Even without a legislative mandate creating a higher federal minimum wage, labor shortages and increasing demand for workers are forcing employers to pay a juicier hourly rate.
“We didn’t pass a $15 minimum wage, but it’s almost like we did because effectively you’re not going to be able to hire people at much less than $15 an hour in the economy right now,” David Kelly, chief global strategist at J.P. Morgan Asset Management, told advisors yesterday at the Next Chapter—ReThinking Retirement virtual conference sponsored by Financial Advisor magazine.
Kelly and Philip Orlando, chief equity market strategist and senior vice president at Federated Hermes, spoke on the panel, “Economic and Market Outlook for the Post-Pandemic Environment," moderated by Financial Advisor magazine Editor-in-Chief Evan Simonoff.
“Back in March we were hearing that we would see several months of one million jobs a month added. We’ve seen 400,000 or 500,000 jobs. That’s very good. But some people say the hefty unemployment benefits are slowing it down. Some people think it’s not so easy to reconnect with employees in an economy that’s changed in a lot of ways. What’s your take on that?” Simonoff asked.
Unemployment benefits and other safety nets have given individuals and families the ability to sit out their job searches, at least until benefits run out, which has put additional pressure on employers to increase hourly wages and offer other incentives if they want to compete, Orlando said.
“The overly generous federal unemployment benefits of $300 a week on top of the $318 a week average federal benefit translates to an about $15.50 an hour unemployment benefit. There are tax considerations there that take you up to about $18 to $20 an hour. And then you’ve got other benefits like food stamps and healthcare,” Orlando said.
He said he was astounded by a Wall Street Journal report last week that found, with a family of four, if you have two adults who are drawing these benefits, on a tax-adjusted basis the total package equates to about $100,000 a year. “So if I’m afraid of Covid and I have childcare problems, why not stay home for a couple of months until all this shakes out?” Orlando asked.
Labor numbers will start to improve rapidly as 25 states wipe out unemployment benefits between mid-June and mid-July, with benefits running out in the rest of the country in September. “I think from September on into fourth quarter, the labor numbers will show the appropriate strength given the strength of the economy,” Orlando said.
In fact, both Wall Street veterans believe that unemployment numbers have been elevated partly because of a technical issue, namely the fact that seasonal employment in the hospitality and travel industry was hurt earlier in the year. As a result, both experts feel the Federal Reserve’s latest 5.8% jobless rate doesn’t reflect the reality of the current economic boom.
“Our view is that the labor market is very strong, but there are technical issues that we’ve got to reflect as creating some dislocation in the market right now. At the very top of my list is the seasonal adjustment,” Orlando said.