Pro Perspectives 6/18/20

June 18, 2020

Yesterday we revisited the wage story.


Not only will wages drive an inflation run we haven’t seen in decades, but wages will be a critical political chess piece in the November election.


As we discussed over the past couple of months, with the $600 a week federal unemployment subsidy, the government has become the biggest competition for labor as the economy has reopened.  That's what happens when the government pays people more to stay at home, than they made on the job. 

This may end up being the most politically explosive issue we've seen in an election in a very long time.  And we have a doozy of a list going into this one. 

With that, the politicians are circling.

The federal piece of unemployment is due to expire on July 31.  That's still about six weeks away. At that point, $2,400 a month goes away. 

The Democrats are fighting to get it extended through January.  Yes, January. Based on the number of unemployed that are making more on unemployment than they would working, this could keep more than 60% of the unemployed at home through January.  That would clearly handicap the reopening of businesses dramatically, and probably ignite some ugly inflation (at least in certain high consumption products and services) earlier rather than later. 

To counter this proposal, Republicans are looking at "back to work bonuses" that would expire right around the election.  The difference, it would get them back to work.  And for minimum wage workers, they would make more, adding in the Federal subsidy, than they would have made on unemployment.  

So, how will this play out?  Unfortunately, the infrastructure bill will be the victim of this political/election posturing.  Both the Democrats and the Republicans have proposed a big, bold infrastructure spend.  The Democrats are pursuing it as a way to cram "mail-in voting" into the bill, and the extension of unemployment benefits.  That would probably seal the election for them.  The Republicans have no choice but to reject those two demands, and will therefore blame the Democrats for blocking much needed infrastructure.