Salary Increase Has Helped Maintain Us Economic Expansion.

The economic expansion of the United States, the longest in history, turns 128 months and continues. Of course, it has not been easy to achieve this longevity.

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The expansion had to survive global recessions in the manufacturing sector in 2016 and 2019, trade conflicts and an episode of restrictive monetary policy of the Federal Reserve. The recovery was maintained last year, with everything and the slowdown in business investment and the contraction of investment in residential construction registration, thanks to the fact that personal consumption increased steadily. The durability of spending is testimony to one of the most unusual characteristics of this expansion: faster growth in the wages of workers in the lower fragment of the income distribution than in those of higher-income workers. Apparently, that fortune smiles to lower-income workers may have effects that were not really appreciated in the sustainability of periods of economic boom

Since the beginning of the millennium, instead of supply, demand has been the most difficult obstacle to overcome for economic growth. The lack of movements in inflation suggests that the economy's production capacity has only prevented spending in a few extraordinary cases in this period. Annual inflation has been only 1.8 percent on average, a reduction from the nearly 3.5 percent recorded during the previous twenty years and to 4.5 percent in the previous two decades. Economists have proposed several explanations for the chronic weakness of demand, from the aging of the workforce to a loss of interest in investment due to the slowdown register in technological advances. It is also believed that inequality played an important role in this regard.

Maintaining the United States Economy

Households with higher incomes are much more likely to save an additional dollar than households with lower incomes. Therefore, because it makes the wealthy receive a larger portion of income, increasing inequality tends to deplete the economy of demand. Between 1979 and 2018, real wages for workers classified in the 90th percentile of the income distribution increased by 34 percent, according to a recent analysis by Jay Shambaugh and Ryan Nunn, experts at the Brookings Institute. In contrast, the salaries of 10th percentile workers increased less than five percent, and the salaries of 5th percentile workers fell. This affected the expense. In an analysis published in 2012, labor economist Alan Krueger calculated that, had it not been for the increase in inequality between 1979 and 2007, consumption in the US economy would have been five percent higher. That additional consumption would have represented a stimulus of around 700,000 million dollars more to the current economy.

Economy Expansion

Since more income generated in the economy went to saving households, the Federal Reserve was more complicated to convince them to spend enough to avoid lowering inflation and generating fewer jobs. The average level of the interest rate corresponding to the main policy of the Federal Reserve, located just below ten percent in the 1980s, fell to less than one percent in the 2010s. After a while, the sector of the population most willing to spend improved their purchasing power, although it happened thanks to the obtaining of credits and not to the increase in wages. The debt of US households, expressed as a proportion of gross domestic product, almost doubled between 1979 and 2007. It jumped almost thirty percentage points only between 2000 and 2007 when many savers began to spend thanks to low-interest rates, prohibitive housing prices and the disaster of the standards applied to mortgage loans. If so many loans had not been granted, perhaps the US economy would have moved on in a state of permanent lethargy.

The recent one looks very different from the pattern established within the 1990s and 2000s. Between 2014 and 2018, wages in low-wage industries increased almost at the same rate as in other sectors of the economy, according to a recent analysis by economists of the labor market research group Indeed Hiring Lab. In addition, for two years the salary growth at the lower level has been substantially faster than in industries with better salaries. Increasing the salary of workers with lower incomes has put more cash in the hands of those who are more willing to spend, which has reinforced consumption and helped the economy overcome a period of less activity.

At the same time, household debt, which collapsed immediately after the global financial crisis, has been falling for some years as a proportion of GDP. In turn, the reduction in debt has contributed to the expansion being more lasting, as it is less likely to conclude due to a change in credit conditions or an increase in the cost of loans if interest rates increase, such as those imposed by the Federal Reserve between 2015 and 2018.

More for Your Money

The rising wages reflect a gradual contraction experienced in the labor market over the past decade.

As we went to a recovery period, the unemployment rate was falling to its lowest level in fifty years, so companies were forced to look harder for the workers they needed. On top of that, as employment growth continues, there is a greater proportion of working people who participate in the workforce. Companies that offer more generous sign in salaries have attracted people from the labor market to foreign Employees margin.

However, much of the unusually rapid growth in the salary of low-income workers may be due to increases in the minimum wage level. Although the federal minimum wage has remained at $ 7.25 per hour for more than a decade, many state and local governments have approved in recent years increases that have driven salaries well above that level.

Consequently, Ernie Tedeschi, an economist at the Evercore ISI research company, discovered in 2019 that the average person who earned the minimum wage actually earned almost $ 12 an hour. This effective salary, after adjustments due to inflation sign up, keeps experienced an increase of almost a third in the last ten years.

Of course, we cannot assume that the upward trend in the salary of workers with lower incomes will continue. For now, companies are still willing to hire more employees. Political enthusiasm for raising minimum wages has also continued to grow. Most Democratic presidential candidates promote a federal minimum wage of at least fifteen dollars per hour.

However, the forces that favor the increase in inequality are the most persistent. An analysis published in December by the Congressional Budget Office predicts that by 2021 the proportion of pre-tax income received by one percent of the population with the highest income will have already begun to increase again. Amazingly, and partly due to the fiscal portal reforms of President Donald Trump, salary growth is expected, after considering taxes and transfers. However, the policy may change. Similarly, the expectations of a firm and resilient expansion must prove to be very persuasive.

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