We’re Not Job Hopping Enough, That’s A Problem For Fed Chair Powell

from Forbes

Janet Yellen, the former Chair of the Federal Reserve of the United States and a leading labor economist, had a rule of thumb: to achieve a healthy labor market, U.S. nominal wages needed to grow 3 – 4%.  Her successor, Jerome Powell, faces a challenge; despite a U.S. unemployment rate close to multi-decade lows, nominal wage improvements have lagged.

This isn’t just a U.S. phenomenon. Research from the Organization for Economic Co-operation and Development (“OECD”) shows that since 2007, in G-7 countries, real wages increased 0.5% annually, compared to 1.3% over the previous decade. Since real-wages adjust for inflation, they tend to be a decent indicator of improving living standards. On that basis, the post-crisis recovery has been weak.

To continue to hike rates into next year, Powell needs to figure out what’s containing wages and whether that will limit economy growth.

More here.

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6 Responses to We’re Not Job Hopping Enough, That’s A Problem For Fed Chair Powell

  1. Henry Steck September 21, 2018 at 8:41 pm #

    The tenures of Yellen and Powell are extremely interesting. The last few years have marked the collision of numerous, unprecedented events for the Fed. Interest rates are historically low, and have been so for a long time as the US navigates the slowest economic recovery we have seen since WWII. Even now as the fed looks to slowly unwind its balance sheet (securities it absorbed during the 2008 crisis), and rates move up from 0, the 10 year treasury still yields below 3%. Meanwhile the president is placing pressure on the fed via twitter to keep rates low (this would be positive for businesses, especially in capital intensive industries, due to lower financing costs), another unprecedented event. Not only were these comments made over twitter, but never before has a US president commented on Fed policy. It is supposed to be separate. Jerome Powell, current Fed chair, has fired back indirectly, calling to light the situation of the economy overheating that keeping rates “too low for too long” would likely cause.

    This article calls to light one of the most interesting numbers the fed is considering. The fed’s two mandates deal with inflation and unemployment. Although inflation has been, perhaps eerily, non-intrusive (CPI at 2.8% and core inflation at closer to 2.4%), unemployment stands at 3.9%, its lowest level since the 1960s. This is a number that is low enough for some economists to label “full employment” a word which has been a goal in textbooks rather than a reality in the past. At the same time this Forbes article brings to light excellent points. Wages are not growing fast enough, and we are not sure why. The Fed is expected to make two or so rate hikes this year and up to four in 2019, but to do so we need wages to be on the rise at normal levels (+1.5% YoY).

    The author brings to light the higher wages “job jumpers” are obtaining, comparing such trends to England and Japan, where we can also see that Job Jumpers are paid more than “Stayers”. Hopefully, as the article points out, the market will find equilibrium in Stayers realizing they need to respond to growing competitiveness in the labor market. Stronger worker voices on the topic of pay and brave choices to switch jobs maybe what we need to spur meaningful wage gains and robust inflation.

  2. Jordan H September 24, 2018 at 3:48 pm #

    When determining what drives our economy most people think that GDP and inflation are the two biggest factors. Which in most cases they are, however wages also factor into the equation. Our unemployment rate has fallen over the last couple of years, and yet our wages have stayed virtually the same, with very little growth. Throughout the global economy wage growth has slowed down over the last decade, in response to the recession in 2008. For a lot of people it seems that maintaining a stable income has taken priority over earning a higher salary. Whereas, the people who are bouncing from company to company have been the ones experiencing the increases in wages.
    On the upside, individuals leaving their jobs voluntarily has risen to a 17 year high according to the Federal Reserve Bank of Atlanta. Which means more and more people are leaving their jobs to try and find a higher paying job. There is no better time to try and get that pay raise you feel you deserve, with unemployment so low there are tons of jobs available. And for the people that are choosing to stay with their current employer, their wages may increase as well due to a more competitive job market.
    Growth in wages is in direct correlation to GDP and inflation and as a result, if GDP and inflation go up while wages remain the same consumers face a real problem. If wages lag behind in growth then consumers pay higher prices for goods and services from inflation, while making the same amount of money. The Federal Reserve Bank of Atlanta reported that fifteen percent of people who stayed at their job saw no wage increase over the last year. Wages need to move accordingly with GDP and inflation otherwise the imbalance of wealth can have a global effect on the economy.

  3. KCon September 26, 2018 at 9:59 pm #

    Powell is faced with the problem of growing the economy. During the years of 1995 to 2004 the economy saw a large growth due to trends in innovations such as internet adoption and retail revolution. These activities helped to increase productivity which then increased the economy largely. However, it was found that this huge increase due to productivity was not the norm and that the trends prior to 1995 were in fact customary. Powell then learned that people not moving from one job to another was the culprit. This can be seen since the 2008 financial crisis in that workers have been hesitant to leave their current employer. I cannot say that this is at all surprising. People are making choices between staying with an employer that they know rather than take the chance of uprooting what they feel they can count on to go on to the unknown.

    I would suspect at this moment we need a big boom again similar to that of the late nineties to jumpstart the economy. Innovations such as revenue generated through the use of social media seems to be a good place to start however it does not seem to be enough at this point. I am not sure that job hoppers is the best way to get this done. People are just too afraid!

