Wednesday, March 18, 2015

It’s amazing to me how so many intelligent people just don’t understand what is happening…

If Economists Were Right, You Would Have a Raise by Now
States show weakening link between their jobless rates and wage growth
Six years into the U.S. expansion, the link between falling unemployment and rising wages — once almost as basic to economic theory as supply and demand — seems to be coming unhinged.
The disconnect is puzzling to people like Colorado Governor John Hickenlooper. With one of the best growth rates among the 50 states, a population that’s younger and better educated than the nation’s and a jobless level that’s fallen further and faster than the national average, Colorado seems to have everything going for it.
Yet the rise in the state’s median wage since the recession ended in mid-2009 has averaged just 1.1 percent a year, based on data from the federal government’s Current Population Survey. That’s no better than the lackluster 1-percent-to-2-percent national pace. What gives?
“The whole notion that wage growth has been lagging job growth — that’s the crux of the problem here,” Hickenlooper said in an interview. “We’re working very hard to figure out why.”
If the current trend continues, millions of working Americans could wait years to recover economically from the last recession and spend most of their adult lives in an economy in which low unemployment doesn’t generate the wage growth needed to lift living standards.
Nationally, the U.S. unemployment rate dropped to 5.5 percent in February, the lowest in almost seven years, according to figures from the Labor Department. Accompanying that decline was only a 0.1 percent, or 3 cent, monthly rise in average hourly earnings.
Wages usually go up as jobless rates go down. But not if the decline is due to fewer people looking for jobs.
With unemployment finally starting to ease after years of what was often described as a “jobless” economic recovery, there’s some concern that globalization, by keeping a lid on U.S. wages, will derail the recovery’s momentum.
Usually when the jobless rate declines, wages start to inch up as employers compete for workers. When the Federal Reserve starts seeing wages grow, it will pull in the reins and start raising short-term interest rates.
“The Fed’s job is to lean against too-rapid job growth, because in all modern economic cycles employers began to compete for employees by paying higher wages, ultimately producing inflation,” Inman News columnist Lou Barnes explains. “The optimists are out of their minds today, cheering the health
of the economy, but the income/unemployment disconnect is without precedent — although it does connect to a different view of the world.” Without wage growth, the deflationary environment we’re in today could put a chill on home sales, Barnes and other knowledgeable observers fret. It might be too early in the recovery to get worked up about the lack of wage growth so far, economist Tim Duy writes on his blog, Fed Watch.

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