Low Official Unemployment Rate And Wage Stagnation

by | May 6, 2017 | Economy, Keith | 0 comments

Quite a few people make some very bad assumptions in regard to how the economy works. The reason for these bad assumptions is usually due to people assuming the economy works in a similar manner as it did ten or twenty or thirty years ago when that is no longer true. The main cause for that no longer being true is massive intervention via central banks and governments. Eight and a half years ago the global economy entered into emergency mode in order to prevent the global credit markets from locking up – the global economy still operates in emergency mode.

As such the relationships within the economy no longer function in the manner that many people believe they do. Great example of this is the announcement this morning that the unemployment rate is 4.4% – yet wages are stagnant. Why is that?

Jeffrey P. Snider provides an excellent technical analysis of the reasons for wage stagnation at Alhambra Investment Partners. 

“That is why economists and policymakers like Janet Yellen can only hint at what full employment is supposed to bring, rather than being able to point directly at the evidence for it. Instead, all the related data in terms of productivity suggests very little difference now as last year or the year before; again, no matter how low the unemployment rate falls.”