Thursday, April 7, 2011

Low-Wage America?

The Lehmann Letter (SM)

Last week this letter reported a solid improvement in March job gains, but also warned that those improvements must be replicated month after month for several years to restore full employment.

That wait will have consequences:

http://www.nytimes.com/2011/04/01/business/economy/01jobs.html?_r=1&scp=2&sq=motoko%20rich&st=cse

http://online.wsj.com/article/SB10001424052748704530204576237081117462892.html?KEYWORDS=sudeep+reddy

These New York Times and Wall Street Journal articles point out that high unemployment generates stagnant and even falling wages and salaries. That decline may be necessary to clear the labor market and restore full employment, but it does have consequences.

As they exhaust their unemployment insurance, many of the unemployed must take pay cuts in order to return to their old line of work. Others are forced to abandon careers and accept work in any job they can get, usually requiring less skill and offering reduced remuneration.

The upshot: Households with impaired purchasing power. These consumers will not wish to or be able to borrow and spend as they once did. And, as previous issues of this letter have pointed out, increased borrowing and spending are vital for a strong and sustained expansion.

© 2011 Michael B. Lehmann

1 comment:

zhonglin said...

U.S. is being very hard on recovery from the Great Recession, but from the beginning; the main problem has been jobs. We have more than 10% unemployment in California and roughly 9.2% unemployment in U.S, so the situation is tough. Falling wages and salaries, high unemployment, depressed private borrowing and spending is the inevitable outcome of recession and necessary process of recovery. The truth is, U.S. may need several years to restore full employment, and the best thing is to reduce the time instead of avoiding it. Low interest rate, low mortgage rate, more government spending ……. will stimulate the economy, so fight with bad economy and hoping for the best. :)