Wall Street Frets That You’re Getting Paid Too Much
Wall Street money managers are worried about two things: that they won’t get paid enough and that ordinary Americans will get paid too much.The fight over who gets what from the bonus pool is an unseemly annual rite at Wall Street firms. Last year the average bonus paid to securities industries employees in New York City was $164,000, the most since the financial crisis, according to New York State Comptroller Thomas DiNapoli.
In contrast, concern over rising pay for the rest of America is a monthly, not annual, ritual. Today the Bureau of Labor Statistics reported that average hourly earnings in July were flat, vs. an expected 0.2 percent increase. They’re up only 2 percent over the past year. However, hawks pointed out that the Employment Cost Index—which covers both wages and benefits—rose a more-than-expected 0.7 percent in the second quarter, its biggest rise since 2008.
“Wages are trending up, and once wage inflation takes hold, it continues for four to five years,” says Torsten Slok, chief international economist at Deutsche Bank. Slok notes that a survey by the National Federation of Independent Business finds an increased share of companies—around 15 percent—are “planning to raise wages up significantly in recent months.” He says in a chartbook for clients: “A broad-based pickup in wages in the pipeline.”
For Wall Street, the risk is that higher wage growth will lead to more inflation, which will push up interest rates, which will push down stock prices. The rate-setters of the Federal Reserve think that unemployment can fall to 5.4 percent before inflation starts to be a problem. Slok says inflation could come much sooner, citing academic studies that put the inflationary threshold anywhere from 6 percent unemployment all the way up to 7.2 percent.
I wonder why pay raises are referred to as “wage inflation”?