I have seen wages rise significantly in my high skilled colleagues who move from better paying opportunities to the next with fortune 500 corporations fighting over scarce talent, the only thing holding wages down have been the entry level and middle class job categories. Once the minimum wage is increased this puts upward pressure on wages in the next tier of salaries, as increased responsibilities necessitate higher wages than entry level, and so on up the wage scale. The analogy is the housing market where an increase in first time buyers into the market puts upward pressure on the housing market raising prices on the next tier as more home owners are able to move up to the next tier, thus reinforcing prices in an upward slope.
I think raising the minimum wage is good for the economy in the long run in this instance, but there is definitely going to be some growing pains in terms of higher inflation, and a tighter monetary policy going forward. I think the Fed can talk down the market all they want, but they are going to be raising rates a whole lot sooner than their current rhetoric would have Wall Street believe. Moreover, if they make the mistake of stalling rate increases to appease Wall Street they will fall significantly behind the inflation curve, and the pain in playing catchup in terms of monetary policy pain will be far worse for the street.
May Employment Report in 2 Weeks
Thus watch the May employment report which comes out in two weeks, I predict another very strong employment report that shows the trend in job creation is much stronger than most on the street realize. I am looking for a breakout number above 300k based upon how the initial jobless claims data is trending of late, and some of the employment components in the economic reports. There is little doubt that the job market is tightening, and wage pressures are sure to follow, real in your face inflation is just around the corner, and the Federal Reserve will be tightening monetary policy much sooner than most people realize in the financial community.
This article is brought to you courtesy of Dian L. Chu from EconMatters.