions also help pass minimum wage laws. The real minimum wage of $7.25 today has lost real value since the 1968s when it would have been over $10.90 today.

Second, worker fear is on the rise, even with a very low unemployment rate. Former Fed chief Alan Greenspan keenly watched for labor power indicators – he knew about the fear factor. He believed surveys about work insecurity and fear of leaving jobs to get better ones was a good barometer of actual worker sentiment. In 1997, he reassured Congress that fear was on the rise so Fed policy would not create inflation because workers were too afraid to ask for a raise.

Quit rates are up since the recession – FT columnist Sarah O’Conner calls it “the take the job and shove it” rate – but quit rates were higher in 2002 after the tech bubble recession. 67% of Americans answer that this is a good time to find a quality job, which is the highest since first polled in 2002. But, people feel just as likely to lose their jobs now, when the unemployment rate is 4%, as they did in 1991 when the unemployment rate was over 7%.

Third, super firms are achieving more and more market power. Consumers may get lower prices, but employees get lower wages. The gap is widest in the information sector where FAANG – Facebook, Apple, Amazon, Netflix, and Google—dominate. Large firms simply have more control of markets than they did before: profits rise and prices fall. When consumers and shareholders win, workers lose. The Obama Council of Economic Advisors first pointed to the rise in monopsony labor markets, a situation where workers are tied to employers and have less choice about moving to another employer. Economist Kate Bahn explains how monopsony works to lower wages.

Fourth, new jobs in demand are low-wage jobs. Low-paying jobs will dominate job growth in the next decade.  Projections are for 1.2 million new openings for personal care aides and home health aides where the average annual wage is under $24,000. Demand for health care services means the new labor supply in demand is female and older. Not the groups with lots of bargaining power to begin with. Among the ten occupations with the most employment growth, only three will pay above average: software developers, registered nurses, and managers.

All job growth is gray: employment increased by 17 million from 2000 to 2017 and the number of workers over age 50 grew by 17 million. More older workers don’t automatically mean wages fall. But, older people are getting worse jobs as they stay and enter the market in the face of weak retirement income security.

Between 2005 and 2015, the growth in older workers' unstable and low-wage jobs outpaced growth in jobs offering decent pay or stable employment. By 2015, nearly 1 in 4 older workers were in bad jobs. Bad jobs include the alternative work arrangements of on-call, temp/contract, and gig jobs (excluding independent contractors) and low-wage traditional jobs (paying less than $15,000).

Bottom line: economics is not a science of ethics and justice, but we have opinions about economic growth and fairness and justice. The justice proposition is that “inputs,” including management and labor, should get their share in the production process for markets to work efficiently. Economists are pretty much convinced that worker productivity has delinked from worker pay and that government policies tilted in favor of capital over labor. How the pay and productivity gap, growing since the 1980s, might ignite outrage and political reform is an open question.