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benefits, Biden administration, CCP Virus, Census Bureau, consumption, coronavirus, COVID 19, demand, ECI, Employment Cost Index, Immigration, labor force, labor market, labor shortage, Open Borders, Paul Krugman, production, productivity, recession, salaries, supply, Title 42, Trump administration, wages, workers, workforce, {What's Left of) Our Economy
American workers got some unambiguously good news this past week. Although it’s not all that high on the “good” scale. And it could well be short-lived.
Still, good is good, so it’s important to note that by one official measure, American workers’ earnings have at last caught up to the recent burst of inflation – and a little bit more. In the first quarter of this year, wages and salaries have risen by 0.1 percent over last year’s first quarter. (These are private sector wages and salaries, the ones economy watchers really care about. That’s because unlike public sector earnings, they’re driven predominantly by market forces, not politicians’ decisions.)
No, it’s not much, but it’s a better situation than prevailed as of the end of last year, when such compensation had fallen by 1.2 percent on year. In fact, these new results for the Employment Cost Index marked the first time since the first quarter of 2021 that, in real terms, wage and salary gains combined have moved back into the black.
This encouraging development, however, comes with two important caveats. First, when you add in the value of benefits and get numbers for total compensation for private sector workers, they’re still lagging inflation, and have since, again, the first quarter of 2021.
To be sure, by this gauge, workers are catching up. As of the first quarter of last year, total private sector compensation was down 3.5 percent on an annual basis, the worst such result in a data series going back to 2001. Now it’s trailing by just 0.2 percent. But it’s still trailing.
Second, although progress is being made on the earnings front, labor productivity growth remains weak. The best combination in terms of yielding sustainable prosperity is strong growth for both.
And like I hinted at the start, this progress may be just about over. Not only is the economy slowing – which will surely make employers more reluctant to hire than they have been, and thereby reduce the pressure they feel to keep and add workers by raising pay at whatever rate. A recession will of course leave workers with even less bargaining power.
But the supply of workers available to business, which had shriveled thanks largely to the effects of the CCP Virus, has rebounded past pre-pandemic levels. And much of this recovery stems from a strong rebound in net immigration inflows – which the U.S. Census Bureau believes have returned to pre-virus levels and to their levels before the advent of the Trump administration’s restrictive border policies.
Many immigration devotees, like Nobel Prize-winning economist and New York Times pundit Paul Krugman argue that the immigrant-driven loosening of the national labor market has kept employment up while preventing “runaway inflation” not by suppressing wages but by keeping production up – and thereby closing the CCP Virus-created gap between demand and supply.
But if you look at the economy’s growth over the year when immigration surged, that argument falls apart. It may become validated farther down the road, but in inflation-adjusted terms, but between the first quarter of 2022 and 2023, U.S. output rose a bare 1.56 percent Moreover, as I’ll be showing in a subsequent post, even this weak growth in the gross domestic product, along with the better performance of 2021-22, was led by unusually high levels of consumer spending, not by output.
As a result, the main effect to date of the immigration resurgence clearly has been undercutting wage pressures. And it’s certain to continue with the Open Borders-friendly Biden administration in office through the start of 2025 at least, with the pandemic-era Title 42 restriction program ending May 11, and the President so far deciding to respond with a plan featuring numerous provisions aimed at easing major current obstacles to legal immigration.
So let’s all hope that American workers are enjoying this mini-near earnings recovery while they still can. For if they blink, they might miss it.