FUCK THE POLICE
911 EVERY DAY
https://mobile.nytimes.com/2018/07/06/business/dealbook/inflation-wages.html
As Inflation Rises, It’s Even Harder to Get a Raise
By Peter Eavis
The economy is not yet there for many Americans.
The jobs report on Friday showed that the United States added an impressive 213,000 jobs in June. The recovery has brought unemployment down to historically low levels.
But the report, as is often the case, pointed to a crucial way in which the economy is still not firing on all cylinders: The strong demand for labor has not prompted employers to substantially increase how much they pay their employees.
Hourly earnings in June grew 2.7 percent from a year earlier. That’s more or less in line with the pace of the past two years. But now those modest wage gains are worth less in the real world. The reason: The prices of goods and services are picking up. In May, inflation hit 2.8 percent and grew faster than wages, which increased 2.75 percent. Inflation numbers for June come out on Thursday.
Underwhelming wage growth has been a characteristic of the economy since the financial crisis of 2008. But if inflation continues to erode wage gains, consumers can afford less, dragging the growth of the overall economy. The Trump administration might then find it harder to promote its economic achievements. At the end of 2016, the last full month of the Obama administration, wages grew at an annual rate of 0.6 percent, adjusted for inflation. In May, inflation-adjusted earnings fell 0.05 percent.
The White House has contended that corporate tax cuts, like those enacted last year, will prompt companies to make investments that improve productivity and thus enable them to pay employees more. (Productivity measures output per worker.)
So far, that virtuous cycle does not seem to be taking hold. And some economists are skeptical that it will. Companies have had the ability to invest cheap capital for years, and wages have not risen strongly.
“A lower cost of capital may lead to more investment that may lead to more productivity growth, but to assume that will trickle down to middle-class wages flies in the face of everything we’ve seen for the last 20 years,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and an official in the first Obama administration.
The recently introduced personal tax cuts, of course, will bolster take-home wages. It’s hard to assess how much impact they’ve had, because Friday’s employment report does not factor personal taxes into its earnings figures. But Mark Zandi, chief economist at Moody’s Analytics, said the effective personal tax rate had not changed much in the past year, edging down to 12.21 percent in May, from 12.25 percent a year earlier.
“The tax cuts have yet to have a significant impact on individual tax bills, at least across all individuals and all sources of income,” Mr. Zandi said in an email. He noted that inflation-adjusted wages had in recent years grown more or less in line with productivity, which has itself been lackluster.
But wages could soon outpace productivity, Mr. Zandi predicted, because companies will have to pay higher wages to attract and retain workers. He sees signs of this already happening in numbers that track the wages of people who’ve been newly hired. The wages of new entrants rose 5 percent from the earnings of those hired a year ago, according to data from ADP, the human resources company.
“This is a sharp acceleration over the past year, and likely presages a broader acceleration in wage growth,” Mr. Zandi said, “as businesses will have no choice but to raise wages more quickly for their existing workers to maintain parity with new entrants.”
As Inflation Rises, It’s Even Harder to Get a Raise
By Peter Eavis
The economy is not yet there for many Americans.
The jobs report on Friday showed that the United States added an impressive 213,000 jobs in June. The recovery has brought unemployment down to historically low levels.
But the report, as is often the case, pointed to a crucial way in which the economy is still not firing on all cylinders: The strong demand for labor has not prompted employers to substantially increase how much they pay their employees.
Hourly earnings in June grew 2.7 percent from a year earlier. That’s more or less in line with the pace of the past two years. But now those modest wage gains are worth less in the real world. The reason: The prices of goods and services are picking up. In May, inflation hit 2.8 percent and grew faster than wages, which increased 2.75 percent. Inflation numbers for June come out on Thursday.
Underwhelming wage growth has been a characteristic of the economy since the financial crisis of 2008. But if inflation continues to erode wage gains, consumers can afford less, dragging the growth of the overall economy. The Trump administration might then find it harder to promote its economic achievements. At the end of 2016, the last full month of the Obama administration, wages grew at an annual rate of 0.6 percent, adjusted for inflation. In May, inflation-adjusted earnings fell 0.05 percent.
The White House has contended that corporate tax cuts, like those enacted last year, will prompt companies to make investments that improve productivity and thus enable them to pay employees more. (Productivity measures output per worker.)
So far, that virtuous cycle does not seem to be taking hold. And some economists are skeptical that it will. Companies have had the ability to invest cheap capital for years, and wages have not risen strongly.
“A lower cost of capital may lead to more investment that may lead to more productivity growth, but to assume that will trickle down to middle-class wages flies in the face of everything we’ve seen for the last 20 years,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and an official in the first Obama administration.
The recently introduced personal tax cuts, of course, will bolster take-home wages. It’s hard to assess how much impact they’ve had, because Friday’s employment report does not factor personal taxes into its earnings figures. But Mark Zandi, chief economist at Moody’s Analytics, said the effective personal tax rate had not changed much in the past year, edging down to 12.21 percent in May, from 12.25 percent a year earlier.
“The tax cuts have yet to have a significant impact on individual tax bills, at least across all individuals and all sources of income,” Mr. Zandi said in an email. He noted that inflation-adjusted wages had in recent years grown more or less in line with productivity, which has itself been lackluster.
But wages could soon outpace productivity, Mr. Zandi predicted, because companies will have to pay higher wages to attract and retain workers. He sees signs of this already happening in numbers that track the wages of people who’ve been newly hired. The wages of new entrants rose 5 percent from the earnings of those hired a year ago, according to data from ADP, the human resources company.
“This is a sharp acceleration over the past year, and likely presages a broader acceleration in wage growth,” Mr. Zandi said, “as businesses will have no choice but to raise wages more quickly for their existing workers to maintain parity with new entrants.”
