Higher wages are on the way
Pay increases might finally be around the corner, said Conor Sen. Economists have been puzzled for several years over how “labor markets could be so tight without a full-fledged breakout in wage growth.” Clues appeared recently in a new Federal Reserve report. When a company in Boston was asked why it didn’t raise wages to attract more workers, it replied that doing so would require “paying all the existing workers more, which would be uneconomic.” Another employer said that “when a worker departs, the replacement typically ends up earning 10 percent more than the departing worker.” Those disparities in costs “should be a red flag for investors” and suggest that current levels of corporate profits “may be unsustainable.” If hiring new people requires offering big raises over what your workers currently make, “your workforce is underpaid.” In a normal labor market, the difference between market wages and average wages “shouldn’t be that much.” But we aren’t in normal times. Years of disinflation and loose labor markets have left employers accustomed to paying below-market rates; workers, still nursing scars from the recession, also aren’t eager to test the job-market waters. But “this isn’t going to last much longer.” Each month about 3 million people quit, and employers must eventually fill these vacancies. When that happens, there’s going to be a “wage shock” in companies across America.