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Increase in wages seen (maybe) in latest economic data

February 12, 2018

By Michael Burns, courtesy of SBAM Approved Partner ASE

As unemployment has steadily ticked down for the last several years, economists watched and waited for wage growth to start. Questions as to why a tightening labor market was not resulting in higher pay have been discussed and debated. As late as this week, an article in the New York Times (NYT) pointed to several macro force reasons wage movement was not behaving as economists have predicted. 

The NYT’s article started its list with a very debatable reason – declining unionization. They also pointed to restraints on competition such as non-compete clauses and no-poaching agreements that allegedly restrict worker movement. These issues exist, but probably would not be reasons one and two for wage stagnation in an economy the size of the United States. Down the NYT article’s list came a more reasonable posit – globalization and automation. These two forces make the most sense when considered as a downward force on wage increases. Wages can be dramatically impacted by cheaper foreign production and faster, more efficient production resulting from ever improving and cost-effective automation of work.  

For January, the Bureau of Labor statistics reported a wage increase of 2.9% for all wages and in the private sector alone a 2.8% increase in the last three months of 2017. Economists caution more time and data showing acceleration in wages needs to be seen to confirm this as a long-awaited wage increase trend. 

The other major force that will propel increase to wages is continued job growth. The economy and labor market has been absorbing a lot of unemployment and low job growth following the Great Recession. With unemployment remaining low and good talent becoming scarce, employers will be forced to increase compensation to attract and retain their best workforce. Data reported on job growth saw 200,000 new jobs added in January.  The national unemployment rate remained at 4.1% for the fourth month in a row.

With a tightened job market and wages starting to increase, the NYT reports employers are reconsidering old policies on hiring. Some employers are loosening restrictions on hiring candidates with criminal records, others (AutoNation) are no longer disqualifying candidates that test positive for marijuana use. Both moves increase the pool of “qualified” labor to be hired at a reasonable wage rate. In addition to increasing wages, some employers are also increasing benefits such as paid time off for dependent care and parental leave. 

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