Are Rising Labor Costs A Problem For Economy?

Bearish investors like to point out that after this index peaks there are recessions. Just because it is at a record high, doesn’t mean it will plummet soon. There needs to be a catalyst for a recession to occur. The Fed is pausing its rate hikes, the consumer isn’t leveraged, and fiscal policy is helping growth. Therefore, you shouldn’t fear the record high in this chart yet.

Labor Share Is Improving

The chart on low income and high income wage growth only showed one cycle. The chart below shows labor’s share of net value added since 1960.

When the unemployment rate rises, labor share increases. Labor share is relatively low compared to how low the unemployment rate is, but the labor share is still increasing. It’s notable that the prime age labor force participation rate doesn’t signal the labor market is as tight as the unemployment rate indicates. Policy makers ought to be careful of limiting the incentive structure of capitalism while trying to improve the long term downtrend in the labor share.

Immigration Helps Labor Pool

As we mentioned in a previous article, the labor pool could be running dry as the labor market matures. The chart below shows immigration is a long term driver of slack in the labor market.

Without 1st and 2nd generation immigrants, the labor force would shrink from 2015-2035. Immigration is partially why America has a stronger demographic outlook than other developed economies.

View single page >> |

Disclaimer: Please familiarize yourself with our full disclaimer here.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.