Episode 3: Will You Get a Raise This Year?

so we're all in one room. Okay. For those of you tuning in for the first time, Benchmark is a podcast about numbers, but much more about the ideas that drive the global economy. Told you in the least boring way possible. Be sure to check out our inaugural episode we released last week, the US economy Silent Menace about the slow down in productivity, and our bonus show on the market to malt in China that we released just

the other day. We are recording this on Wednesday, September six, which is the day before probably the most important Federal Reserve announcement in years? Dan, is that an exaggeration? I don't think it's an exaggeration. At least half the economists we've surveyed predict an interest rate increase that will be the first in almost a decade. Yeah, so they're saying we're predicting it at you know, the one plus economists that we've surveyed at Bloomberg are very evenly split on this,

with a slight lean toward the Fed not hiking interest rates. So, Toria, would you care to give us a prediction? Um, Because by the time our listeners here this podcast, we will all know whether the Fed did or didn't do it, right, So I think we're kind of well versed on why. It's a pretty close call. You know, the labor market has been getting better, but inflation is sort of not anywhere close to the Fed's target. Um. And you've got all this market up. All right, Tori, stop past there

is your answer my call. I think that they will not go all right? What about you? Then? Well, in the don't column, we have financial markets, which some have described as volatile recently. We've got the global economy. We've got inflation which is nowhere near their target, and inflation expectations which are drifting down, and a thing called the balance of risks. They say that data dependent, but that could also mean, what is the risk to the outlook

for the data? So what's your call, Tory, You've got something there in front of you. Your call first, Okay, for our listeners out there, my call is that the FED will go. So it's pretty close and we're thinking about this, like, how can we get a definitive answer? Um. I don't know if any of you are out there ever had a magic eight ball as kids, but I did, and it's how I solved all of my problems basically. So we ran out, made a target run yesterday after

work and got a magic eight ball. We're going to shake in and find out. Yeah, all right, let's do it. Will the FED raise interest rates? And it's September gathering? The answer is, oh, oh tell us. My sources say no. Wow. All right, well, you know we look forward to actually getting the answer to that. Onto today's Business run. Yeah yeah, yeah, it's pretty related. Yeah. Um, we're gonna be talking about something very related about paychecks, which also is one of

my favorite topics because I like getting paid. Um, we'll be talking about my paycheck and your paycheck and everyone's paycheck in America. What's been happening to it and what will happen to it over the next few years. For our listeners out there. Dan is a bazillion levels above me and Tori, so you might have some special insight into my specific paycheck. So let's just say I would absolutely love a raise. Yeah, this won't be awkward at all.

Dan is smiling, he's not comment he's not touching this white for the year end. Hopefully I will get a raise. Um, let's let's get to it. Tori set the stage for us here. What's been happening to paychecks in America? So I think just as ascinctly as possible, we can say paychecks don't look great right now. You know, we're in our seventh year of economic recovery and wages are stagnant.

They aren't really improving, especially at the rate that you would expect with a decent clip of payroll growth that we've been seeing, you know, with people getting jobs, with things just generally improving, with sectors of the economy coming back, would expect people's paychecks about back to and that's just not happening. So well, when you say they're not moving, I mean, are you really saying this that the numbers when they come out every month and every quarter are

saying zero zero, zero zero. What do you mean by that? Well, let me let me break down the numbers for you. So we look at and I would say most economists look at the average hourly earnings figures from the Labor Department. This comes out every month right right with the employment report. It's probably the most widely watched gauge that tells us that in August hourly earnings grew two point two percent

from the year before. So the average for the entire recovery, which started in June two thousand nine, is two percent. So we're right there with the average. There's been basically no pick up at all. And what normal is economists have indicated is somewhere around three to four percent the historical norm, right exactly. So we're not anywhere close where we used to be. That's what. Let me just pull you up on that one. I mean, the economy has been growing on average between two to three for that

period of time. So does the figure that you're describing really seen that out of whack? Now? Granted, you know, compared with the nineties or the early odds, it's certainly not up there, but the expansion is not up there with the nineties or the early odds either, So it was really that bad. Well, let me give you more data, and this is coming from the Census Bureaus Report on

