The U.S. financial system has been having fun with the quickest job progress in virtually 4 a long time. Sadly, inflation-adjusted wages are falling sooner than they’ve in 40 years. Inflation ran 8.5% within the yr ending final month, whereas nominal wages grew solely 5.6%, a decline in inflation-adjusted wages of two.7%. This presents a severe problem to the “scorching financial system” thesis that tighter labor markets result in rising actual wages. This concept has by no means been as well-liked amongst educational economists as it’s amongst Washington coverage makers. A scorching financial system is unquestionably higher than a chilly one, however the prices of an overheating financial system may be bigger than coverage makers have appreciated.
The new-economy thesis has been a staple of Beltway economists from each the left and the appropriate and has been steadily cited by Federal Reserve officers. The concept is easy: When the unemployment charge falls, staff have extra leverage to barter larger wages. Job progress advantages not solely the newly employed, but additionally these already working.
