Yes, it’s Christmas — but the family events won’t begin for hours yet, and I want to follow up on a train of thought I started yesterday.

I pointed out, following on a suggestion by Mike Konczal, that the continuing dire state of the labor market enhances the bargaining position of employers, increasing their power. But can this effect actually mean that employers are better off in a somewhat depressed economy than they would be in a boom?

A lot people have the instinctive reaction that it can’t be possible — that businesses would prefer to have stronger demand, even if it means that they have to pay their workers more and treat them better. And maybe that’s true. But it’s by no means an open-and-shut case.

Suppose (as I am, in fact, supposing) that we have in mind some kind of efficiency wage story, in which the effort employers can extract from their employees depends in part on the state of the labor market. So we can think of each individual employer as having a profit function F(N,U, …) where N is the firm’s own number of employees, U is the overall unemployment rate, and there’s a bunch of other stuff that would bulk this out into a full-size model. Other things equal, firms will choose the level of N that maximizes their profits.

But in so doing, they will be ignoring the effect of their collective hiring decisions on the unemployment rate. Indeed, any individual firm has a negligible effect on U. But collectively they in effect determine U — and a high level of U, we’ve been arguing, increases their power over workers and hence their profits. Again, other things equal.

So a slack economy could in effect serve as a coordinating device for firms; one way to think about it is that it keeps firms from competing too hard for workers, enabling them to exert more monopsony power. This effect would have to be weighed against the direct adverse effect of slack demand on profitability, but there’s no rule saying that firms have to do worse in a depressed economy; they could actually do better. (I’m going to try some formal modeling on all this, but if anyone else wants to jump in, be my guest.)

What about actual experience in this depressed economy? Well, that’s the motivating example. You see, from a profits point of view it’s not a depressed economy at all. Look at profits versus compensation of employees (that’s wages and benefits combined) since the slump began at the end of 2007; both are expressed as indexes with 2007Q4=100:

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Profits took a hit during the financial crisis, but have soared since then, and are now 60 percent above pre-crisis levels; meanwhile compensation has grown hardly at all, and indeed fallen in real per capita terms.

The point is that we have a depressed economy for workers, but not at all for corporations. How much of this is due to the bargaining-power issue is obviously something we don’t know, but the disconnect between the economy at large and profits is undeniable. A depressed economy may or may not actually be good for corporations, but it evidently doesn’t hurt them much.

Now, about the political economy: I don’t think we have to believe in a cabal of CEOs trying to keep the economy depressed. All that we need is for the big money to find the state of the economy OK from its point of view, so that politicians who listen to that money lose interest in the unemployed. You can round up a who’s who of CEOs for Fix the Debt; you can’t even get started on a power-list drive to Fix the Economy.

And so it remains unfixed.