Is there a “light at the end of the tunnel” when it comes to wages and benefits paid to workers? The first quarter 2018 ECI report showed that wages and benefits increased at the fastest rate in a decade. While the increase was higher than at any point in the last 10 years, the increase was still fairly small in the big picture.
The total yearly gain of worker compensation came to 2.7% per the Employment Cost Index Report, or ECI. The 2.7% number is still not where it should be considering the unemployment rate is at a historic low of 4.1% and considering the fact the job market continues to be running red hot, with employers almost begging for workers. But still, the fact the increases are picking up is encouraging to all households, including low to moderate income ones and those Americans that live check to check.
In addition to the 4.1% unemployment rate, the initial weekly jobless claims (at 209K) are now at the lowest level since December 1969, when they were at 202K. And that is of course when the population of the US was much smaller at 202 million. So we have over 100 million people in this country but jobless claims are at the same net level since then. Incredible that initial claims on a net level are running the same as 50 years ago.
Anyhow, with the record low unemployment rate and initial jobless claims at a ridiculously low level, you would think benefits and wages would be going up more than 2.7% as the first quarter ECI report showed. Most experts and economists can’t really explain it, other than the job market continues to evolve in the type and skillset of workers, robots replacing some roles, offshoring, and similar transformative changes in the economy. This is why job training and education is so critical in today’s economy, especially for lower income families as it can help them gain the skills needed today.
While the total compensation increase is still lower than where it should be, at least it is the highest in 10 years. So that is a piece of good news. We hope that trend will continue, in that more and more wages and benefits go to employees. However, the risk there is that it can overshoot in the other direction (with wages too high and increasing too quickly) as that will quicken the pace of federal reserve interest rate hikes, which is a negative for the economy in the long run. The goal is to find the right increase…not too hot and not too cold.