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Tags: unemployment | jobs | wages | inflation

Tepid Job Growth in May Could Lead to Wage Inflation

Tepid Job Growth in May Could Lead to Wage Inflation
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By Monday, 07 June 2021 01:33 PM Current | Bio | Archive

The Bureau of Labor Statistics reported that 559,000 jobs were added in May. Considering there are about 8 million job openings and that 7.5 million workers are unemployed as a result of the COVID-19 shutdowns, the number should have been much higher. To bring more workers back, companies are offering higher wages. That’s good for the workers, but what about the inflation problem?

Considering the success of the vaccines, the economy is rapidly re-opening. Already 14.5 million of the 22 million who lost their job as a result of the shutdowns are back to work. Actually, many of the remaining 7.5 million unemployed workers should have gone back. They didn’t for a number of reasons.

With the additional federal unemployment benefit, many workers receive as much or nearly as much not working. So they don’t go back. About half of the states are refusing the additional federal benefit.

Some won’t return because of the virus, but the vaccines pretty much have this under control. Some won’t return because they have kids at home, but with schools reopening that should not be a problem.

That means the May jobs report should be the last month that the number is way below expectations. In June and July, we should add 1 million jobs each month. The reason is that the economy is growing faster than we have seen in decades.

In the third quarter of last year the economy grew at a 33% annual rate. Even though the virus flared up in the fourth quarter GDP still grew at a 4% annual rate. In the first quarter of this year the growth rate was 6.4%. Likely this quarter will see growth of at least 8%, with better than 8% growth for the rest of the year.

To achieve that rate, workers will have to come back into the labor market. This includes not just the COVID-related unemployed but also many of the discouraged workers who left the job market in the last 10 years. To lure them back into the job market, wages will likely rise, perhaps significantly.

In leisure and hospitality, 292,000 jobs were created last month. Because of the vast number of immediately available jobs, that number should have been closer to 600,000. These are the workers who ae reluctant to return.

Many of these jobs are lower income where the starting wage may be only $12 per hour. However, to get these workers to return to the labor market, companies are offering $15 or $16 per hour. This is also true in retail trade where the total number of workers is more than 400,000 below the February 2020 number.

While this is good news for the workers in these fields, it is not so good news for the economy as a whole. Higher wages will squeeze profit margins meaning the companies will have to raise prices on the goods they sell. This is especially true since raising the starting wages ripples through the workforce and ends up raising all wages.

Right now, the rapidly growing economy has an inflation problem. Since January inflation has been running at about a 6% annual rate. The Consumer Price Index for May will be released in mid-June. It is expected to show that inflation continues to be a problem.

As long as the federal government maintains its irresponsible policy positions, inflation will worsen. For instance, energy prices will continue to rise as the Biden Administration takes action which restricts supply at a time when demand is soaring. This will worsen inflation.

As long as the Federal Reserve continues to over-grow the money supply by purchasing $120 billion monthly of government bonds, inflation will worsen.

As long as the Federal Reserve keeps interest rates near zero, the excess demand that creates will worsen inflation.

As long as the federal government’s fiscal policy is to keep deficit spending, as they did with a $3 trillion deficit last year and a $3.5 trillion deficit this year, that much excess demand in a rapidly growing economy will make inflation worse.

While we would all like to see the economy fully reopened and we would like to see all willing American adults to be employed at a fair wage, actions that will lead to high inflation always results in very negative outcomes.

Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.

© 2021 Newsmax Finance. All rights reserved.


DrMichaelBuslerPhD
The Bureau of Labor Statistics reported that 559,000 jobs were added in May. Considering there are about 8 million job openings and that 7.5 million workers are unemployed as a result of the COVID-19 shutdowns, the number should have been much higher. To bring more workers...
unemployment, jobs, wages, inflation
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2021-33-07
Monday, 07 June 2021 01:33 PM
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