Employment costs in the United States are growing at their fastest rate in a decade, and employees are earning more as the unemployment rate drops. Whether you’re a business owner, an investor, or a wage or salary earner, this news is both positive and important in the context of the current market.
Employment, The Benefits for Wage and Salary Earners
Worker wages rose by 0.5% in the second quarter, indicating that employees are now earning more. This contributes to a total increase of 2.8% over the one-year period that ended in June 2018.
For many employees this has resulted in higher take-home pay. A significant driver of wage growth has been low unemployment figures and the fact that some companies have raised skilled-worker wages to remain competitive with other businesses. The recruitment process now strongly favors qualified and experienced workers, as employers are paying more to acquire their preferred candidates.
Private company employees were more likely to have received compensation increases in the last quarter when compared to government employees.
Businesses Paying More to Maintain Their Workforce
The flipside of increased wages is that businesses are now spending more to hire and retain talent. Total compensation costs (including benefits and wages) in the private industry sector increased by 2.9% in the last year. Management and professional compensation costs increased by 2.4%, and sales and office compensation costs increased by 3.9%.
In government sectors, compensation costs increased by a milder 2.3% in the last year.
While businesses are paying more for their staff, they are now paying less for taxation. In previous years some corporations were paying tax rates as high as 35%. Since the passage of the Tax Cuts and Jobs Act on December 20, 2017, federal corporate tax rates are now just 21%. The money being saved far outweighs the increase in employment costs, so most larger companies can afford the change.
Will This Change Investment Patterns?
A healthier job market could lead to higher consumer spending (a significant factor of GDP). It could also mean that individuals and families will be more willing to save or invest in homes, retirement funds, and diversified investment funds.
Although the current gains are relatively small when considering individual worker yearly earnings, they could still be significant enough to change spending and investment patterns. At the end of the day, businesses are still ahead with tax cuts, and employees are finally starting to feel the benefits of a growing economy.
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