Will the Economy Start to Tap Your Paychecks Soon?

You might be getting a raise soon. Your friend "the economy" says so! According to the Labor Department those applying for unemployment claims dipped to 267,000 marking a 42 week low. As the labor supply shrinks it becomes increasingly likely that wages will rise as skilled labor becomes increasingly in demand. The economic hands are likely to start tapping on paychecks soon.

Basic laws of supply and demand are at play here. As something becomes more difficult to find its value rises. It doesn't matter if you are talking about the latest XBOX game or labor supply. Good employees are hard to find and when employment rate dips companies must continually look at lower qualified candidates.

This naturally comes with a cost and improvement in labor conditions; at least for those who are actively engaged in the market. Pressure rises on companies to find candidates, train them to expectations, and then put them to solid work when the unemployment rate is under 5%. As their value and cost rise companies seek to also raise their productivity rate.

This creates a push to increase productivity to reduce the cost of labor and hire fewer employees. Automation and streamlining become popular methods to countering labor costs. In the long run this can create downward pressure on the employment rate but its effects are not felt until a significant time in the future.

Assuming that the economy continues to grow over the next year the pressure on the labor market is likely to increase and wages will continue to go up. In turn, companies will push for productivity and engage in more training. Eventually, a homeostasis may be found but this will take time as investments in the U.S. economy continue to improve until it no longer is a lucrative option.