http://www.businessweek.com/articles/2014-04-23/bureau-of-labor-statistics-wages-rising-inflation-still-low

U.S. economy

Good News: Wages Are Rising, and Inflation Is Still Low


Wages are on the rise, and that’s good news for the U.S. workforce. Last week the Bureau of Labor Statistics reported there was a 3 percent increase in median usual weekly earnings of full-time American wage and salary workers in the first quarter of 2014 vs. a year earlier. That’s a genuine increase in buying power, because the consumer price index rose just 1.4 percent over the same period.

As the chart above shows, wages are growing a bit faster than the 2001-14 average. That hasn’t happened much since 2009, when the 2007-09 recession began to bite into wage growth after a considerable delay. Also good news for workers is the downward drift in initial claims for unemployment insurance, which are back to pre-recession levels.

“It should be obvious to everyone by now that there is wage pressure in the pipeline,” Torsten Slok, chief international economist at Deutsche Bank Securities (DB), wrote in a client note yesterday.

The big question is how the Federal Reserve will respond. It’s way too soon for the Fed to start tightening interest rates to stave off inflation, because there’s still lots of slack in the labor market and no sign that wage growth is leaking into higher inflation. Another question is whether the high level of long-term unemployment will keep a lid on wage growth. Employers won’t need to raise wages to attract the workers they need if they can rehire the long-term unemployed. But if they decide the long-term unemployed don’t meet their needs—in essence, that many of them are unemployable—then labor markets will tighten and wage pressures will begin to rise rather soon. That would be bad for the economy and terrible for the jobless.

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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