By Mando Kelly
With the Fed doubling down on its commitment to raising interest rates, many are worried about the possibility of a recession. If you’re like me, this technical-speak is good for sounding smart when you wanna make small talk, but when it comes to figuring out what exactly it means for us workers, it can be a little harder to decipher. For this reason, I spoke to Claire Kelloway, Food Systems Program Manager of the Open Markets Institute. She helped me understand the Fed’s faulty starting point, the limits of their policy, and the way it might affect firms like Kroger and their workers.
The interest rate hike comes as a response to inflation; supposedly, the basic premise that the Fed is operating under is that inflation is being driven by wage growth. The point of the interest rate hike, then, is to make it more expensive for companies to borrow money, and thus disincentivize investment by companies and spending by consumers, creating fewer jobs and tightening the labor market for workers, which will then slow wage growth. However, certain inconsistencies throw a wrench into the Fed’s stated goals.
“There have been studies that show the price increases in food (for example) are not necessarily correlated with increases in wages, or even increases in the cost of doing business – both of which have increased. But as a proportion, more than half is going to corporate profits. We’re seeing that these price increases are not just corporations simply passing on costs to consumers, they’re also increasing their margins and making more money,” said Claire.
So besides wages and ever widening profit margins, what else is driving inflation? You may not be surprised to learn that, once again, it leads back to huge corporations trying to save – and therefore earn – a buck. As Claire puts it, “right now, a lot of (the inflation) has to do with companies not having invested in their capacity for decades; supply chains are brittle and they’re not able to process enough food or meet demand. I would argue it’s more about decades of greedy, corporate business decisions.”
Indeed, this lack of investment in the fundamentals put the economy on a crash course for disaster – the global Covid-19 lockdowns have exacerbated this issue, and all of it is culminating in a perfect storm that corporations have been eager to take advantage of to strengthen their positions. As Claire puts it, “we’d expect companies to be pretty price sensitive, to be afraid of raising their prices, cause then their competitor will just not raise their prices and take their sales. But when you have this generalized inflation and the pandemic, and a bit of consumer expectation that prices are going to increase, corporations will take advantage of that situation.”
Since this interview took place, the assertion that the interest rate hike didn’t address the true causes of inflation seem to have been vindicated, seeing as how despite a fall of more than half a percentage point, the inflation rate remains at a four decade high. While some might point to government spending as an additional trigger for continuing inflation, this ignores the fact that it is a global phenomenon.
This begs the question: how the hell does this affect working people? Well, as we mentioned earlier, it’ll discourage spending and investment. For many workers, this could mean lay-offs, and a skeleton crew for those fortunate enough to keep their jobs. But what about for a company like Kroger, where it seems like the staffing has been impossibly skeletal for all of the last two years? A store might keep things together with a short staff, but they can’t operate with no staff, right? And for that matter, why has Kroger had such trouble with staffing in the last couple of years if the interest rates have only been raised recently?
To answer these questions, let’s start with another: what makes a company a monopoly? According to Claire, “there’s all different kinds of degradations of what antitrust enforcers would consider monopoly power, or market power. And also oligopolistic, or highly concentrated, markets where businesses can act in some of the same ways that a literal monopoly could. They face less competition, they have power to set and raise prices, they have fewer competitors, and it might be easier to conspire and collude with them.”
This phenomena might help explain why Kroger, the second largest grocery retailer in the United States, who – by my calculation – had a nearly 18% market share in 2021, kept its wages low wherever it could while competitors with lesser market share raised their starting wages to upwards of $20 an hour. Given these conditions, I think it’s fair to assume that understaffing at Kroger stores will ultimately reach a minimum threshold (if it hasn’t already), and given its market share, maintain its customer base - if for no reason than the lack of a competitive alternative.
So if inflation is still bad, what exactly was the point of the interest rate hike? In the opinion of this grocery store clerk, it has to do with what some have termed the Great Resignation, as well as the uptick in union activity in the service sector. While wage growth as the primary driver of inflation is a myth, there has been wage growth, if uneven and ultimately minor, in comparison to the growth of productivity, as evidenced by companies like Amazon, Target, and Starbucks raising their starting wage. Put simply, where extra unemployment payments didn’t drop leverage in workers’ laps, they’ve begun taking it. The interest rate hike is the financial elite trying to destroy that leverage and control the narrative around inflation and profits.
For Claire, the antidote to these issues is clear: build worker power to challenge the narrative. “I think participating in being in a union is, in and of itself, one of the big ways for workers to advocate for their fair share in these situations where corporations and powerful executives have the power to take advantage and pad their pockets and make more profit, at the same time we see them blaming workers for why prices are going up.”