There is a lot of conversation on the topic of employment and how it relates to inflation – and what The Fed decides to do. The jobs reports come out on the first Friday of every month, showing the previous month’s numbers.
The Wednesday before that, we always get the report from ADP: a massive payroll company that releases their payroll numbers. This morning, they came in higher than expected. But they also had a bit of a surprise in wage increases.
Wage Increases by Age Groups
The ADP report shows wage increases in two categories: job changers and job stayers. The people who changed employment had an unexpectedly high increase. This is an inflationary pull – bonds did not like it, and we’re seeing that they are starting to come back today (which is good news for interest rates).
One important point is that they break down the numbers showing the wage increases by age group. One group in the report is employees between the ages of 16 and 24. This category of workers saw a massive increase of 11% in wages year over year.
How Minimum Wages are Affecting Inflation
The interesting thing that comes to my mind: I wonder if it has anything to do with all the increases in minimum wage requirements. Here in California, the minimum wage is $15/hour. The argument is that minimum wage should be a “living wage” – a person should be able to buy a house at this income… which isn’t going to happen in the current real estate market.
These entry-level jobs are never meant to be income for homeowners. It’s a topic that we could look at in many ways. Minimum wage increases are a double-edged sword. There is plenty of research out there that shows how it’s good for the employees. I have a different opinion, partly because of what we see in these reports.
When you give people more money, yes it will help them today (especially in inflationary times). However, it also pumps more money into the economy, which can increase inflation. This wage inflation is part of the calculation for the overall inflation measurements.
So, it’s a good idea to keep an eye on these things. If we see a big jump in these numbers, then it could have an undeniable impact on inflation and where we are going in the coming months and years.