If you are at the helm of a business, you may fear that an enormous wave of pay hikes is just over the horizon, ready to swamp your company with higher costs as an improving labor market forces every employer to bid up the cost of good help.
Of course, if you are a working person, your fear may be just the opposite: that the wave is just a wind-blown ripple – or an illusion.
In other words, the issue of higher wages is an issue for everybody, one way or another. But which way will it go?
As the economy slides into its sixth year since the painful recession officially ended, the data is getting a hard look by experts, economists and bankers – as well as business owners.
Those who fear inflation see the balance of supply and demand tilting toward demand – your basic formula for higher costs. When something is in demand, the price does tend to go up.
And while hiring hasn’t been spectacular, it’s been pretty steady.
The more people with jobs, the shorter the supply of jobseekers. And the harder companies have to look to find good people – or keep the ones they have – the more pressure there will be for higher wages.
Heck, even with a summer increase in unemployment, Georgia still has a lower rate than year ago.
As the economy has seemingly grown healthier, some business groups have been urging the Federal Reserve to raise interest rates. That was a good idea back in the winter of 2008 when the nation was losing more than a half-million jobs each month, but now it can only stoke inflation.
Many have been warning of inflation since 2009, but still, there’s no question the labor market is in better shape now than it was then.
But is it hot enough to mean higher pay?
Yes, argues a paper for the Federal Reserve Bank of Dallas by Alan Armen, a research analyst. Unemployment will keep falling, hiring will keep increasing and acceleration of wages will kick in by mid-2015, he wrote.
That opinion gets a thumbs up from surveys by the National Federation of Independent Business which shows a jump in the percent of members who expect to see pay to go up.
Not so fast, responds the Atlanta Fed.
A trio of writers led by senior economist Mike Bryan said the Fed surveyed several hundred businesses this month and found 81 percent expect to be paying more for employees in the next 12 months, compared with 4 percent who expect to pay less.
But that was “a shade less than the proportion of firms that expected to increase compensation in May 2013,” they wrote.
And it depends on the size of the firm: the smaller the company, the more harshly it describes business conditions – and the less likely it is to expect pressure to raise wages, according to Bryan and his colleagues.
Millions of Americans are still searching for jobs. Millions of others have dropped out of the search but would like to work. And then there are all those people working part-time because they just can’t find full-time work.
Oh, one more thing, the Atlanta Fed Three add.
They track the National Federation of Independent Business survey about expectations. And sure enough, it lines up nicely with wage data starting in 1980. That is, when the NFIB said pay was going up, it sure enough did.
But in about 2010, there was a disconnect. NFIB companies kept expecting pay to go up. And, well, it hasn’t.
“One could interpret that observation in two very different ways,” the trio writes. “The first is that the growing gap between the NFIB survey data and actual wage growth suggests pressure on compensation that will soon break loose. Perhaps. But another interpretation is that the relationship between the NFIB survey and actual wage increases has broken down recently.”
Like the careful, bank-centric and evidence-dependent economists they are, they won’t flat-out make a prediction about a speed-up in pay hikes.
We are not brave enough, they modestly write. “But, if we were brave enough, we’d say our survey data indicate that such acceleration is unlikely.”
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