Why does a lower unemployment rate mean that the productivity benefits are more evenly shared?
Bernstein: When unemployment is very low and when we re near full employment, employers typically have to bid up wages to maintain the workforce they need in order to meet high levels of demand. That is what characterizes a tight labor market. There is enough demand out there such that there is competition for workers. In the presence of such competition, employers tend to pay workers a higher wage than they do if unemployment is higher and there is less competition and firms can keep more of their income as profits. Think of the economy as a pie. As the pie is growing, the question is how do the slices get determined. A tight labor market plays the same role as other institutions that distribute growth like unions and minimum wages and ensures that the slices of the pie are distributed fairly to those who help bake it. MM: How does trade policy and the trade balance impact inequality? Bernstein: Trade policy is certainly implicated in the falling wages of the bottom half of the workfo