Income and Poverty, which just came out this morning. Basically, what that told us is that median household income is still six point five percent lower than in two thousand and seven. So with GDP, if you just take the overall level of GDP, that number keeps going up and not enough. Right, the percent change may be different, but the level goes up. You would sort of expect income to do the same thing. Over time, our center a

living increases, but that hasn't really been the case. We're still sort of following our way out of this hole that was created during the recession, and things just aren't as good as people would like them. So this is not just a sort of a feeling perception thing you're saying. This is grounded in real data exactly, And I think it's probably one of the reasons that people have felt

like the recovery has been so lackbuster, pretty depressing stuff. So, you know, you said, this is a big mystery as to why this is happening. You know, the job markets doing pretty well now, but wages still aren't picking up. Give us a couple of theories as to why economists think this uh mystery exists. I mean, he said, used to be a reporter for the San Francisco FED. So the theory that's come out of that shop is I think one of the most intriguing, and I think you

know that. Yeah. So it's called the pent up wage deflation theory, and it means, you know, back in the recession, the economy got really bad, so what companies really wanted to do was cut the wages of their existing employees. But there's kind of this like psychological barrier among employers as to actually dropping people's wages. They think it's like

a big insult to actually cut someone's salary. So instead, what a lot of companies did was they kept it at zero um or a very small positive rate, and then instead waited and waited and waited and kept it at that very very low level until finally the economy caught up to the point where they can start um

accelerating people's races. And one theory is that that point just hasn't come yet, that that demand hasn't picked up enough to get there, right, So there's still maybe a decent amount of slack out there that perhaps isn't being picked up by the unemployment rate, which is pretty low. It's at five point one percent, within the range that

federal was there a policymakers consider full employment. But you know, we do have We've seen surveys when from the ft itself that show people are willing to work more hours at the same wage. They wouldn't even ask for a race. So that's a that's an example of slack. Maybe there are these people out there who are just willing to take jobs at whatever price they can get. Well, the

economy has been growing since two thousand and nine. That may surprise many people, but nevertheless that's a fact act if not now when well we're waiting, Dan, I'm waiting, I am waiting. I mean. One of the other theories out there is that, you know, if our listeners have listened to our very first episode, they will know that productivity growth in the US has been very low. So

that's right over the past few years. So you know, it could be that workers just don't quote unquote deserve a raise just because they haven't been adding as much value to the economy. And then there's also the theory that companies are substituting perks like unlimited vacation paid vacation Dan, please keep paid. Um, there's substituting those types of things for actual pay increases. So you know, people maybe getting these sorts of bonuses, but their actual salary may not

be going up, right. So basically the truth is everyone's pretty stumped on this one. You know, econ when one tells you that as a supply of workers goes down, the price they can command should go up, that's not happening. It's one of the many ways that real life unfortunately doesn't adhere to our tidy theories in the economy. But you know, we started this episode with a very big question, will you get a raised this year? Tor? What's the answer?

It's so disappointing. I would say the best answer is it depends And that's a frustrating answer for many people, but it really does. So one big thing that it depends on is your industry. And I think that this has been the case for wages wherever. It always depends on a specific job that you have. Exactly there's this thing called the Jolt survey, and that is Economics reporter shorthand for the Job Openings and Labor Turnover Survey produced by the Labor Department. Now this might sound like a

pretty obscure number. I mean, it sounds like something that happens when Magnus Outproducers sticks his fingers into the a pala socket. Tell us about this and why fed chair Yelling follows it so we can see, you know, how many people are quitting their jobs. We can see how many job openings there are. We can see what industries those openings are in, so we can see layoffs, other discharges. It's a it's a pretty important survey and it's one that fed chair Young follows closely. As you noted Dan.

By the way, how many does she follow? A lot? Yeah, she's got a whole dashboard, tons, fall suitcase of them. So we looked at this survey to get an idea of how many unemployed aid workers are competing for each job opening in an industry. The idea is that if you've got fewer people out there that are competing for jobs, you know, employers have fewer people to pull from. They're going to have to start bidding up wages so they can either poach people or they can attract the best

and brightest. So shall we dig in all right? So for the US, this ratio the number of unemployed people per opening is one point. For let's run through the industries. How do you get full tents of a person of these workers that are walking around the toulso does halfway? So looking at this is about the real world, not about numbers. But you're getting to the point getting and

getting there. So looking at the industries and there you know associated ratios will go in order from the smallest largest. So with the smallest ratio we have financial activities, it's point six, and then from there we have professional business services, education and health services, information, retail and wholesale trade, and leisure and hospitality. All of these industries have ratios that are smaller than the US is overall. So these are the good industries to be in, right, if you want

your wages to go up? Right, These industries are tighter than the overall US labor market, so there's going to be a little bit more competition in terms of employers and who they have to pick from and higher from. And then for those that have a little more slack, we have transportation and utilities, manufacturing and construction. So you is that these are all three of these are you know, really cyclical industries. They all got hurt pretty badly during

the recession and they're all still trying to recover. So there are you know, companies have more people to choose from, So people who are in those industries have poor prospects for getting a raise this year relative to the others. Yeah, we'll hold on a second. What about the US manufacturing renaissance some of us have heard about. How come manufacturing really doesn't face you strongly here? I don't know about that.

