14 May 2015

Forecasting 2nd Stage of Recovery - After 1/2 Decade of Job Creation We Will Have a 1/2 Decade of Wage Growth

Through April, the American economy has been creating jobs (11 million) for 55 straight months.This is a record for uninterrupted job growth. 

If the first half of the 2010s was defined by job growth, this next half - from 2015 to 2020 - will be defined by wage growth.

5 years ago - April of 2010 - unemployment was at its Great Recession high. 9.9%. Since then it has dropped 4.5 percentage points to 5.4%. 

The recovery continues and demand for labor has yet to stall. Unemployment will likely fall more before year end but it certainly won't fall another 4.5 percentage points in the next half decade. So how will continued growth in demand for workers show up? Higher wages.

Companies and city councils will continue to announce a hike in minimum wages. Wal-Mart has already announced this. Just this week, Portland announced a raise for minimum-wage jobs, an uptick to $15 an hour. This change in government regulations and corporation policies will continue to raise wages. 

As important as regulatory changes will be, the simple fact of growing demand for workers coupled with lower unemployment will mean that companies will be bidding their wages up. Given that unemployment cannot drop another 4.5 percentage points, wages are likely to start increasing by something closer to 3% than 2%.

This is going to be a very good decade, the first half characterized by job growth and the second half characterized by wage growth. 

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