Tags: Karabell | Job | Wage | Illusory

Money Manager Karabell: Job, Wage Growth Illusory

By    |   Sunday, 18 May 2014 09:31 PM

Economists who believe wages for most Americans are going to grow in 2014 should rethink that rosy scenario, according to money manager Zachary Karabell.

Karabell, president of River Twice Research, said in a guest column for Slate that the belief wages are bound to go up as the unemployment rate goes down is left over from the 20th century.

He acknowledged a revival of sorts in U.S. manufacturing may be for real, as companies “onshore” their foreign operations back to domestic soil. But he said those repatriated factories are mostly hiring hundreds of workers, not the thousands they employed in earlier decades.

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“The argument that a tighter labor force will lead to higher wages may hold true for skilled jobs, high-tech jobs, and jobs that require specialized abilities in high demand,” Karabell wrote. “But for lower-end jobs—at mass retailers and fast-food restaurants, in temporary work— where will the pressure to increase wages come from?”

According to Karabell, the fact the federal government and local governments are making moves toward imposing higher minimum wages merely suggests that without government intervention, wages might not go up meaningfully at all – there is no wage pressure otherwise.

Economists who take heart from a falling jobless rate may be in for a rude awakening.

According to Karabell, the rate “is going down not because there is such robust job growth, but primarily because the statistical size of the labor force keeps shrinking.”

The Bureau of Labor Statistics makes its calculations based on average earnings for everyone — meaning if a small group is doing very well, it can raise the average for the entire national sample.

“That is much closer to the reality in the U.S. today: a majority treading water, a significant but small group — tied to information technology and high-end services, and clustered in vibrant urban areas—doing quite well, and a very small number at the top doing extraordinarily well,” Karabell wrote.

“There is much to be hopeful about given the continued dynamism of innovation and technology, but for the near term at least, rising pay for those who aren’t part of that dynamism is likely not one of them.”

A USA Today survey of leading economists this month showed most might disagree with Karabell’s analysis, as they were mainly upbeat about wage and GDP growth.

Scott Anderson, chief economist at Bank of the West, told USA Today he expects average pay increases of nearly 3 percent this year, while Robert Mellman of JPMorgan Chase forecast a hike of about 2.2 percent.

But what about the impact of inflation?

The New York Times reported average U.S. hourly wages held steady at $24.31 in April. They have increased only 1.9 percent during the past year, but after adjusting for inflation, real wages have gone up by only about 0.5 percent.

David G. Blanchflower, an economics professor at Dartmouth College, and Adam S. Posen, president of the Peterson Institute for International Economics, found that the slow pace of wage growth reveals an incomplete economic recovery, according to the Times.

“Until wages start rising more quickly, the economy remains far from healthy,” the Times concluded.

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Economists who believe wages for most Americans are going to grow in 2014 should rethink that rosy scenario, according to money manager Zachary Karabell.
Karabell, Job, Wage, Illusory
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2014-31-18
Sunday, 18 May 2014 09:31 PM
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