For every new job hire, differences of opinion - The Buffalo News

Share this article

print logo

For every new job hire, differences of opinion

You just can’t make everyone happy.

Now that the jobs picture is starting to look more encouraging for households trying to make ends meet, you’d think analysts would be joyful about more people having more money in their pockets to spend. But that’s not the universal reaction.

As the unemployment rate has been shrinking to June’s 6.1 percent rate, some analysts have been wringing their hands about the potential negative implications for stocks and the economy.

They know that a lot of the record profits companies have enjoyed since the recession have resulted from slashing costs and keeping staffing levels and pay low. Now some analysts envision that trend changing.

With fewer people looking for work than any time since the recession, the concern is that companies will be forced to pay more to hire new workers and to hold on to existing employees tempted by greener pastures.

Ultimately, the argument is that the tighter labor market could pose two threats: inflation if companies widely raise prices on their products so they can pay their employees more, or disappointment over stocks if companies don’t raise prices enough to offset the higher costs related to paying employees more.

Many economists still see the opposite problem: deflation, rather than inflation, as millions of workers around the world continue to struggle to get jobs in a slow-growing economy.

“Today’s recovery remains deflationary thanks to low wage growth across the world and a major technological disruption that threatens to keep wage growth low for many years to come,” said Bank of America Merrill Lynch strategist Michael Hartnett. Merrill economists are forecasting benign consumer price index inflation of 2.1 percent for 2014, 2 percent for 2015 and 2.2 percent in 2016.

Further, Citigroup economist Tobias Levkovich takes issue with the entire premise that more hiring and higher pay could be a disadvantage for companies and the economy.

“More jobs are misperceived as being the antithesis to profit growth,” he said. The argument lacks any perspective that if hiring improves and pay increases, “the economic pie can grow, which would benefit both” companies and employees.

The expectation holds that if people have plumper paychecks, they will be able to buy more. On the other hand, analysts who fear inflation note that higher pay won’t do much for consumers if prices of the things they buy also shoot up.

A survey of small businesses by the National Federation of Independent Business showed a surge in hiring plans, difficulty finding employees that fit the job openings and 21 percent of respondents raising pay. Fifty-three percent said they had hired people in the past three months, while 26 percent said they couldn’t fill openings, and 43 percent complained of few applicants. About 21 percent said they planned to raise prices.

There are no comments - be the first to comment