The law of supply and demand still works.
These days, the demand is high for workers, and the supply is not as high as many employers would wish. The winners of this economic dynamic aren’t the tech bros, the Ph.D.s, the late-career professionals, the doctors, or the lawyers.
The biggest winners are the burger flippers and the parking garage attendants — the people who never went to college and may be early in their careers.
In short, all wages are rising, but the lowest wages are rising the most. Inequality is being mitigated not by regulations, mandates, or transfers but by the good old laws of economics.
Compared with one year ago, wages are up significantly, more than 3% on the whole. That wage rise is unevenly distributed, but it’s not the story of inequality you’re used you hearing about. The top 25% of earners saw their wages rise by 2.9%, which is good news for them. Meanwhile, the lowest 25% of workers saw their wages rise by 4.5%, which is extraordinary news for them.
“Nonsupervisory workers,” which is to say the vast majority of workers, are seeing their wages rise faster than any time since the Bush presidency.
This reduces income inequality. Yet the folks who emit the most carbon dioxide worrying about inequality have been quiet about the news. We think we know why.
Bernie Sanders and Elizabeth Warren would tell you that the only way to increase wages for the working poor is through force. Either unions backed by the government need to strike or threaten a strike, or the government simply needs to force employers to raise wages through minimum wage laws.
The data, as laid out by the Federal Reserve Bank of Atlanta, suggests that such force is not behind the current rise in working-class wages. Instead, as the Wall Street Journal puts it, the rising wages suggest that “the labor market has tightened sufficiently to convey bigger pay increases to lower-paid employees.”
Unemployment is well below 4%, the lowest rate since the 1960s. The slack is out of the labor market. If you want to hire someone, you are now in a bidding war. Once you hire them, your competitors will try to poach them. In low-skilled jobs, your competition for labor isn’t merely the other burger joints, but also the parking garages, the movie theaters, and the factories.
Workers are in high demand relative to the supply, and so employers have to pay them more. It’s not that employers have to pay them more because it’s the law. It’s not that they have to pay them more because the union is demanding it. Employers have to pay more because the free market demands it.
The market, it seems, is providing power to the people.
