Post by Politically_Incorrect12 on Jan 11, 2015 15:36:01 GMT -5
Why US inflation stays ultra-low while job growth is surging
By JOSH BOAK and CHRISTOPHER S. RUGABER
WASHINGTON (AP) — This isn't explained in Econ 101.
Month after month, U.S. hiring keeps rising, and unemployment keeps falling. Eventually, pay and inflation are supposed to start surging in response.
They're not happening.
Last month, employers added a healthy 252,000 jobs — ending the best year of hiring since 1999 — and the unemployment rate sank to 5.6 percent from 5.8 percent. Yet inflation isn't managing to reach even the Federal Reserve's 2 percent target rate. And paychecks are barely budging. In December, average hourly pay actually fell.
Economists are struggling to explain the phenomenon.
"I can't find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we've been adding jobs at a robust pace," said Patrick O'Keefe, chief economist at consulting firm CohnReznick.
Normally, with unemployment this low, the Fed would raise its benchmark interest rate to prevent inflation from spiking and the economy from overheating. Not this time. Though the Fed's record-low rates have helped support the economy since the 2008 financial crisis, those low rates haven't met their other goal of raising wages and inflation to normal levels.
As long as inflation stays consistently below its target, the Fed might feel pressure to delay a rate increase beyond midyear, when most economists have predicted a hike. Thanks in part to plunging oil prices, many economists now envision even less inflation this year than in 2014.
When the U.S. economy last enjoyed a similar hiring binge, in 1999, average wages climbed 3.6 percent, compared with 1.6 percent last year, according to the government.
So what explains consistently solid job growth without inflation? Here are four crucial factors:
Post by Politically_Incorrect12 on Jan 11, 2015 15:38:45 GMT -5
U.S. seems stuck with slow wage growth despite strong jobs data
By David Chance WASHINGTON, Jan 9 (Reuters) - The U.S. economy added the largest number of jobs in 15 years in 2014, yet a surprising five-cent drop in average hourly earnings in December raises questions over whether a tightening labor market will ever translate into more money in the pockets of ordinary Americans.
In theory, a tightening market should lead firms to hike wages to hold on to or attract workers.
That relationship, however, has broken down in the recoveries from the past three U.S. recessions and has been especially pronounced in the tepid recovery from the 2007-2009 financial crisis, according to research from the Federal Reserve of San Francisco published this week. Workers in industries that have the least flexibility to cut pay in downturns are at the heart of today's tepid wage growth. "In response, businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired level. Since it takes some time to fully exhaust the pool of wage cuts, wage growth remains low even as the economy expands and the unemployment rate declines," said San Francisco Fed researchers Mary Daly and Bart Hobijn.
Hiring went up in the industries with low wages- services, retail. Many of them are not even considered full time so they don't have benefits of any kind. In the overall equation that keeps wages down. In the positions that are typicaly paying higher wages or salaried, companies are hiring "the lowest demand" for the job. Forget about experience or fit for the job! You asked the least amount in pay, you are hired! Also in in many of the positions in the tech field there is an influx of foreign labor force through the work visas program. Why would an informational technology wanna pay $100k to a graduate from MIT or the likes when they can pay $35-40k to a graduate from Bombay University? The job gets done(crapy as it may be) the company gets paid! More profit for the company and that is the end game!
Masive lay-offs in 2007-2008 hapened in the manufacturing. Many of them had years in the companies and were in the higher tier pay scale for laborers.Those workers have been in and out of the work force for years now getting any job that they could. Many of them tried their hand at self employement-contracting businesses- that haven't been always successful. Seasonal business hire for the season starting every year at just about wages because even if they increase prices for their product, like anybody else they want bigger proffits.
And finaly, customers Typicaly wanna pay bottom dollars for what they buy. Quality doesn't seem to mater and again the lowest price wins.
So is pretty simple:low wages=low prices on finished product=more sales=more profits!
Many employers don't realize that if they pay better they might get better workers, better product and compete that way. There is a misconception in regards to the definition of "competition" that defines it as the lowest price. It seems that all Americans forgot about FDRs famous saying: "I'm too poor to buy cheap!"