With the US unemployment rate at a relatively high 6.2%, it is hard to fathom wage inflation on the horizon. Yet, despite the current unemployment rate, some economists are anticipating wage inflation may well lie ahead.
Good old supply/demand would suggest that when the unemployment rate is relatively high workers can’t be as demanding and wages would start to slip.
For better or worse, labor market dynamics are more nuanced than broad supply/demand suggests.
The reality is we’re facing a major skills mismatch.
Until last year, Baby Boomers were sticking it out at their jobs, retiring much later than their own parents did. That all changed last year when more than three-million Baby Boomers left their jobs.
The professions Boomers leave tend to be higher-wage/higher-skilled positions. At the higher end of the salary scale, there are fewer qualified workers relative to job openings. For these jobs, salaries will likely increase - even more - to meet the diminished supply of qualified workers.
At the same time, with the pandemic shutdowns, many service-sector workers have lost their jobs and there is more supply than demand for relatively lower-wage employment. Such workers are unlikely to be in a good position to demand higher wages.
(Caveat: The effect of the latest $1.9T stimulus for low-wage workers is unclear. Perhaps some workers will sit-out the job search until benefits are tapped, possibly reducing supply for lower-wage jobs.)
If less-paid workers are forced to endure higher prices for goods and services that better-paid employees helped precipitate and can more easily afford, inequality is exacerbated - an unhealthy dynamic for the economy not to mention the body politic.
