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Wage Dynamics Revisited: The American Worker - April 17, 2018

Back on March 13th we wrote about the Philips Curve Conundrum that was dogging economists as they attempt to understand what exactly is holding wage growth down as unemployment hits levels last seen in the pre-GFC 2000s.

The following week’s TFTD took a stab at answering that question, focusing on the looming specter of automation and the Trump-tweeted issue of free trade. The studies highlighted that week painted a dire picture for wages, but the outlook for the American Worker may not be quite so bad, especially if the recent Beige Book is to be believed. Last month’s Beige Book, reporting on economic conditions across all 12 Fed Districts, includes the word “shortage” no less than 21 times, with the clear majority of these occurrences referencing labor or workers, with drivers and truckers being singled out in particular. Though the dynamics vary across districts, both the St. Louis and New York Feds explicitly mention drug tests as a contributing cause for tight labor markets. This is not a new phenomenon, and has been running parallel with the opioid epidemic, as highlighted in the 2017 article, ‘Economy Needs Workers, but Drug Tests Take a Toll’. As the NYT points out, not only are there issues related to opioid use and abuse, but there are also issues for manufacturers looking for drug-free employees as states are increasingly relaxing rules on marijuana.

With increased demand for workers, it would seem logical that the labor market would adjust, shifting workers both geographically and across industries. Unfortunately, it appears that while that’s well and good in theory, it isn’t quite that easy in practice. As Axios describes in ‘The Great Stagnation: Americans stopped moving to find work’:

“Their relative immobility stunts a historical trend in which lower-skill American workers have climbed the income ladder.”

As far as moving across industries, the emphasis tends to be on retraining; specifically teaching workers the skills they will need for advanced industries. However, as discussed in ‘The False Promises of Worker Retraining’, from the Atlantic:

“Despite assurances from policymakers that retraining is the key to success, such programs have consistently failed to equip workers with the preparation they need to secure jobs.”

So with workers being unable to move, and retraining programs failing to efficiently transition employees into new industries, what is going to fill the gap? If the WSJ is correct in their analysis, it may well be your local high schooler. ‘Facing Historic Labor Shortages, Companies Snap Up Teenagers’ highlights how technically skilled teenagers may be picking up some of the skill-based load, so much so that some states are looking at altering their labor laws. As a labor economist interviewed for the article said of high schoolers, they “often have better computer skills. They are not all your typical low-skilled worker.”