Weekly Updates
Weekly Updates
- A number of central bank speakers have been pointing to wage growth as a reason to wait before cutting interest rates. This is not a good reason to delay.
- Wage growth could create an inflation issue in one of two ways. Obviously, if workers are paid more money they can spend more. Higher demand can drive prices higher. This is not the current concern. Alternatively, wages may affect inflation via higher wage costs, which companies are quick to pass on to customers.
- Wage costs are not the same thing as wages. The US restaurant industry illustrates this nicely. Since 2019, the number of people employed in US restaurants and bars has increased less than 2%. Over the same period, the output of the sector (sales adjusted for inflation) has increased 14.5%. Each employee is generating 12.5% more output.
- People who work harder deserve to be paid more. And there is no inflation implication from paying someone 12% more money if they are serving 12% more customers. The labor cost per meal does not rise. In fact, almost half of the increase in US restaurant wages is offset by paying people for working harder. The increase in restaurant prices since 2019 cannot be blamed on wage costs.
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