Strong Employment And Weak Wages, The New Paradox

Posted Friday, July 7, 2017 by
Skerdian Meta • 2 min read

The U.S. employment report was released earlier today and it was a mixed bag. It was a positive report overall since all numbers showed expansion from the previous month, but there were a couple of misses.

Nonfarm employment change jumped from 138k to 222k. That’s a huge jump and it’s a relief after the decline in the ADP employment numbers on Wednesday.

The unemployment rate ticked up a point to 4.4%, but that’s not a big deal since unemployment usually fluctuates 1-2 decimal points.

The interesting thing is the miss in wages. Average hourly earnings were expected to pick up by 0.3%, but the actual number came out at 0.2%.

That means that wages are still going up in the U.S., albeit less than expectations. Now, if employment came out at 138k as expected and wages missed, that would be slightly negative.

But when employment picks up by 222k in a month and wages still miss, then there is a big problem. The labour market is getting tighter, but wages are lagging. Why is that?

Well, immigration, automation, and global competition is the answer.

Even though more and more people are getting into work, wages remain low because labour supply is not drying up. It’s not even matching labour demand.

Also, if wages get too high, the companies could always replace workers with robots or move factories to China, India, Indonesia etc.

So, there’s a new contradiction which initially appeared after the 2008 financial crisis and it’s becoming more obvious now. That’s bad news, particularly for the general public, which has to be tackled in the coming years.

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