How will competition in the labor market drive up wages?

[quaker bill]

9. It works at "full employment".

At the peak of the boom in housing here, companies were stealing each other's labor, even illegal immigrant brick layer crews were being plundered by offers of $1 an hour more a person for the project a few blocks down the street.

The problem is that periods of full employment have been very short lived, and the trend reverses when unemployment is high. Monetary policy has been worked in a concerted way to prevent or shorten periods of full employment to prevent inflation for the last 30 years by raising interest rates to slow the economy anytime something close to full employment is reached.

Keynes understood that wage losses during periods of high unemployment are larger than wage gains during periods of full employment. His take was that this business cycle favored capital over labor in an enduring way during each cycle. So he proposed making government as the "employer of last resort" during down phases of the business cycle to keep the labor market tight and reduce wage losses during the down phase. It would also work to extend and broaden the gains in the up phases to create balance or benefit to workers.

Again, policy has been active toward keeping a loose labor market where competition for labor does not exist. This and other problems with Fiscal Policy (Bush* tax cuts) have combined to result in dramatic wage declines. When you subsidize capital over labor (cuts in the capital gains rate), you get capital growth and labor decline, there is no magic here.