The Wages Experiment
On Friday, December nonfarm payrolls hit the Street, showing the economy added 156,000 jobs.
And the market yawned at the news.
Morning trading was mostly flat to lower as the country has largely lost faith in the veracity of a headline number that cloaks the fact that most jobs created since the end of the Great Recession are either low-paying or temporary — or worse, both.
As we’ve said in the past, that’s not how you sustain and grow America’s middle class.
However, there was one interesting tidbit of information in the jobs report. Average hourly wages increased by 0.4% in December and climbed 2.9% in 2016 — the fastest pace since the start of the recovery in 2009.
And that’s only the beginning…
Twenty states will lift their minimum wage in 2017, affecting 4.4 million workers. The wage increase ranges from $0.05 in Missouri, Florida, Alaska and Ohio to $1.95 in Arizona.
It’s as if the country has become a giant economic experiment. I think the new wage hike could go a number of ways over the next few years:
- The new wages could result in an increase in spending, which helps to revive the economy and breathe fresh life into the middle class as companies grow on this new influx of revenue and start creating new and higher-paying jobs.
- The new wages could result in an increase in spending. But the increase in demand pushes prices higher, resulting in fresh inflation that drives the Federal Reserve to slap on a series of rate hikes that stifle any economic growth — leading the economy into yet another recession.
- The new wages could fail to boost the economy because people are still too far in the hole following the Great Recession. Without the increased spending, companies now paying the higher wages can’t afford to hire new people, and many could turn to automation to cut costs — and employees. This is great for companies making robots, but horrible for American workers.
I’d love to hear your thoughts on the promise of higher wages in America. Is it going to help or hurt the economy? Is there another option that I haven’t mentioned here? You can email me at TotalWealthInsider@sovereignsociety.com.
Sr. Managing Editor, Sovereign Investor Daily