The manufacturing data has been pretty shaky lately. You know, the the US dollar has been appreciating and global growth hasn't been stellar either, So manufacturing and manufacturers in the US have been having a pretty hard time. So that

we have something to do with it as well. Our colleagues show moved this really interesting story back a couple of weeks ago, based on report from the staffing firm UM Robert half and that showed that white collar workers are probably going to get a very big bit pay boost next year. UM they looked at starting salaries and they found that the numbers should be the best in eight years or something like that. So that's pretty exciting.

If um, you have a professional job, you know, the best industry to be in right now is uh Surprise Surprise technology. So you know a lot of my friends in San Francisco will be very happy to hear this. For example, if you are a big data engineer, you could probably snag a starting pay of between a nine thousand and a half dollars to a hundred and eighty three thousand dollars, So that's a nine percent jump from

That's a lot of money. And also if you're you know, an app developer or like a security analyst or like a ux specialist, you know, those are really good jobs to be in. Two so once again a great time to be in tech and also a pretty good time to be in very specialized roles like that. Well, that's very encouraging for those folks. I wonder if we ought to take a step back and you know, ask ourselves

a different question. We've been asking why, why, why, why hasn't this up and why is this perception that it hasn't kicked in? Maybe we should be asking ourselves why not. Perhaps the answer lies in the absence of any real inflationary precious tour. You wrote about this just today. Yeah, I mean, I'm inclined to think that inflation provides a little bit of a silver lining here because inflation has

been really subdued for a lot of the recovery. So that means that, you know, paychecks aren't going up a ton um, but at least inflation isn't either, So it's not like your entire paycheck, your entire race, i should say, is being eaten up by inflation. But you're right, if there's if there's lack of inflation in the US economy right now, you know, employers aren't sitting there being like, gosh, prices are rising so much, my employers are or my employees are about to revolt if I don't give them

a race. So I don't have to. And in this story you published today, Cold Fed can thank Amazon Cuba a streak of inflation misses, you're actually posing the question of whether the technology that just praised as a potential raise bearer, if that's the word or the phrase to use, could it be working the other way as well, Aki, in terms of holding inflation down so some employers can site. Look, inflation is one one and a half percent, Why the

heck do you need a rise? Right exactly? And I think this is really important to the whole wages are not growing idea in the sense that for many people, especially coming out of the recovery, which is driven by a credit boom and bust, they're making their spending decisions on what their paycheck looks like. No, Americans haven't been taking out a ton of debt in the wake of the recession. It seems like they sort of learned their lesson. They got badly burned, and now they're working on paying

that debt down and acquiring new debt really slowly. So it's got huge implications for our economy because what they can spend is based on what they make, and if they're not making a lot more, they're probably not going to be able to spend a lot more, right right, right, And we should also, you know, note this other caveat that, although you know, when you look at the average or the media and people's wages haven't been growing that much, when you actually look at the very top percentiles, the

really rich people, their wages have been actually going up a lot. And when you look at the bottom percentiles, their wages have been, you know, sometimes going down exactly. So just for some context, I think this is good because it's it's nice to sort of get a figure. Well okay, well, so guys are talking about wages. How much does a family make them? So the census data out this morning, like we mentioned, said that the overall median household income was fifty three thousand, six hundred and

fifty seven dollars. So that wasn't a statistically different change from last year. Once you adjust for inflation, and you know there hasn't been a statistically significant change over the last three years. That's pretty depressing. Yeah, yeah, you know. We started this episode by asking will you see a raise this year? And Torrey and Dan, all you gave us was hedged answers. Come on, that's not entirely true.

I would say, you know, what we know from econ one on one, as you said, says yes, we should be getting raises soon, but it's just not happening, and it's not happening for the past six years. So well, I know the perfect solution to this, the magic eight. Yeah, okay, let's shake it. Will Americans get a raise this year? A big race, a big race statistically significant. Right yeah, right, all right? Oh god, what is it the most depressing magic eight ball of all time? The answer is very doubtful.

On that note, thanks so much for joining us again today and listening to the Bloomberg Bench our podcast. We will be back next week and until then, you can find us on the Bloomberg terminal as well as Bloomberg dot com. We are also on iTunes and pocket casts. And while you're there, please take a minute to subscribe, rate, and review so that more people can find us. You know, we've had some amazing feedback over the past weeks since

we launched, and we're really excited to be reaching more people. UM, so let us know what you thought of the show. Um. You can talk to us and follow us on Twitter at at Akio seven, at Tory Stillwell with one L in the middle, and at Dan Moss d C.