Labor Supply and DEMAND: Tighter Labor Markets Are Bringing Higher Wages

With the economy going full steam, after years of stagnant wages, many companies are finally offering more. Here’s what some are doing…

A long-running debate in the U.S. between free-market thinkers and market manipulators over whether the marketplace or the government should dictate the price of labor–or, at least, the minimum wage–may be getting settled as the economy improves and more and more companies compete for workers.

With unemployment at 3.8% (the lowest rate it’s been in 18 years), many companies around the country have begun to raise wages and offer other perks in response.

In fact, earlier this year, CNN (using Department of Labor data) reported that wages were growing their fastest since 2009.

In some labor markets, like Omaha, Nebraska, unemployment is so low that, not only are employers increasing wages, “some employers are offering an extra week or two of paid vacation, paid day care, car allowances, bonuses and more company-paid benefits.”

Last week, the nation’s largest retailer Walmart announced a nearly-free ($1 per day) college tuition assistance plan.

All Walmart and Sam’s Club workers in the US will be eligible as soon as they’ve been with the company for 90 days. It applies to all part-time, full-time, and salaried employees.

For now, the degree choices are limited to an associate’s or bachelor’s degree in either business or supply chain management, but the company may offer more choices in the future, a spokesperson said. [Emphasis added.]

Walmart’s competitor Costco, on the other hand, said last week that “it would raise its minimum wage and boost pay for 130,000 U.S. store staff,” according to Marketwatch.

The retail chain, second only to Walmart Inc. in terms of U.S. sales, said it would increase its starting hourly wages by $1 to $14 or $14.50 an hour. Other hourly workers will receive raises of between 25 cents and 50 cents. The new wages take effect on June 11. [Emphasis added.]

In Sacramento, one Chick-fil-A restaurant in California will reportedly begin paying its workers $17-$18 per hour this month—at least $6 higher than California’s current minimum wage.

While higher wages (and bonuses) could be partly attributed to the recent tax reform—a company in Oregon, for example, is raising its wages nine percent due to tax reform—there are other factors at play.

According to a National Federation of Independent Business (NFIB) report recently released, a “seasonally adjusted net 35 percent of small business owners reported increases in labor compensation as owners try to attract needed employees and retain those already on board.”

While near record high levels of owners are hiring or trying to hire, 83 percent of respondents reported few or no qualified applicants for the positions they were trying to fill. Twenty-three percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up one point), the highest reading since 2000, and one point below the all-time survey high.

Thirty-three percent of all owners reported job openings they could not fill in the current period, down two points but historically very high. Twelve percent reported using temporary workers, unchanged.[Emphasis added.]

Even Disneyland, currently in negotiations with its unions, is offering a three-year contract that, if accepted, will increase wages by 36% over the three year contract for certain “cast members.”

The tighter labor market is not just benefiting American workers by companies offering higher wages, it is also causing unemployment to go down in sectors with normally higher unemployment.

For example, black unemployment is at a record low and people with less than a high-school education are finding it easier to find jobs as well.

While rising wages are not hitting every sector of the American workplace, the fact is, the tightening labor market is driving wages up.


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