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Americans still waiting for a bigger raise

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Americans still waiting for a bigger raise

According to the government, average hourly earnings increased by 2.4 percent over the previous year. This represents a decrease from the 2.9 percent increase reported in September and it is still well below the 3 percent to 3.5 percent range that many economists jobs consider being normal in a truly healthy economy.

Wages increased by more than 3% year on year for the first time in April 2009, just as the economy was emerging from the depths of the global banking crisis that fueled the Great Recession. But it's a little perplexing. Why have wages remained stagnant even though many other indicators of the job market and the broader economy appear to be in good shape? The unemployment rate continues to fall. The housing market is thriving. And the stock market jobs continue to rise.

Western Asset portfolio manager John Bellows believes there are several factors at work. According to Bellows, the effects of globalization increased automation, and an increase in the number of people working part-time (the so-called gig economy) are keeping wages in check.

He goes on to say that the Federal Reserve will not be able to solve the problem. The US economy has already reached what most people would consider "full employment." And the Fed is now raising interest rates, which will almost certainly continue if Jerome Powell, President Trump's nominee to replace Janet Yellen as Fed chair early next year, is confirmed by the Senate.

That's why Bellows and others think lawmakers and President Trump need to take action to improve American wages. "I'm not sure how much the Fed can do to increase wages," Bellows said. "But we shouldn't be defeatist about it. It's now just mostly up to Congress."

https://youtu.be/5hpkIDIL3Tw

According to Erik Weisman, chief economist at MFS, if tax reform passes and lower corporate tax rates are implemented, large multinational U.S. corporations may bring back the cash that has been sitting overseas and use it to raise wages and hire more workers.

"Lower taxes could incentivize companies to keep profits onshore and invest more domestically," Weisman said. "If multinationals felt they had better visibility for U.S. demand, then they would have a greater need for building out capacity, and that might necessitate higher wages."

Take, for example, Apple (AAPL). On Thursday, Apple jobs revealed that it has nearly $269 billion in cash. During the company's earnings call, CFO Luca Maestri stated that $252 billion, or 94 percent of it, is stashed overseas. However, Weisman admitted that there is a bit of a chicken-and-egg problem that lower taxes may not solve. Global growth must continue to recover in order for companies to feel more confident and do more with their cash than simply hoard it.

Many companies may also choose to reward shareholders with more significant stock buybacks and dividend increases instead of investing in labor. "The real issue for companies is that we've still had relatively anemic growth. That makes it difficult to increase overhead," Schreiber said, adding that he is also hoping "corporate tax cuts could turbocharge the economy and wage growth."

However, there are some encouraging signs. According to Matt Toms, a chief investment officer of fixed income at Voya Investment Management, it is encouraging to see that more states and cities and significant American employers such as Walmart (WMT) and McDonald's are raising their minimum wages (MCD).

However, the average hourly workweek has remained relatively flat in recent months, hovering around 34.4 hours. According to Toms, some employers may be limiting worker hours in response to wage increases to keep labor costs in check. "We'd be more encouraged if there was even more wage growth. It's needed at this part of the economic cycle," Toms said.

Source: CNN Business

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