The Truth About the U. S. Labor Shortage

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The Truth About the U. S. Labor Shortage

Despite the worried whining of many analysts, it’s clear that we’ve entered the Golden Age of the Fifth Techno-Economic Revolution, which will make the average American wealthier, healthier, and more secure than at any time in history. Already, every sector of the U. S. economy is humming, corporate earnings are soaring, business and consumer confidence are at record highs and, most importantly, both U3 and U6 unemployment measures are at record lows. Meanwhile, the number of recipients associated with social safety net programs is down, significantly.

Reducing regulation, lowering taxes, and unleashing the power of the North American Energy Revolution have combined to trigger a technology enabled business boom in the United States. And this surge is just getting started.

At the same time, the United States is engaged in a two-dimensional “Civil War” over the dominant vision for the 21st century. One dimension of this war pits Globalists against Nationalists. The second dimension pits the Fossil Fuel economy against the so-called Green economy. To a large degree, it comes down to a worldview contest between “4%-Larry Kudlow” and “2% Larry Summers.” The direction of the current boom will decide the outcome of the Civil War and the outcome of the Civil War will determine the shape of the boom.

An important symptom of this economic surge is an apparent “labor shortage.”

And, that raises the question of what a “labor shortage” is and whether the apparent shortage currently emerging in the United States is different from previous shortages.

First, let’s consider the question, “What is a labor shortage?” A labor shortage is when people are not available, at the prevailing wage, to do the jobs that need to be done. This normally means that companies have to offer higher wages to entice additional people into the workforce and that generally means also paying the people who are already working more money.

In extreme cases, like World War II, nearly 100% labor force participation, with manageable inflation, is possible if wage-and-price-controls are imposed and there is little or no social safety net. In normal times, however, shortages mean that people are paid more and, unless those people are made proportionately more productive, this will lead to inflation and ultimately, to lower real corporate earnings and higher interest rates.

In a prior issue, we demonstrated that the so-called Phillips Curve, which represents the “supposedly fixed” relationship between the Unemployment Rate and the Inflation Rate, has broken down over the past 40+ years...

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