A previous article mentioned how low skilled workers are seeing more income growth than middle skilled and highly skilled workers. The chart below shows this trend in a different light. As you can see, those making less than $17 an hour are seeing more income growth than those making over $25 an hour. Part of this increase may be from the minimum wage increases in cities like Seattle. Raising the minimum wage doesn’t help the low-income people on aggregate, but does raise wages. The problem is less jobs are available. This aspect is why governments raise the minimum wage when the labor market is strong. The negative effect on the number of low wage jobs available isn’t noticeable because there are already too many jobs. Essentially, this wage increase is following what the market would give anyway. It’s made out to be a big political movement, but the reality is the government operates at the whim of the market. There’s no way any city would try to raise the minimum wage during the 2008 crisis when the economy was crashing and jobs were scarce. During the next recession, these minimum wage hikes will stop. That’s when the rhetoric shifts to increasing regulations to prevent the next crisis. Politics is cyclical. Acknowledging this makes predicting the changes easier.

Another aspect of this shift in wage growth which started in the past 12 months is the shift in the labor force. Many manufacturing firms are saying they can’t find workers to employ in entry level positions. After years of hearing that manufacturing is dead in America, the pendulum has switched too far. Many more people are getting college degrees because they thought there was no chance in manufacturing. I’m not claiming that the economy will switch from a service oriented one back to construction and manufacturing, but some more people switching industries would help solve the tight slack in that labor market. There’s only a certain amount manufacturing firms can raise wages. Eventually this tight slack catalyzes robot technology advancement which takes humans’ jobs. This is the same trend that’s occurring in fast food restaurants as firms are replacing cashiers with touch screen devices to avoid paying many workers the new more expensive minimum wage.