As the Fed's efforts regarding wage deceleration continue, the good news is unprecedented job growth which now holds greater responsibility than nominal wage gains. However, while nominal wages were rising, low income groups actually benefited the most. As Joseph Politano earlier noted:
Arguably, the only group to see real wage gains since the pandemic has been low-income workers, with workers in the bottom 10% seeing very strong real gains. The labor shortage has also enabled rapid wage gains for young, non-white, non-college-educated, and part time workers to a degree that is nearly historically unprecedented, and was helping break America out of the cycle of labor market underperformance it suffered throughout the 2010s.
How might one think about this phenomenon at a general equilibrium level? For one, even as the earlier low wage pressures affected nominal stability, the fact remains this group needed its real wage gains the most, since there's been too little supply side effort to generate housing and time based services for a full income spectrum. Just the same, the Fed was slow to react - and nominally adjust for - the fact many employers ended up "paying the price" to retain low income workers who otherwise would have gone elsewhere, or possibly exited the workplace.
Given this relatively brief but substantive rise in low income levels, why weren't there also real wage gains for higher income level groups? Indeed they've mostly missed out on this latest inflation cycle. One reason could be micro level pressures haven't been as strong as for lower income groups. Perhaps the lack of such pressures is due to (most) middle to upper income groups having sufficient economic options to remain gainfully employed.
Alas, while lower income levels still have fewer economic options for workplace participation, their employers can only offer additional monetary reimbursement up to a point. Consequently, some time based services which people find valuable will gradually become more difficult to offer on monetary terms, which is one reason I've argued for time arbitrage. Unfortunately, many municipalities don't yet understand this general equilibrium reality, which especially matters in terms of housing options. Consider also that as many Baby Boomers retire, housing and time based services limitations affect them in crucial ways. Not only do fixed income retirees struggle to find affordable low maintenance housing, retirees of all income levels struggle to obtain home services, since many of these workers have understandably departed for more rewarding employment options.
There's another important aspect of secondary market domination in time based services for higher income levels. While employment options are plentiful now for these groups, this unprecedented scenario still obscures the fact aggregate price making in time based services is only feasible up to a point, given general equilibrium revenue needs for redistribution. Granted, such revenues were expanding alongside originating wealth gains in primary markets during the Great Inflation, and more recently, via redistribution which accompanied global dollar dominance during the Great Moderation. However now, aggregate revenue potential for secondary markets in time based services is plateauing in mature economies, which is why high income wage growth is more likely to result in inflation. Indeed, this helps explain a recent healthcare paradox in Britain, which was noted by Marginal Revolution:
Universities have been told they must limit the numbers of medical school places this year or risk fines, a move attacked as "extraordinary" when the NHS is struggling with staff shortages.
Lest this seem ridiculous, only recall how the conundrum is more evident for Britain due to the straightforward nature of its healthcare system. Less obvious are similar sets of supply side problems in the U.S., which are more difficult to discern due to numerous intermediaries between healthcare practitioners and patients.
Nevertheless, underneath it all, the evolving general equilibrium dynamic is the same. Even though secondary market higher income levels have become relatively less likely to benefit from wage gains, lower income levels must deal with the reality of partial and incomplete non discretionary markets. It's these incomplete markets which can create financial obligations that are higher than wage realities. So much so, there will likely be more instances in the foreseeable future, the Fed needs to adjust monetary representation downward once again, should low income citizens need additional wages just to participate in work activities which citizens and businesses alike, continue to find important enough to maintain.
