Are Rising Labor Costs A Problem For Economy?

The goal should be to extend periods like this so the bottom half can benefit from cyclical upswings longer. Unfortunately, workers in the bottom half see wild swings as they are more likely to get fired during recessions and see lower wage growth in times of economic strife since it’s easier to fire entry level workers than top management.

The concept of maintaining the type of environment which has pushed the upper half’s income growth down from over 3% to slightly above 2% and the lower half’s income growth up from slightly above 3% to almost 4% seems much more doable than changing the entire system and incentive structure of capitalism with some of the recently proposed policy initiatives. We aren’t arguing for or against a progressive taxation system or wealth taxes, two measures recently proposed; rather we are pointing to the logical flaws of such a structural overhaul where jobs/income is guaranteed and the wealthy pay extraordinarily high rates.

Small Businesses Worry About Labor Costs

As you can see from the chart below, small businesses listing the cost of labor as their single most important issue hit a record high.

That’s because nominal wage growth is accelerating, while access to capital isn’t a problem, the economy is solid, taxes are low, regulations are being rolled back, and commodities inflation is low. There aren’t many issues in this late cycle economy where workers are seeing accelerating real wage growth. The employment to population ratio of those without a high school degree is near a record high. 

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