As of May, there were two job openings per unemployed person in the U.S., and when the balance of power between workers and employers leans heavily on the side of labor, it becomes a concern for some corporations including Bank of America.
A Bank of America private memo obtained by The Intercept suggests that high unemployment is good for business. A BofA executive wrote in the memo that “we hope” working Americans will lose leverage in the labor market.
The memo, written by Ethan Harris — head of global economics research for Bank of America Securities — also predicted that in the next few years, the balance of power will change and the percentage of Americans seeking jobs “should help push up the unemployment rate.”
The ratio of unemployed people per job opening stood at 0.5 as of May 2022, according to the Department of Labor. By June, it had risen to 0.6.
The lower the ratio of job openings to unemployed people, the more options the unemployed have when looking for work and the more opportunities employed workers have to switch to jobs with better pay and working conditions.
Power in the hands of labor has historically been a nightmare scenario for corporate management, who sometimes go to great lengths such as busting unions to prevent employees from gaining power.
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In 2009, after the financial crisis and collapse of the housing bubble, the ratio of unemployed people per job opening climbed as high as 6.5 with more than six unemployed workers for each open job. Then it slowly declined over the next decade, reaching 0.8 in February 2020 before covid-19 lockdowns began.
The recent rare moment of worker leverage made Bank of America quite anxious, Ken Klippenstein and Jon Schwarz wrote for The Intercept. “The memo expresses distress about ‘a record tight labor market,’ stating that ‘wage pressures are … going to be hard to reverse. While there may have been some one-off increases in some pockets of the labor market, the upward pressure extends to virtually every industry, income and skill level.'”
Corporate profits have played an outsize role in the recent skyrocketing inflation. After-tax corporate profits represented 8.1 percent of the economy at the beginning of 2020 before covid lockdowns but are now as high as 11.8 percent of the GDP. In the U.S., that equals an increase of more than $700 billion in profits per year, The Intercept reported.
Higher corporate profits account for more than 50 percent of recent price increases, according to the nonprofit Economic Policy Institute (EPI).
“The rise in inflation has not been driven by anything that looks like an overheating labor market—instead it has been driven by higher corporate profit margins and supply-chain bottlenecks,” Josh Bivens wrote for the EPI. “Policy efforts meant to cool off labor markets—like very rapid and sharp interest rate increases—are likely not necessary to restrain inflationary pressures in the medium term.”
Rather than focus on profits, the Bank of America memo focused on “the enticing prospect of the Federal Reserve raising interest rates, slowing the economy, and bludgeoning workers back into line,” The Intercept reported.
Bank of America’s profit fell 34 percent to $5.93 billion, or 73 cents per share, for the second quarter. Its investment banking fees fell 47 percent to $1.1 billion in the second quarter. Despite inflation at a 40-year high, spending by Bank of America’s 60 million household customers rose 11 percent to $220.5 billion.
The BofA memo “tells us what we suspected all along: The most powerful economic actors in the U.S. — entities like Bank of America and its clients — do not like working people to have power. But it’s nice to have it in their own words,” The Intercept reported.