Wage Growth Bolsters Spending as Americans Extend Hours: Economy

[xchrom]

http://www.bloomberg.com/news/2012-05-09/wage-growth-bolsters-spending-as-americans-extend-hours-economy.html

Consumer spending in the U.S. is rising even though hourly pay isn’t. The reason: More Americans are finding jobs and putting in longer hours in the office and on the factory floor.

Wages and salaries -- the total paycheck for all Americans -- climbed 2.2 percent in the 12 months through March after adjusting for inflation, according to calculations by RBS Securities Inc. economist Omair Sharif. Earnings per hour on average dropped 0.7 percent in real terms over the same period, according to Labor Department data.

Incomes are getting a boost from job growth and gains in hours, which will give Americans the means to increase spending at the fastest pace in six years, say Sharif and Pierpont Securities LLC economist Stephen Stanley. That’s allaying concern that hourly earnings, a widely watched measure of consumer buying power, are stagnating.

“If you were just to look at the average hourly earnings number, it would suggest pretty dire consequences for consumption,” Sharif said. “If you look at wages and salaries, consumption should be able to grow.”


*** see what they did there? it's not real wage growth -- it's longer hours.

[lumberjack_jeff]

1. Fix the economy by making overtime 2x, and almost no one exempt. n/t

[Nuclear Unicorn]

2. or not

You'd either kill off the number of available overtime hours as employers scale back to cut costs and/or you'd kill demand as prices rise. Economics is a three-part system -- owner, worker and consumer. Each one of them gets a veto on every transaction. Anyone of them can shut down the other two, though the consumer is the real, final, absolute decider in all things.

If you have a worker earning $15/hour and you suddenly bump his wages to $30 whatever he makes has to recover cost-plus. If what he makes is being sold to comsumers who aren't making enough money to support his wages they will not -- they cannot -- buy what he makes.

Odds are the employer and his accountant would simply end overtime hours under the (very correct) assumption that some is more than none.

[lumberjack_jeff]

3. Neither.

An employer only pays for enough labor to fill orders. If overtime labor is prohibitively expensive, they'll hire the unemployed to fill that demand. Instead of 10 people working 60 hours, they'll have 15 working 40.

They don't pay you overtime because they're nice guys.

[Nuclear Unicorn]

4. Except they don't pay just flat wages

Unemployment insurance, workers compensation insurance etc add to the cost of employing labor. Taking on a new employee can be expensive.

If they hire only part-time help then you might be disincentivizing the would-be job-fillers. There's no reason to take a part-time job and lose vital aid eligibility. People need full employment.

[lumberjack_jeff]

6. Overtime was created as an incentive to hire enough staff.

It was understood that society benefits by having the great mass of people employed, rather than only the half of us willing to work double-shifts.

Since 1.5x isn't enough to mitigate for the overhead cost of a new employee, then raise it to 2x.

I don't understand your second paragraph. Yes, many prospective employees are turned off by a part time job. I'm unsure what you mean in the next sentence unless you meant to say aid "benefits".

If an employer has 800 hours of work to do each week, they will be motivated to hire something approaching 20 people if the overtime rate goes up, but not 30.

[Nuclear Unicorn]

7. My 2nd paragraph is a tad unclear, I admit.

There's no point in taking a PT job for X wages if you lose > X aid/benefits.

As to having 800 hours of work -- that's a scale.

The cost to employ a worker above salary can run roughly 25% to 50% above wages depending on location -- http://www.bls.gov/ro7/ro7ecec.htm

Let's take a median of 33% and assume ACME Mfg has 20 employees working 40 hours a week. If ACME pays $10/hr they would set aside $8,000 for wages plus an additional $2,600, or $130 per employee.

For labor alone that's $8,000 + $2,600 = $10,600 for 800hrs of production or $13.25/hr. of production

During a recession ACME loses 20% of its orders reducing its production requirement to 640 hrs. In response ACME lays off 25% of its workforce -- 5 people -- to contend with the loss of work and to hedge against uncertainty. The remaining 15 people now have 640 hrs worth of orders per week to fill meaning they now work a little more than 42 hrs per week per worker. That 30 hours of overtime costs $450 in wages BUT the company saved $650 for the cost of employment as it no longer carries Workers Comp etc for the laid-off employees. That's money back to the company that is already storing capital like a squirrel storing nuts for winter and/or discounting prices to hold their remaining clients.

$6,000 reg-time hrs + $450 OT hrs + $1,950 employment cost = $8,400 for 640 hrs worth of work equalling $13.12/hr of production

Doubling the cost of overtime would turn the above into $13.83/production hour.

If you double the cost of overtime you MIGHT get 1 more employee hired to cover the 30 hours the surviving 15 employees would have worked (and cost them $30 a week in OT). However, that employee would be PT earning only $300 a week with no employment cost to ACME.

ACME now pays $13.05 per production hour. Good deal for them and we see a lot of that, i.e. "under-employment."

Require ACME to cover UI, WC and all and they'll be at the same $13.25 they were at during times of plenty but a recession, by definition, is not a time of plenty. Companies discount and coupon to hold as much market share as they can even though demand falls off. Companies are in no mood to pass costs to consumers and consumers are in no mood to absorb costs because they too have felt the downturn. Unless the commodity is a necessity consumption will scale back.

[sufrommich]

5. I was out today and saw fours help wanted signs

at local businesses,one was for a truck mechanic and three were for truck drivers, and this is in the Detroit area. Not sure why a sudden uptick in truckers needed but it was good to see.