This is how the Wall Street Journal explains this chart:
Labor also revised up unit labor costs. For just the fourth quarter, unit costs grew at an annual rate of 2.8%, more than double the 1.2% reported a month ago. The large upward refiguring of unit labor costs, now rising at the fastest pace since late 2008, came from an upward revision to compensation.
Here is what it means…for the first time since before the Bush economic crisis – real wages are increasing faster than inflation. Another way to say that is that cost of living is getting better…prosperity is proceeding on the right path. Obviously – we’re not out of the woods and a lot can go wrong, but a win is a win is a win.
Now – real wages are in a constant war of attrition with over macroeconomic factors…mainly corporate profits. Corporations exist solely to increase profits and provide value to shareholders; that is their entire raison d’être. And I suppose a worker’s entire reason for being is to earn a good wage, benefits etc to have the life they want to live. And just as supply and demand works in the consumer market when you are looking to buy strawberries…they’re cheaper when they’re “in season” and supply is plentiful and more expensive “out of season” when supply is diminished. Supply and demand.
The same principles apply in the labor market; when you have 10 million unemployed with a workforce of 150 million workers- wages stagnate and decline in real terms as opposed to 8 million unemployed with a workforce of 150 million workers. The higher the unemployment rate – the less control those in the labor pool i.e. workers can demand relative to wages and benefits. And as the chart shows – real wage growth relative to inflation has been moving up….climbing sharply out of the huge hole President Obama inherited and we’re finally exceeding inflation. That really matters.
Now – some will say that this will hurt corporate profits and thus it could inhibit new hiring:
Industry analysts warn that rising labor costs could also slow new hiring if employers find their profit margins too squeezed. But rising wages also mean that workers have more money to spend, which is likely to boost macroeconomic growth and employment.
Source: Washington Post
And there is SOME truth to that, but as the Wa Post explains there are other benefits that could provide a stabilizing effect. Normally – companies would try to make up for those increasing labor costs by giving their workers a bigger workload or removing inefficiencies that would boost productivity per worker; however, productivity is growing at a less fast pace than it has previously. The very likely reason for that is that there is only so much juice you can get out of an orange…at some point – you need to get another orange. And that’s good news for workers.
Less productivity means “the only way to increase output is to hire more people,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who was the only analyst in a Bloomberg News survey to accurately forecast the jump in labor costs. “It’s a positive for the labor market,” he said, at the same time “margins should be getting squeezed a bit.”
Tomorrow the labor department releases it’s jobs report for February but a private firm says that the private sector added 216,000 jobs in February:
The private sector added 216,000 jobs last month, according to the ADP National Employment Report, topping economists’ expectations for a gain of 208,000.
The ADP figures come ahead of the government’s more comprehensive monthly labor market report on Friday, which includes both public- and private-sector employment.
“After two years of expansion without much gain in employment, we’re finally hitting the point where firms need to begin adding people in order to meet increased orders,” said Steve Blitz, senior economist at ITG Investment Research in New York. “There are still risks ahead, but if you could just stop the clock right where we are now, you’ve got a recovery that is gathering some momentum; it appears to be self-reinforcing.”
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