Workers Have the Upper Hand on Wages — for Now

(Bloomberg Opinion) -- The U.S. labor market is increasingly mysterious. Economists are split on whether this an exceptionally good time to get hired or not. The data just confuses the issue more.

This was highlighted by Wednesday's U.S. job openings data, which showed available positions surging to a record 10.9 million in July. If there are so many potential opportunities to work, it's unclear why millions of former workers remain out of the labor market.

Part of the answer is a collective existential crisis. It turns out you can't just stop and restart an economy with nothing changing. People adapt to their realities, and the result is a mass rethinking about their relationship to work — where and how they want to live, what they want to do and how much money they need to make.

Many workers are retiring earlier, with a recent New York Fed survey showing that the fewest people plan to keep working past the age of 62 in data going back to 2014. Others, particularly mothers, want to stay home with young children for a larger chunk of time, Pew Research Center surveys show.

All this sounds great, at least for employees, because companies need workers and are being compelled to pay up. But there's a catch: Workers are on borrowed time. They will most likely lose the upper hand in the not-so-distant future, with companies either replacing open positions with new technologies or reducing their ambitions and sales.

While it seems as if companies have tons of open positions, “will these job openings get filled before the jobs themselves disappear?” Peter Tchir of Academy Securities wrote in a report on Monday. “I'm increasingly worried that more and more entry level jobs will be replaced by technology in the coming weeks and months.”

Tchir has a valid point. Many restaurants have closed temporarily because of a shortage of workers. U.S. manufacturers have seen slower growth as they struggle to keep factories staffed. Sales are slowing as retailers rush to keep their shelves stocked. In addition, Tchir noted that he's “coming across more anecdotal evidence that ‘geographic' dislocation may be playing a role as there is a mismatch between where jobs are and where workers are and an equilibrium has not been reached.” This all indicates a potential end to this virtuous cycle for workers without a further boost to growth or productivity.

For now, the Federal Reserve is willing to be more patient with allowing this dynamic to continue without starting to remove monetary stimulus in part because of how the gains have been distributed. Wages are increasing at about the fastest pace for lower-paid positions relative to higher-paid ones since the late 1990s, based on the Atlanta Fed Wage Tracker. And this is likely to continue, especially if employees demand more as they face significantly higher prices in their day-to-day lives.

American households, meanwhile, have a record amount of savings in the bank to help keep them afloat, thanks to more than $800 billion of stimulus checks sent out during the pandemic. This helps them be pickier about the jobs they accept, at least for now.

As my Bloomberg Opinion colleague Conor Sen wrote earlier this month, “Workers have far more options than they've had in a long time, which is giving them freedom to act in a way they might not have been able to in the past.”

All that said, wages are still growing at a slower pace than in 2007, even with the millions of reported job openings. While salaries have room to rise a bit more as people settle into their new post-pandemic realities, the next challenge lies ahead.

Workers who want to rethink their lives arguably have the best opportunity to do so in many years, but that window will close eventually. The clock is ticking.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lisa Abramowicz is a co-host of "Bloomberg Surveillance" on Bloomberg TV.

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