Displaying items by tag: wages

(New York)

One of the big mysteries in this recovery has been the fact that wages have not risen much despite the fact that employment has expanded greatly. Investors have gotten used to massive amounts of new jobs being created, but also to quite meager wage gains. Economists have been somewhat stumped as to why, but a new explanation makes a lot of sense—monopsony. Those with an economics background will immediate recognize the term. It refers to when there are many suppliers of something but only one buyer. In this case it is being applied to the labor market—there are tons of available workers, but quite few employers, especially in more isolated locations. This means the employer has sole negotiating power in dictating wages, leading to widespread wage stagnation despite a competitive labor market.

FINSUM: This seems like the outcome of all the corporate consolidation that has occurred over the last few decades. There are less employers, so they collectively have more power to hold down wages.

(Seattle)

Amazon has just taken a big step to improve the welfare of its enormous mass of workers. The company has raised the minimum wage across all its businesses to $15 per hour. The wage will apply to the company’s 250,000 employees and 100,000 holiday workers and will begin on November 1st. Amazon also says that it will now push for an increase to the federal minimum wage of $7.25 per hour.

FINSUM: This is a good move for Amazon’s workers, but it might be even better for Amazon’s reputation. The company has recently come under scrutiny for its labor and monopolistic practices, and this is one way to offset those concerns.

(Washington)

There is a lot of rhetoric out there about how the labor market is extremely tight, which will push wages up and force the Fed to raise rates. According to Barron’s, if you really compare this year’s labor market data versus last year, it looks like there is an unemployment pool of at least around 1 million Americans that could re-enter the labor force. This group is often referred to as the “hidden unemployed”.

FINSUM: This means that there is actually more capacity for the labor market absorb jobs than is often reported, meaning there may not be as much upward pressure on wages, and therefore, rates, as expected.

(New York)

One of the big risks for the current market regards the economy. The big fear is that the Fed may raise rates too quickly, which could bring on a recession that would in turn sink stocks. However, there is another risk to the economy that is not as well understood. That risk is one of a labor crunch that curtails economic output. Demographic shifts mean there will be a shortfall of 8.2m workers over the next decade. As Barron’s puts it, the implications are broad and easy to explain: “Oil and gas stay in the ground because there aren’t enough workers to extract it; homes aren’t built because builders can’t find enough laborers. In Maine this winter, the state couldn’t find enough people to drive snowplows”.

FINSUM: We think this is a just another reason why inflation and rates are not going to rise significantly. While workers are short, wages aren’t rising that fast, and if economic production also stays weak, then we just don’t see a bond bear market coming. Stocks are another story, however.