A Democratic Wave Would Lift Hiring and Wages

(Bloomberg Opinion) -- If employers were truly struggling to find workers, they would just offer higher wages, right? Not necessarily. There are major employers who collectively account for 22 million workers who are constrained in their ability to do that: the federal, state and local governments.

Many of those governments’ leaders maintain mindsets from the aftermath of the financial crisis and keep a tight fist on certain types of spending, including wages. If the U.S. sees a Democratic electoral wave in November, those crisis-era mentalities will be washed away.

That could be an overlooked catalyst for the labor market and economy in the very near-term. A market-driven surge in public-sector pay could drive the sort of healthy inflation economists have been looking for during this long recovery.

The best way to summarize this dynamic is that there are 19 current state governors who were elected in or before 2010, and 16 of them are retiring or are term-limited as of this November. That 2010 gubernatorial class was the Tea Party wave that swept Republicans to power, and it also includes Democrats like Jerry Brown in California who inherited a budget crisis and had to spend most of their tenure addressing fiscal issues.

But the attitude toward government workers made sense in the aftermath of the great recession is becoming increasingly damaging as the labor market tightens and the strains of years of budget restraint become apparent. We saw it earlier this year in the teacher strikes in several states.

It’s become an issue in the new school year as many jurisdictions struggle with a shortage of school bus drivers. Here’s a story from Montana. One from Minnesota. Another from Vermont. Between freight companies scrambling to find drivers and ride-share companies like Uber and Lyft trying to maintain adequate supply on the roads, budget-constrained school districts struggle to compete for drivers.

This dynamic is visible in the economic data. In the Bureau of Labor Statistics’s Job Openings and Labor Turnover Survey, one of the puzzling dynamics has been that while the number of listed job openings continues to rise, the amount of hiring has not kept pace. There have been many theories for this: employers being pickier in who they hire, or listed openings not being positions that employers feel an urgency to fill, or chronic openings reflecting an inadequate wage. Whatever the case may be, the openings-to-hire ratio in government has been rising throughout the expansion and is currently at a level far above where it was in the middle of the last decade. In 2005 the openings-to-hire ratio averaged 1.18, whereas over the past 12 months it has averaged 1.67.

It’s worth thinking about what might change almost overnight should Democrats flip a lot of governor’s mansions as well as hundreds of seats in state legislatures in November. We’ve already seen in several liberal coastal cities and blue states a focus on increasing the minimum wage, in some cases to as high as $15 an hour, and we should expect similar movements throughout the country with an enlarged Democratic coalition. There would most likely be similar support for increasing teacher pay and adequately staffing state and local governments, even if that means higher taxes.

This will have both direct and indirect impacts. When governments start to hire and give more raises, that lifts wage growth not only in the public sector but also in the private sector. For employers in low-wage industries who complain about worker shortages but have been reluctant to increase wages, government-mandated higher minimum wages will force their hand.

All of this should drive wage growth and ultimately inflation higher.

We might end up looking back at the 2016 and 2018 electoral cycles as a two-part program to end the government austerity put in place in response to the financial crisis. President Donald Trump and the Republican Congress produced deficit-financed tax cuts in the name of boosting economic growth, and Democratic politicians elected in response to Trump’s unpopularity will put in place policies to ensure that workers get more direct benefit from the U.S.’s economic growth. At long last, the policy hurdles holding back inflation will be gone.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.

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