Are Rising Labor Costs A Problem For Economy?

Since this article will include a discussion on income/wealth inequality, let’s start off with student debt, which went from an innocuous issue to one of the main driving forces of wealth stagnation among young people in over a decade span. As of Q4 2018, student loan debt totaled $1.569 trillion. Instead of young people building wealth at the start of their career, they are beginning by owing principal and interest on debt.

Interestingly, the total endowments of the top 101 universities was $479.232 billion in 2018-2019. That’s an increase of 80% from 2015. That’s amazing because total student debt increased 23.3% in that period. It’s nice to have compound capital gains without paying taxes (there was an excise tax of 1.4% put in place for some of the wealthiest colleges in 2017). Plus, donations are tax deductible.

It’s a broken system where the government prides itself on giving students access to debt while it subsidizes colleges. The concept of making schools tuition free just pushes the debt burden onto the tax payer instead of students without solving the issue of high costs. To be clear, colleges use these endowments for research. For example, Harvard’s annual research budget is over $1 billion. Some the money is used for good, but the hoards are exploding in size, so maybe the system isn’t organized correctly.

To be clear, college tuition affordability is a massive problem. The point here is giving rich colleges even more money doesn’t sound right. Education competition needs to be encouraged so students can learn using technology rather than spending tens of thousands of dollars on a degree. College education has become more of a signaling factor to employers than a way to improve students’ knowledge.

Wage Growth Improves For Low Wage Workers

While politicians argue about income inequality, the tight labor market is delivering improved wage growth for the bottom half of workers and slowing growth for the top half. To be clear, income growth for the bottom half has been also helped by minimum wage increases. By the way, that’s not an argument in favor or against minimum wage, just a fact, which you can read more about here. The point here is there needs to be a strong economy with a tight labor market and low inflation to help the bottom half grow their wealth.

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