Poor Wages = Poor Economy; Fed’s Evans Expects It to Get Worse

Mainstream analysts continue to tout an economic recovery based upon new jobs, but are now starting to worry about stagnant wage growth. One popular excuse for this is “pent-up wage deflation.” The argument goes that since businesses didn’t cut wages during the financial crisis, they are now refraining from raising them.

A new op-ed in the Washington Post debunks this theory and boils the issue down to the basics: the economy is still lousy. Matt O’Brien points to the same problems Peter Schiff has been warning about for years:

It’s just the unemployment, stupid. Or maybe the underemployment. Between people who can’t find the full-time jobs they want, people who haven’t been able to find any jobs after looking for at least six months, and people who think things are so hopeless that they’ve given up looking for now, there are a lot more people than normal stuck on the margins of the labor force. And these ‘shadow unemployed,’ according to the Fed, exert just as much downward pressure on wages as the regular unemployed. Put it all together, and wages haven’t recovered because the economy hasn’t fully recovered.”

By now, it’s common knowledge that the 5.7% unemployment rate simply doesn’t take into account underemployment. These are people who would prefer full-time work, but can only find part-time jobs. There’s also the workers with jobs far beneath their skill level. For example, someone with a PhD working as a line cook.

In his Gold Videocast on the job-sharing economy last month, Peter Schiff argues that Obamacare plays a large role in underemployment. Rather than pay health insurance for each full-time worker, employers hire multiple part-time people to cover full-time jobs, allowing them to skip the burdens of Obamacare. While this gives the illusion of job creation and pads the employment figures, in reality, fewer people have quality employment. If businesses can’t afford to maintain full-time staff, why would they be willing to pass through significant wage increases?

Even though more cracks are being exposed in the economic recovery narrative, the financial markets still generally believe the Federal Reserve is going to raise interest rates in June. The latest voice to agree with Peter Schiff that a rate hike is impossible comes from none other than the Fed itself.

Chicago Fed President Charles Evans has just said that he thinks the Fed won’t raise rates until 2016. Of course, he sticks with the wrong-headed Keynesian notion that it’s the lack of inflation that is hurting the economy. Nevertheless, it’s still refreshing to hear a Fed official be more blunt when advocating continued market manipulation.

Allow us to translate that for you: Evans believes the economy is going to get worse in the coming months. If the lousy jobs numbers that were just released is any indication, he’s right.

More than 50,000 jobs were cut in February – the third straight month in which job cuts were worse than previous year. On top of this, unemployment claims reached their highest in 9 months last week. Once again, the news is blaming this on poor weather rather than a fundamentally weak economy. However you slice it, a rate hike is likely not in the cards this summer.

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