Thursday, December 01, 2011

Real wage growth starts with widespread jobs creation.

In a tight labor market employers have to compete to fill job vacancies, thats when wage growth happens. When workers can fairly vote to unionize a workplace, then more workers can bargain for better wages. When Union wages grow, non union wages grow.

movements in aggregate wages are driven primarily by changes in the earnings distributions of job-stayers and job-changers, rather than those of individuals who move in and out of part-time employment, unemployment, or the labor force. In fact, half of the variance of real median weekly earnings growth over our sample can be traced back to job-switchers. While individuals moving into full-time jobs from part-time employment, unemployment, or from out of the labor force pay a wage penalty, they are too small a share of the overall work force and the fluctuations in this penalty are not big enough to have a major impact on aggregate real wage growth volatility. aggregate real wage growth fluctuations is mostly due to periods of tight labor markets, like the second half the 1990’s in Figure 1, in which many persons change jobs in pursuit of higher pay.

From 1994 thru 2002 unemployment was below 6%, from 1996 to 2001 unemployment was below 5.4% and as low as 4% in 2000. As the San Francisco Federal Reserve Bank says, this is a "tight labor market", and the US saw wage growth of as much as 5%. From 1995 to 2000 US median household income grew from $46,408 to $53,164 according to the 2010 Census report. The bad news is that adjusted for inflation median household income in 1973 was $46,109 and in 2010 $49,445. And that increase was accomplished because of the wage growth seen thru women, today women make 77 cents on the dollar compared to men, and back the day- 66 cents.

A male working full time year round, had a median income of 47k in 2010, adjusted for inflation, 49k in 1973.

So in a nutshell widespread job creation will lead to real wage growth, passing the Employee Free Choice Act will lead to real wage growth thru greater worker participation in collective bargaining. Widespread job creation and wage growth mean more FICA, and are 2 of 3 reasons Social Security doesn't go broke according to the Social Security Trustees report low cost scenario.

So all we need to do is create 25 million jobs. Which really should not be that hard.

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