An attempt to understand the world of current events, finance and the economy on a level that allows me to teach it. I'm a journalist. Oh and the occasional post about family, life and kids!
So the U.S. unemployment rate is a resounding 7.9%. Yeah you know that, but did you know it’s hurting you even if you’re employed?
While 7.9% may not seem high, it is serious because it’s still elevated. For the economy to be healthy, an unemployment rate needs to be around 4-5%. Some economists will argue a point or two, but basically, that’s true unemployment. At any given point, there will always be someone unemployed due to “job seekers,” or what the nerdy economists call frictional unemployment.
Here’s where it gets interesting. High unemployment has very serious consequences for those still at work. Why? Because our labor market has a low unionization rate (11.8% as of October according to the BLS).
Again, what the hell does that matter? I’m not endorsing unions, but without collective bargaining and the power from union membership, employee bargaining on wages is largely tied to the unemployment rate. How? Think back to Economics 101. The laws of supply and demand ensure that when there is excess supply of a good, the price of that good will fall until it reaches equilibrium with the demand for that good.
When applied to wages, a high unemployment means there is a higher “supply” of that labor, henceforth decreasing the price for said labor until it’s in equilibrium with the demand in the market. In laymen’s terms: Employers can pay less because there are a lot of people out there willing to do your job for less pay. Make sense? Damn I love economics.
See the red line trending down? That’s your paycheck in the face of the continued unemployment situation. That’s the whole point of this blog post. A really weak labor market puts down pressure on real wages, which in-turn hurts mainly the middle-class and their paychecks.
Another interesting caveat is in our current economic environment; prices are going up on most goods. The bread I buy has gone up from $1.09 just a year ago to over $1.60 today. When applied to the macro-economy, that is really hurting a lot of people because their wages are declining in tandem with prices going up. Ouch.
I don’t know when it’s going to end. I don’t know which candidate in Tuesday’s election will make the most impact but what I do know is I’m thankful. After all this is November and Thanksgiving is around the corner. We live in one of the richest nations in the world, so let’s get through this together and move forward!
I’d love to hear your thoughts on any prices that have gone up or wages that have declined. Has this hurt you? How about outside of America?