Last week, I discussed the things I got wrong in 2018. Today, I want to point out one that I got very right: rising wages.
Saying that higher wages were coming wasn't an especially popular viewpoint as recently as 2016 (see this and this). It was a little less radical to suggest that higher wages were on the way a year ago.
After two years of workers seeing modestly bigger paychecks, it looks like we are now in that part of the business cycle when steady and large gains show up. More evidence for this could be found in the jobs report from the Bureau of Labor Statistics on Friday. Workers had an average gain in hourly wages of 3.2 percent in December, well above the average of 2.4 percent during the past five years, as the chart below shows. More gains probably are on the way.
Why wages have been rising, and why the trend is likely to persist, isn't much of a mystery. Here are the primary reasons:
Minimum wage increases: In 2018, 18 states raised their minimum wages. In addition, 22 cities similarly raised wages.
This year, there will be even more regions with higher paychecks -- 19 states, plus 21 cities and counties, are raising pay floors. Some of these wage increases are the result of scheduled, incremental increases set by states in earlier years. A few states had ballot initiatives that voters approved to raise wages. And 17 states have their minimum wages indexed to inflation, meaning an annual increase will occur automatically following any year when the consumer price index (CPI) rises. Meanwhile, New York City was the first locale to set a minimum wage for Uber and Lyft drivers.
Competition for workers: Even without minimum-wage legislation, companies are aggressively competing for workers. To do so, they are raising pay for starting workers. This often leads to workers with more seniority seeing increases as well.
Costco raised its minimum to $14 an hour; Target went to $12 and Walmart to $11. Disney reached a deal with its unions for a $15 an hour minimum wage at Disneyland in California for this year, though that higher rate won’t reach Disney World Florida until 2021.
But it was Amazon that made headlines in October when it said it was raising its hourly minimum for all U.S. workers to $15. The move affected 250,000 employees, plus 100,000 seasonal holiday workers.
Job-openings ratio: In 2009, there were 6.6 job seekers for each opening. Today, there is less than one person looking for work for each opening, meaning there are more vacant positions than there are job seekers. The law of supply and demand states when a service is in limited supply -- in this case labor -- then the cost -- wages -- should rise.