The Best Worker Leverage Is a Strong Economy

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And here comes the news that workers’ pay is on the rise; from the Wall Street Journal:

U.S. workers received their biggest pay increases in nearly a decade over the 12 months through June, a sign the strong labor market is boosting wages as employers compete for scarcer workers.

The Labor Department’s employment-cost index rose 2.8% in the year to June compared, the government said Tuesday. Wages and salaries, which account for about 70% of all employment costs, also rose 2.8% from a year earlier, the strongest gain for both measures since September 2008.

Since the end of the most recent recession, U.S. unemployment has fallen to 4% in June from nearly 10% nine years earlier. Wage growth, stubbornly sluggish for years following the 2007-2009 downturn, has picked up as the labor market has tightened and employers have raised pay to attract and retain workers.

The government can increase minimum wages and spend taxpayer dollars on training programs and the like, but such strategies don’t address underlying causes, so they have consequences.  Job training makes more workers qualified for better jobs, but even if the training is in perfect alignment with the needs of employers, it just gives employers more options, which will suppress wages.  Minimum wages stand between employers and employees who are willing to agree to a lower wage and suppresses jobs.

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A strong economy, with a free market allowing plenty of room for exploration, gives employees leverage.  The employer’s incentive to hire comes from the ability to make a profit, so employees can negotiate for more of the rewards of responding to that incentive.

This lesson applies even in less-robust times, in that the economy is almost always strong in some sector.  If prices (including wages) are permitted to work, the strong sectors will draw workers to them, increasing workers’ leverage in every sector and increasing the wealth of the overall society.

Why do we find this so difficult to understand?



  • Not in the Talking Points

    Are you sure that increases weren’t the result of minimum wage increases?

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