A recent article in the Wall Street Journal kind of shocked me when it stated that American incomes remained essentially flat in 2018. Our unemployment rate is at a historically low level, and as employers fight for quality employees, it should make good sense that wages would be going up. But they are not.
The median household income was $63,179, according to the article. That’s up only 0.9 percent over the prior year. It’s hard to swallow, because the unemployment rate has hovered at or below 4 percent, which economists figure is what they would consider full-pool. This means everyone who wants a job, has one. With unemployment so low, early last year economists were concerned with how our economy was going to grow. If there are no workers to add to your company, how can you produce more of your goods and services?
Historically, when this happens, necessity becomes the mother of invention, and we’ve had advances in technology that have made our companies and our workers more productive. One worker is more able to produce more goods or services. In the late 1800s, the idea of assembly lines and using machinery to build things propelled how many units a worker could produce in a given day or hour. In the very late 1900s, computers and software enabled workers to organize and be incredibly more efficient, and businesses more organized. In just the last 15 years, smart phones have made all of us way more productive in some ways (and unproductive in other ways — monitoring your Facebook probably isn’t helping your company).
The thing about smart phones is that you can essentially do everything that your computer can do from almost anywhere in the world. And for many, they have extended the work day as workers now carry about their computers with them in the evening and weekends. So when a new technology is invented and woven into the workforce, to increase production, companies tend to spend more on integrating that technology and less on increasing wages.
Last year, according to Carl Tannenbaum, chief economist for Northern Trust, employers were faced with the prospect of having few workers to pull from, so instead focused on integrating better, existing technologies and improving efficiencies within their organizations and industries.
From most accounts, employers are certainly working harder to attract employees away from other companies, and they’re spending more on making their work environment seem more attractive than their competitors.
Around Atlanta, companies are happy to pay higher rents to be in offices that are located in more walkable neighborhoods with restaurants and shops close by. They are spending more making their offices more entertaining and hospitable and fun. A commercial realtor told me that employers are finding that the millennial workforce seems to be more attracted to companies that have more compatible work environments than they are to companies that offer higher wages.
The conundrum in the housing market is that you have a situation where wage growth was relatively flat last year, but home values increased by over 5 percent. So while wages are staying the same, the cost of living is going up, and residents are having to put a larger percentage of their take-home earnings toward living expenses. This will mean less money to go toward shopping, eating out, putting money toward savings, and more usage of credit cards and equity lines.
According to a Bloomberg report, U.S. credit card debt closed out 2018 at a record $870 billion.
Normally, if you believe in the free market always balancing itself out, you would expect to see fewer people going out and buying homes, which would slow the increase in home values. And eventually wage increases would outpace home values. But the issue here in Atlanta is that our economy is so hot, we are still creating over 60,000 jobs a year, and more than 80,000 people a year are moving here. So they’ll still be buying houses, if they can find any.
I have no idea where we are headed. If I did, I’d be retired and traveling the world with my family and a very impressive entourage of happy helpers. The market will invent something to stave off this trend, or the problem will exacerbate and employers here will increase wages to get above the local trend, or nothing will be invented and employers will not do anything to increase wages and something else will happen. Either way, here we are.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group