Unemployment and Wages: "A Dirty Little Secret" - InvestingChannel

Unemployment and Wages: “A Dirty Little Secret”

I’m reminded of a post I wrote in May 2011: Employment: A dirty little secret

[I]t really isn’t much of a secret that Wall Street and corporate America like the unemployment rate to be a little high. But it is “dirty” in the sense that it is unspoken. Higher unemployment keeps wage growth down, and helps with margins and earnings – and higher unemployment also keeps the Fed on the sidelines. Yes, corporations like to see job growth, so people have enough confidence to spend (and they can have a few more customers). And they definitely don’t want to see Depression era unemployment – but a slowly declining unemployment rate (even at 9%) with some job growth is considered OK.

And from others, like Kash Mansori, also in 2011: Why a Bad Job Market is Good News for Some

[T]his opens up an interesting line of reasoning, one that is certainly not new but which this data reminds us of. If a bad labor market means that workers get a smaller share of the productivity they bring to their employers, then the owners of companies will have a strong preference for a weak labor market. Firms don’t like recessions, of course — it’s hard to make money when your sales are falling. But companies do enjoy the way that a very slow recovery in the job market can allow them to keep wages down, and thus keep a larger share of the output of their workers for themselves.

And from Paul Krugman in 2013: The Plight of the Employed

And may I suggest that employers, although they’ll never say so in public, like this situation? That is, there’s a significant upside to them from the still-weak economy. I don’t think I’d go so far as to say that there’s a deliberate effort to keep the economy weak; but corporate America certainly isn’t feeling much pain, and the plight of workers is actually a plus from their point of view.

The good news is that the unemployment rate has finally declined enough that are seeing a pickup in wage growth.

Atlanta Fed Wage Growth Tracker Click on graph for larger image.

This graph is from the Atlanta Fed Wage Growth Tracker and shows year-over-year wage growth for job switchers and job stayers:

The Atlanta Fed’s Wage Growth Tracker is a measure of the wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart.

This measure is indicating a pickup in wages – especially over the last year or two – and especially for job switchers.

Different policies (more infrastructure spending in 2011, no immediate pivot to austerity) would have boosted employment, and wages would have increased sooner.

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