Wage Inflation?

May 11, 2021

Job Shortage Amidst a Red-Hot Economy – Wage Inflation?

 Payroll gains of this previous month were projected by many forecasters to be over a million, nonetheless, only 266,000 jobs were added (CBS News). However, the lack of job creation/filling has not necessarily been due to a lack of opportunity. March job openings rose 34% compared with January 2020, nonetheless, 4 million fewer people are in the labor force (as of March 2021). Many companies, particularly in the construction, manufacturing, and restaurant sectors, are desperately looking for workers (WSJ). The question is simple: Why aren’t people taking these jobs?

There are currently 16.1 million Americans receiving unemployment benefits (which will continue through the month of September) of an average of $618 a week, and 42% of these unemployed Americans are getting paid more by these benefits than they did at their previous jobs (WSJ). Although there are many advantages to providing financial aid to laid off workers during this time, why would we expect someone to work when they are being paid more not to?

The glaring shortage of workers has now led to an upward pressure on employees’ wages. In order for corporations to attract more personnel, especially while unemployment benefits are being given out (through September), they will need to increase the amount of pay and/or benefits the employee will receive. The 10-year yield continues to plumet, interest rates continue to be non-existent, money supply continues to rise, and goods and services cannot keep up. As Milton Friedman said, “Inflation is caused by too much money chasing after too few goods.” Prices and wages will progressively rise at greater rates as we continue to venture into the most uncertain economic times we have ever seen.


Cited Sources


Wall Street Journal - https://www.wsj.com/articles/millions-are-unemployed-why-cant-companies-find-workers-11620302440


CBS News - https://www.cbsnews.com/news/april-2021-jobs-numbers-266k/


U.S. Bureau of Labor Statistics - https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm


FRED - https://fred.stlouisfed.org/series/UNRATE