The latest data on the US labour market contained a nice surprise. Is it possible that the trend we have seen over the last decade or two, namely for US inequality to get worse, is set to reverse?
Another month, another set of figures on the US labour market. This time the figures were good for two reasons and okay for another reason.
The okay news is that October saw US non-farm pay-rolls increase by 161,000 – that’s a solid rise, but nothing spectacular.
The first piece of good news is that the data for the two previous months was revised upwards – by 44,000, meaning that total US non-farm payrolls at the end of October were 205,000 more than we thought it was a month ago. That is approaching the spectacular.
The other piece of good news is even better, average wages rose by 0.4 per cent in the month, compared to the month before.
At this point, we need to take stock.
We know that the fruits of economic growth have not been trickling down into the pay packets of many Americans. In fact, despite robust growth, median wages today in the US, are no higher than two or so decades ago. And as we all know, this feeling that US workers are not benefiting from growth and that only the elites are securing an advantage has led to a lot of social disenfranchisement, which is beginning to look dangerous.
But why has US inequality been worsening? There are many possible explanations for this, although no one knows for sure which explanation is right.
It may be down to what the IMF calls the globalisation of labour: the rewards to capital – reflected in corporate profits – have been growing faster than the rewards to labour – reflected in wages.
It may be down to technology.
It may be down to the market liberalisation reforms of the Thatcher/Reagan years.
But it probably has little to do with either international trade or immigration.
Another possible explanation is that weak growth in productivity has been a main underlying cause of growing inequality.
But since we don’t know what either the cause is, or indeed what caused the cause, we have no idea how long the trend of growing inequality will last, or what might lead to a reversal in the trend.
What we do know is that not only did US wages see a big jump in October, US productivity in non-farm sectors rose by 3.1 per cent in the third quarter of 2016. It may have been a one-off, of course, after all, Q1 and Q2 of this year saw awful growth in US productivity.
But there will surely come a time when new technologies such as the Internet of Things, big data, and the Cloud will give the economy a boost.
Maybe, just maybe, this is starting to happen.