In the 1970s, we suffered through stagflation: high inflation, soaring unemployment, stagnant economic growth. Pretty much the worst of all worlds.
Today we have nearly opposite conditions, which should, in theory, make for the best of all worlds: low inflation, falling unemployment and reasonably steady economic growth. Yet somehow today’s economy feels pretty shabby.
The crucial missing component of good news today, of course, is wages. Wage and salary growth have been pitifully slow in an economic expansion almost at its sixth birthday, and compensation still has not recovered the ground lost during the “Great Recession.” The most recent data available show that the median U.S. household still earns less than its counterpart did at the turn of the century, after adjusting for inflation.
But there are signs we may finally be turning a corner. You may have to squint to see them, but they’re there: in the otherwise mediocre March jobs report, in surveys about compensation expectations, and in tangible wage gains at the bottom of the income distribution.
Last week’s jobs report was mostly disappointing, as it revealed that the nation’s employers broke their year-long streak of adding at least 200,000 jobs per month. Buried in the report, though, was some encouraging news about earnings. In March, average hourly earnings for private employees rose 7 cents, or about 0.3 percent, to $24.86. Sure, it’s not much, but it’s more than analysts forecast. Other recent Labor Department releases have also shown compensation quietly rising.
These reports may be a harbinger of far bigger raises to come. In surveys, consumers and employers have become increasingly likely to say they expect compensation to rise in the coming months.
In the Conference Board’s consumer-confidence survey, for example, consumers are asked whether they expect their income to be higher or lower six months from now. The net share expecting a raise has bounced around a bit from month to month but trended upward for more than a year. As of March, the percentage saying they expected their income to rise was 8.5 points higher than the percentage saying they expected it to fall, more than double the difference a year ago.
You can see similar patterns in the National Federation of Independent Business’s monthly survey of small-business owners. These numbers are also noisy from month to month, but they generally show that employers expect worker compensation to rise.
Such expectations tend to be self-fulfilling; if both workers and their bosses start pay negotiations from the premise that wages are going to rise, then, well, wages are probably going to rise.
The third sign that widespread wage hikes are in the pipeline comes from the low-wage sector, through both public policy initiatives and decisions made voluntarily by private companies.
In the absence of a federal minimum wage increase in almost six years, some cities and states have decided to take matters into their own hands. In 2014 alone, 14 states and the District decided to lift their wage floors. A handful of cities have raised, or are in the process of raising, their minimum wages to as much as $15 an hour.
But even without being forced to do so, a growing number of large, influential, low-wage corporations have also publicly pledged to give their workers raises. In February, Wal-Mart announced that it would increase wages for 500,000 employees to at least $9 an hour. Less than a week later, the parent company of T.J. Maxx, Marshalls and HomeGoods made a similar declaration. Soon Target followed suit, as did McDonald’s last week (at least for the 90,000 workers employed at corporate-owned locations, though not those employed by its franchisees).
To some extent, these announcements may be driven by a desire to cultivate goodwill in the face of much bad P.R. about treatment and compensation of low-wage workers. But the primary motivation for these firms, as with those smaller companies surveyed by the National Federation of Independent Business, is likely the bottom line: To attract and retain talent, especially in a tightening labor market, employers know they need to start offering better pay.
These actions could have knock-on effects throughout the economy, both by putting upward pressure on wages in more midlevel jobs and by filtering through to consumer prices. The whites of inflation’s eyes, in other words, may be visible sooner than we realize. You can be sure the Federal Reserve is paying attention.
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