Labor market mystery: Why higher-income workers are hurting the most

That could change quickly next year, however, if the kind of recession economists predict hits — and tough times for workers could come as President Joe Biden begins a re-election campaign.

“Tech and financials are getting the hardest hit from rate hikes because they’ve gained the most on low rates,” said David Kotok, chief investment officer at Cumberland Advisors. “But if you’re a carpenter or a retail worker now, you can still quit your job whenever you want and go somewhere else immediately and get paid more. That’s not going to be true if we’re really going into a recession.”

The number tells the story of high end pain, low end gain phenomenon.

U.S. companies reported 320,173 layoffs this year, up 6 percent from the first 11 months of 2021, according to data firm Challenger. Of that number, by far the most came in the technology sector – 80,978, or more than a quarter.

Wealthy investors who rely on market gains have also taken a stake. All three of Wall Street’s major indexes are down double digits for the year, and the tech-dominated Nasdaq is down 34 percent, its most since Dec. 23. thousands of well-paid workers.

But the predictions of harm to rank-and-file workers haven’t quite materialized — at least not yet. And there was so much sadness.

“Do you know what’s worse than high prices and a strong economy? The prices are high and millions of people are unemployed.” Warren said again in August. In October, she signed a letter with nine other lawmakers accusing Fed Chairman Jerome Powell of “blatant disregard for the livelihoods of millions of working Americans.”

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Instead, the market for sales workers, laborers, cooks, cleaners and a host of other low-paying jobs has remained strong even as officials in the Biden administration say they expect a significant slowdown in job growth.

Employers created a robust 263,000 jobs in November, showing only slight signs of cooling in labor demand. Average hourly earnings are increasing at an annualized rate of 5.1 percent, and monthly gains are now outpacing increases in the Consumer Price Index.

These are good times for low-paying job seekers. But it’s also a potentially huge problem for the economy because their wage gains could push the Fed to raise interest rates so high that it would trigger a recession. This is because wage growth feeds into overall inflation as employers pass on higher labor costs to consumers.

The Fed’s Powell said the economy cannot sustain such wage growth without increasing inflation and that the country needs millions more people to enter the labor market. Even with wage increases, this is not happening, with the labor force participation rate at 62.1 percent, below its pre-pandemic level.

“Despite very high wages and a very tight labor market, we don’t see participation increasing, which is the opposite of what we thought,” Powell said at a December news conference, adding that the slowdown in immigration has fueled recent years. . the problem of lack of workers.

“We need more people,” he said, noting that some of the highest wage increases are now occurring in low-income sectors.

But if wage inflation doesn’t ease, Powell and the Fed are poised to use rate hikes — both in size and duration — to dampen business demand for labor. And in doing so they could trigger a significant recession and thus trigger job losses that would be devastating for workers and for Biden and the Democrats going into 2024.

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Richard Bernstein, founder of a financial advisory firm that bears his name, said: “Speculative and volatile parts of the economy like technology that benefited from the Fed lowering long-term rates lower than expected have already begun to weaken. ” “But if we get a real recession, then the demand for labor will drop significantly and you’ll see millions more workers affected.”

The White House — and some economists — argue that a recession is inevitable as inflation eases and wears off from previous highs. Administration officials say earlier recession forecasts were wrong — the economy grew at a brisk 3.2 percent in the third quarter of the year, the government said on Dec. 22. They also say that the policies that have been implemented in the last two years on infrastructure and infrastructure. Technological progress will help to avoid a serious collapse.

Both the Fed and the White House received some good news on inflation on Dec. 23 with the key metric, the Personal Consumption Expenditure index, rising 6 percent from 5.5 percent in November compared to the same period last year. ,1 decreased. October.

“Investment and investment activity in the United States is very high right now,” Brian Deese, director of the White House National Economic Council, told POLITICO. “And it’s a reflection of the relative strength of the United States and a reflection of a policy environment that has provided long-term certainty for investment.”

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But such a scenario, in which labor shortages ease and wage inflation cools quickly enough for the Fed to relax its restrictive stance, is not the consensus view among economists.

In contrast, forecasters from Bank of America to JPMorgan Chase mostly predict that with at least a mild recession starting next year, the unemployment rate could rise above the current 3.7 percent.

Democratic economist and former Treasury Secretary Larry Summers — among the few who predict persistently high inflation — sees unemployment rising to about 7 percent before the Fed kills inflation.

Such an increase would come at a dangerous time, both for Democrats and for workers. Low-income Americans are cutting deeply into their savings as they battle inflation. They pay more on credit cards. And a divided Congress is unlikely to agree on aid spending to fight the recession. Increased immigration seems politically impossible in the near term.

Meanwhile, the state-run unemployment-benefit system is underfunded, which can make it difficult for politicians to put money into the pockets of laid-off workers.

Kathryn Edwards, an economist at the Rand Corp. “There’s no way we’re even close to a recession at this point,” he said, focusing on labor market issues. “The unemployment benefits process is how we prevent the recession from getting bigger and more painful than it needs to be. And it’s a mess and we’ve done nothing about it. When Covid hit in 2020 We weren’t in a good place and we’re in a terrible place now.”


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