Luke Bartholomew, Senior Economist at Aberdeen Standard Investments shares his comments with us on US jobs/inflation.
“US corporate executives claim that they cannot hire enough workers. Lyft, Uber and Domino’s Pizza have joined in common refrain in recent weeks. This is driving fear that companies will have to raise aggressively hike wages to get workers back in the door, fueling inflation in the process.
“They have a point, up to a point. Unemployment is still high yet hiring levels are still surprisingly sluggish. Jobs are not being filled as quickly as might be expected. This against a backdrop of a strongly rebounding economy suggests companies are indeed struggling to get workers back on their books. But this is unlikely to last. Some workers in jobs that involve a lot of face-to-face contact understandably remain worried to come back to work. Stimulus payments and enhanced unemployment payments are providing enough cushion to make workers wager that returning to work is not worth it yet.
That incentive will be short lived. Enhanced benefits are already ending in some states and finishes nationally in September. And stimulus cheques are eventually spent. At that point, labour shortages will probably disappear very quickly. The fear-factor of the pandemic will likely have receded and workers will go back to work out of necessity. If companies want workers back sooner then they will probably need to pay them more to overcome the natural reluctance people feel at this stage of the pandemic. Doing so will indeed increase inflation in the short term.
Sadly for US workers though, the burning need to pay higher wages may die down as workers inevitably return. Wage bargaining will start to skew again in companies’ favour, and wages stagnate. The decline in workers’ share of the national economic pie has been the hallmark of the US economy for several decades and is intimately linked to many of the country’s economic, political and social struggles. The message to corporate America now and beyond the pandemic is clear: pay them more, a bit of wage growth would not be a bad thing.”