  4. Paul Lee September 28, 2018 at 4:16 pm #

    Many people would think that what makes the United State’s economy would be GDP, debt, inflation, production, trade, and unemployment. However, to my surprise, nominal wage improvements also contribute to America’s economy. This article by Randy Brown gave me very deep insight into our job market and economy. Reading this article, it is difficult to grasp that today’s America is producing at the highest level. What is more unbelievable is that it seems that we cannot outrun or outpace our current production level. Nonetheless, it did not surprise to know that America is producing at the highest level. Our country’s innovative technology and how companies are growing practically every day. The upside to production being so high, America’s unemployment is at the lowest it has been seen in decades. It was stated that in August 2018, the unemployment rate is 3.9 percent.
    Once I finished reading this article, I started to talk to many peers, professors and family members about job switching. Many of them agreed that if one were to leave their position voluntarily and simply pick up another position. That person will be able to be paid higher than his or her last job and able to obtain benefits that were unavailable at the last job. Many people will voluntarily move to seek something new, challenge and obviously have a higher pay rate then the last position. I would like to see progressively American citizens freely shift from one job to another for not only the variety of benefits for the person but would improve the nominal wage. I can understand why many American employees will not intentionally switch job positions because of stability, knowing the fact that a one has the job and it is working well for them. If one were to switch jobs, what is the guarantee that he or she will be able to another job that is superior than the last?
    However, there is more negative aspects if one were to simply stay at the job and not switch. First off, the article has data from the Federal Reserve Bank of Atlanta where it shows employees who switch job tend to receive a 3.8% wage bump, but employees who stay at the job tend to only have 2.9% increase. It was even stated that 15% of job stayers saw no increase in wage over the last year. The reason for that, when employees voluntarily switch they are switching for a better opportunity, challenges and career growth than their last job. These people can learn and chase after a new challenging job. It is even possible for other companies to ask these tenacious employees personally to join the company because of how skilled and tremendous they are. I am happy reading and learning from this article and especially Mr. Powell’s words, I can now apply this to when I apply to jobs after Seton Hall University. I thought it was ideal to continuously stay at one job and receive the yearly increase in pay from the company. Moreover, I would rather challenge myself to learn new skills and earn a better wage by job switching. I highly suggest a variety of college students across the country to take time to read this article, it will help shape the way one thinks after college.

  5. Marco V September 28, 2018 at 8:09 pm #

    This article highlights some great points which Jerome Powell, Fed Chairman, will face during his term. Wages have been stagnant through the years with inflation causing prices for products to continue to rise. The current inflation is at a 2.9% as of August 2018 which projects a stable and healthy economy. With the recent news about the Feds hiking up interest rates by a quarter of a point, this number will definitely be impacted. Powell will continue to raise the interest rate until the rate hits a neutral rate. We may be living under another bubble waiting to pop and the Feds need to increase this rate in order for them to decrease it when this bubble pops. The Feds will need to stimulate the economy once again at that point. At the current rate, the economy should start to slow down and we may see the 3.9% of unemployment rate start to rise. The inflation rate has been artificially steady since 2010.
    As for economic growth, the average calculated rate per year has been 2.16% from 2010-2017. Signaling a steady growing economy with the job market being high. As the article stated, “As job switching grows, it eventually impacts the wages of those that stay as companies realize they need to respond to growing competitiveness in the job market.” Companies such as Wal-Mart, are set to steadily raise wages to a minimum of $15 an hour in order to stay competitive. With the unemployment rate low, companies will need to increase their wages and benefits in order to attract potential employees. If the unemployment rate drops a few points lower, it may be difficult for companies to hire since most people may already have a job. This may bump up wages and thus increase the current real wage rate of 0.5%.

  6. Domenico Cirielli February 1, 2019 at 8:40 pm #

    The concept of job-hopping is something I always viewed in a negative manner. Growing up in a household where much emphasis was placed on stability and following through with commitments, I have a mindset that applies those same values when I think of employment. I think the first real run in with this concept happened a couple of years ago. My father had been with his new employer for about a year and a half and had always mentioned switching jobs but never fell through with it. I proceeded to ask him why he did not pursue finding another job, and he said that’s not what employers want to see. They do not want to see that you have short term experience at a variety of places, but rather long term, stable employment at few firms.

    Right now, the US economy is reaching all-time lows for unemployment. I would have assumed that that would be a good thing on its own – however, another conundrum has arisen. Our wages, relative to our productivity and our high levels of innovation, have remained relatively stagnant. The Forbes article associated with this post suggests this as a result of individuals not “job hopping,” or switching jobs, enough. The reason I chose to comment on this is because it seems counter intuitive. One would think that the longer an individual remains at a company, the more likely it is that his or her wages increase over the course of his or her career respective companies. However, during 2017 in the United States, 15% of “job stayers” saw no increase in their pay from the previous year. This statistic was astonishing to me and helped me formulate a question I needed answering to: if job-hopping has the ability to help better one’s income, why do people, like my father, not practice it? What is it that employers really think of those that job hop, and does that perception align with how the world works today?

    According to HR Dive, job-hopping used to be an indicator of one’s instability, and employers did not regard that very highly. However, in an economy of rapid development and innovation, short term employment opportunities are now very common, given that individuals can use digital platforms to narrow down job openings and the fact that we have a gig economy, which operates on a per job basis. With that being said, employers cannot take job-hopping out of context. We live in a new world – both socially and professionally. Some things that used to be attractive to older generations, like stability or job security, are not shared by newer generations, such as the millennials, who have grown accustomed to a world of constant change their entire lives.

    With this is mind, it is essential that all employers get rid of the foolish stigma behind job hopping. As HR Dive puts it, “If [employers’] expectations don’t change, it may be difficult to find the skills needed to meet business needs.”

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