[Key Indicator] Is the rise in U.S. average wages caused by overly generous unemployment benefits?

Hello, this is Shimoyama.

“If I want to work, I can work, but

right now there are large unemployment benefits, so if I work I’d be worse off.”



Nowadays in America there are many people like that,

and labor shortages are said to be a problem.



The “$300 weekly unemployment benefit add-on”

has been extended until September this year,

and if you can receive an extra $300 each week,

it’s natural that some people won’t bother to work.



According to the Ministry of Health, Labour and Welfare’s資料

the national average unemployment benefit is $351.25 per week (in 2017).

＊Reference：
https://www.mhlw.go.jp/wp/hakusyo/kaigai/20/dl/t2-03.pdf



If you add $300 to this figure

you would receive $651 per week, $2604 per month,

and basically about 300,000 yen per month without doing anything.



As a result, restaurants

that post job openings may not attract people,

truck drivers may be hard to recruit, causing logistics to stall,

and such problems seem to be occurring.



However, as of writing, 25 states have

announced plans to end the unemployment benefit add-on before September.

Therefore, toward September the number of people returning to work is expected to increase,





and the labor shortage may be alleviated.



For a long time, people have been receiving unemployment benefits

and living comfortably,

so returning to work after a break may be a bit tough.



By the way,

the governors of the 25 states that announced early termination of the add-ons are all Republicans,

and there appears to be opposition to the Biden administration’s policies as well.



It also makes you feel that America is split in two.



Thus, in this way, in America, one problem is that generous unemployment benefits keep people from returning to work,

and this is said to cause “average wages to rise.”







What could be the reason?



Because unemployment benefits are generous,

lower-income people whose usual income is low do not return to work,

and as a result, high-income workers’ wages are reflected more strongly in the overall average,

and the average hourly wage is said to be rising.





I see.



Certainly, such a hypothesis can be raised, but

whether this is really true or not,

the reason for the “rising average wage”

will be examined from data today.



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Is the rise in ‘average wages’ really due to overly generous unemployment benefits?



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The May 2021 employment statistics, announced on June 4, show the following results.





Nonfarm payroll employment rose by 559,000 from the prior month,

the unemployment rate fell to 5.8% (from 6.1% in April),

the average hourly earnings rose by 0.5% from the previous month.



Indeed, average hourly earnings rose +0.5% month over month,

but to investigate the cause,

let’s look more closely at the May 2021 employment statistics.



On the U.S. Bureau of Labor Statistics site,

you can check the latest “average wages by industry sector, seasonally adjusted.”





＊Reference：
‘Average hourly and weekly earnings of all employees on private nonfarm payrolls
by industry sector, seasonally adjusted’

https://www.bls.gov/news.release/empsit.t19.htm




Which sector has the lowest average wage?

“Leisure and hospitality.”



The average hourly wage in “Leisure and Hospitality” is $18.09,

the lowest.



The reported average hourly wage in the employment statistics is

$30.33,

so the average wage for “Leisure and Hospitality” is about

roughly 60% of the overall average.



If the previous hypothesis that “low-wage workers are the ones not returning to work” is correct,

the number of workers in the low-wage sector “Leisure and Hospitality” should not be increasing much.







So, what actually happened to employment in “Leisure and Hospitality”?



↓

＊Reference：
‘Employees on nonfarm payrolls by industry sector and selected industry detail’
https://www.bls.gov/news.release/empsit.t17.htm



The growth in employment in Leisure and Hospitality in May was

an increase of 292,000 from the previous month.



From 14.085 million in April to 14.3 million, about a 2% increase.





Comparing this figure to the overall growth rate,



May total employment increased by 559,000, but

the total workforce in April was 143.335 million,

a growth of about 0.3%.



Therefore, while the overall growth rate was about 0.3%,

the Leisure and Hospitality employment grew by about 2%.





From this, it seems that even in the sector with the lowest average wage,

the people in Leisure and Hospitality have not completely stopped returning to work.





And thus, the theory that “low-wage workers aren’t returning to work, lifting average wages” has low credibility.







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The true reason is unknown to anyone.

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Then why are average wages rising?



What can be said with certainty is that in most sectors,

average wages are rising.



Surely you won’t be satisfied with such a broad answer.





But what I want to emphasize most today is

a warning about that very thing.



In other words, a warning about pursuing a clear, definitive answer too much.



In the world of investing, many seek definite answers.



Why did the Nikkei Average rise?

Why did interest rates rise, and why now?

Why did Bitcoin fall?

Why did AMC stock surge?

People seek a clear reason for everything.



And they listen to experts and feel relieved when told the answer.



When there is no clear answer,

many traders are not satisfied.





I understand wanting to feel secure, but

most things are the result of a complex interplay of many reasons.



There are many events for which you cannot say, “This is the reason!”

Some things can be explained to a degree,





and some things can be described as “obvious to everyone as the reason,”

but many things are not well understood behind the scenes.







So,

pursuing a clear and perfect answer to every event in the investment world

is, frankly, a waste of time, and

that attitude will eventually ruin you.





Study economics to gain knowledge and gather information is not wrong, but

even with study, you cannot understand all of economics,

and you will not necessarily make profits.







If truly knowledge and information about the economy could lead to profits,

every economist in the world would be a billionaire.







Well then today as well,

thank you for watching until the end.





Keizo Shimoyama