Getting off the sidelines: As we noted last year, companies need:
To find ways -- again with higher pay and the like -- to bring those who have left the labor force back into the fold. This latter option may be the more intriguing: The labor force participation rate of 62.7 percent of working-age Americans is at lows not seen since the late 1970s, but for the past couple of years has shown signs of bottoming.
That seems to be happening now. The most recent BLS report saw the unemployment rate rise to 3.9 percent from 3.7 percent -- but not because people were being fired. Instead, about 260,000 people, probably a good number of whom had abandoned the job market, entered the labor pool. And the labor force participation rate of 63.1 matches the highest rate in the past five years, as the chart below shows. Higher salaries probably are the main reason for this.
Finally, let me beat any unreformed supply-siders to the punch on one final topic: There is little or no evidence that the Tax Cuts and Jobs Act of 2017 had much of an impact on wages -- and certainly workers haven't seen the absurd $4,000 per employee windfall President Donald Trump's economic advisers and political allies made before the tax cut was passed by Congress. As my Bloomberg Opinion colleague Noah Smith observed, there are no signs that tax cuts are trickling down to workers’ real wages. This isn't a surprise, since the tax cut was geared to give companies and the wealthy the most of the breaks.
The economic benefits of increased wages are well understood: real estate, travel, durable goods, retail sales will likely rise, leading to commensurately higher corporate profits. We might even see increased savings for retirement and paying down debt. All of this adds up to higher living standards for Americans.
And yet, there are some negatives. Labor is a corporate expense, and rising wages might put pressure on profits in some industries. Perhaps the biggest impact is on inflation. That's something the Federal Reserve must grapple with. Although there are few signs of a serious uptick in inflation, the Fed is committed to making sure it doesn't rise faster than it would like. Those higher rates will raise borrowing costs, thus creating a potential headwind for the stock market. As we've seen in the past few weeks amid wild swings in the major market indexes, traders and investors are trying to anticipate how much of drag higher rates will pose.In the meantime, everyone should be pleased that workers are finally getting some decent raises.
This column was provided by Bloomberg News.