Alan's Alert 7-22-2021

 

It’s Thursday, which means employment data was released this morning.  Initial claims came in up 51k to a total of 419k.  Continuing claims came in at 3,236k.  This is down 29k from the prior week.  However, my eyes were fixed on the pandemic relief numbers.

 

Over 1.1M people left the pandemic assistance this past week!  This is great news but we still have a long way to go as over 15M people are still using it.  Here’s what the graph of 1.1M people leaving pandemic assistance looks like:

Now, initial claims came in up but I still believe we are trending in the right direction. 

The financial news media was shocked at the rise in initial claims.  The consensus was going to be an 18k claim drop.  So, when it came in up 51k, it provoked a wild ride in the S&P500 today.    

 

 

And thanks to Goldman Sachs, we have this little graph:

It was, and still is, obvious to those with the most basic level of economic common sense that paying people extra unemployment to stay home will encourage them to…. stay home!  It continues to be a terrible policy to drag these bonus unemployment benefits out to September.  The states that continue to do so are only hurting their own economies and small businesses. 

Joe Biden was at a townhall meeting in Cincinnati last night.  He told the audience that workers are seeking better wages and working conditions, and those businesses desperate for workers should simply offer higher wages.  He called rising wages a “feature” of his economic plan.

What happens when the bonus unemployment runs out?  What happens when these millions of workers flood back into the labor market?  Will Joe’s “feature” of rising wages run out of steam?

I put the question of downward adjustments to wage rates to professor Don Boudreaux, who runs the blog Café Hayek.  Don Boudreaux is a professor of economics at George Mason University.  He writes a great blog that is a must follow.  I asked professor Boudreaux what would happen to wages once these workers came back to the labor market.  Would wages decrease?  His answer was spot on:

“I'm quite sure that, as the supply of low-end labor rises (with the end of the leisure subsidies) (1) workers who continue to be worth their current wages will be paid those wages, (2) many newly hired workers will be paid wages lower than are being offered now, and (3) as always, workers who cannot produce enough hourly output to justify being paid even as little as the minimum wage will remain unemployed.

 

Many workers hired during the labor 'shortage' might well find that they have to take pay cuts as more workers start to compete for jobs. (Most of these pay cuts will come in the form of taking new jobs at lower wages.)”

 

 

Smart low-wage workers should take advantage of this opportunity.  Unfortunately, many find it too easy to do nothing.  Wake me up when September ends.