5 Feb 2014
Flash: USD on wages insight - BAML
FXStreet- (Guatemala)- Michael S. Hanson, US Economist at Bank of America Merrill Lynch looked into the wages in the USA and inflationary implications.
Key Quotes:
"The US minimum wage has been a common news topic lately. In his State of the Union address, President Obama proposed an increase in the federal minimum wage to US$10.10/hour from the current US$7.25/hour, phased in over two years."
"He also outlined plans to raise the minimum wage by a similar amount for federal contract workers through an executive order, thereby bypassing Congressional opposition. In addition, 13 US states raised their statutory minimum wage rates on 1 January."
"While obviously a contentious political issue, one question we have gotten from investors recently is the potential impact on inflation. One consequence of the slow recovery in the job market - as of end-2013, nearly 1.2mn fewer Americans were working than at the January 2008 peak of employment - is that low wage growth has helped keep inflation rates low."
"Would an increase in the minimum wage risk a pickup in inflation? We suspect not, and the reason is illustrated in the Chart of the day: there simply are not enough people working at (or below, since some jobs are exempted) the minimum wage to have a noticeable impact on the total wage bill, in our view. A simple back-of-the-envelope calculation suggests that the rise in wages from a minimum wage increase would amount to fractions of a percentage point."
Key Quotes:
"The US minimum wage has been a common news topic lately. In his State of the Union address, President Obama proposed an increase in the federal minimum wage to US$10.10/hour from the current US$7.25/hour, phased in over two years."
"He also outlined plans to raise the minimum wage by a similar amount for federal contract workers through an executive order, thereby bypassing Congressional opposition. In addition, 13 US states raised their statutory minimum wage rates on 1 January."
"While obviously a contentious political issue, one question we have gotten from investors recently is the potential impact on inflation. One consequence of the slow recovery in the job market - as of end-2013, nearly 1.2mn fewer Americans were working than at the January 2008 peak of employment - is that low wage growth has helped keep inflation rates low."
"Would an increase in the minimum wage risk a pickup in inflation? We suspect not, and the reason is illustrated in the Chart of the day: there simply are not enough people working at (or below, since some jobs are exempted) the minimum wage to have a noticeable impact on the total wage bill, in our view. A simple back-of-the-envelope calculation suggests that the rise in wages from a minimum wage increase would amount to fractions of a percentage point."