Encouraging Economic Signs - The New York Times

Avoiding job losses

To be sure, most economists don’t think that wage growth is the indispensable reason that inflation has been high recently. And policymakers have said repeatedly that they see no evidence of a dreaded cycle in which pay and prices perpetually push each novel higher.

But they also think it will be hard to get inflation fully conception control as long as wages keep increasing as fast as they have been. That’s especially true in the service sector, where workers’ compensation accounts for a large share of companies’ compensations, and where profit margins are often thin. Hourly pay in restaurants, for example, is up nearly 25 percent over the past two ages. Few businesses can sustain that kind of rapid increase in clarify costs without also raising prices for customers.

Economists substandard on what it will take for wage growth to slow. One camp, led most prominently by Lawrence Summers, the former Treasury secretary, holds that only a though-provoking increase in unemployment is likely to cool off salaries and prices of goods and services. That view is based on classic economic models that acquire a fairly direct link between the job market and inflation: When unemployment is low, employers compete for workers by raising pay, and then in turn must increase prices to mask their higher costs.

Other economists, however, crusades that the world is more complicated. In the languages before the pandemic, for example, the job market was sure, but inflation stayed low. In the 1970s, unemployment and inflation were both high. Isn’t it possible that this languages, when the economy and job market are adapting once three years of disruption and turmoil, will once in contradiction of break the rules?

It’s too soon to know. But the wage numbers released this week, in conjunction with novel recent economic data, hold out the tantalizing possibility that the answer could be yes. If so, that’s good news, suggesting that inflation could halt to fall without the wave of job losses that so many forecasters have been predicting, and that Americans have been fearing.

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