I REALLY like Adam Ozimek's blogging, but sometimes he writes things that I don't really understand. The other day, he wrote a post titled "Higher wages aren't free". The post rebuts people who argue that "employers in some industry should raise wages":

You can see this in the common refrain that workers would be better off if we had a vastly more unionized economy. Maybe workers would be better off, meaning those that can get jobs would gain. But if you're going to hold wages above market levels you're going to decrease employment, so you'll benefit workers at the expense of those who can't get a job or who take a lower paying job.

As I understand it, the argument of people who think that workers should be earning higher wages is often that too much of the national income is going to corporate profits, and too little to workers' salaries. For example, the Center on Budget and Policy Priorities used to put out press releases like this one from 2007 noting that during the Bush recovery, corporate profits as a percentage of national income had risen to historic highs, while workers' wages and salary had fallen to historic lows:

Share of Income Going to Corporate Profits at Record High
By Aviva Aron-Dine and Isaac Shapiro

...• Some 51.6 percent of total national income went to wages and salaries in 2006. This is a lower share than in any of the 77 previous years for which these data are available.
...• Corporate profits captured 13.8 percent of national income in 2006, which is the largest share in any year on record. At this point in the business cycle of the 1990s, corporate profits were receiving less than 12 percent of national income.

A glance at the most recent stats for the fourth quarter of 2010 shows the situation seems not to have changed much. Workers' wages and salaries actually fell to 49.8% of national income. Profits, meanwhile, were at 12.9% of national income. CBPP includes a nice chart showing the comparison from 1929 through 2006, and it shows that corporate profits in the 13% range are pretty well on the high side, associated with fat and happy years like 1955 and 1965. They seem out of place in a high-unemployment mediocre-growth year like 2010. Wages and salaries at less than 50% of national income don't seem to have ever occurred before since the table begins in 1929.

Some of the deterioration in wages can be accounted for by rising health-care costs, as companies compensate workers with expensive health insurance rather than salary. But not much. "Total compensation", which includes insurance and pension premiums as well as the employer's share of payroll taxes, was 62.2% of national income in the last quarter of 2010, which is lower than it ever was between 1965 and 2006. In the halcyon days of the 50s and 60s, wages and salaries were above 55% of national income, and we had full employment. It's not clear to me what is so illogical about the idea that in a more heavily unionised economy, more of the price of a widget would go to wages, and less would go to profit. On the argument that higher wages for unionised workers would push wages down for non-unionised workers, it's equally possible that they can push them up, and there's evidence for both cases. And I don't think the claim that higher wages always mean less employment is as universal as Mr Ozimek makes it out to be. It assumes that if companies can pay lower wages, they will choose to use the extra profit to hire more people. At the moment, they don't seem to be doing that. Corporate profits have recovered to extremely high levels, but employment is growing very slowly.

It's true that if wages are higher, then when employers face choices between, say, investing in mechanisation or hiring more workers, they'll be less likely to hire the workers. But if I understand the higher-wages side's argument correctly, it goes something like this: intensifying pressure for higher corporate profits has combined with weak labour bargaining power (in part due to the decline of unions) to depress wages. This has depressed buying power, threatening growth. Over the past decade the Federal Reserve responded by keeping credit cheap, allowing consumers to borrow money to pump up the economy. That led to a credit bubble and a real-estate bubble that popped in 2008, with devastating results. Basically, too little of GDP is being paid in wages to sustain adequate demand; for a while, we made up the difference with credit, but that turned out to be unsustainable. By rebalancing national income away from profits and towards wages (through, for example, stronger collective bargaining), we could re-establish adequate demand to fuel growth, which would lead to higher employment, rather than lower. This argument may be wrong, but Mr Ozimek doesn't seem to be taking it on its own terms.