What’s Stunting Wage Growth?

Grind for August 9th, 2018
“It has been my observation that most people get ahead during the time that others waste.”

– Henry Ford

Not On My Watch

The Headline

Trump Administration sanctions Russian Bank for working with North Korea

The Grind

The Treasury Department on Friday announced sanctions on Russia’s Agrosoyuz Commercial Bank after it handled transactions for North Korea.

The Russian bank supposedly conducted millions of dollars worth of transactions for Han Jang Su, a blacklisted financial agent who works for North Korea’s Foreign Trade Bank (FTB).

The Treasury Department also sanctioned Moscow-based FTB representative Ri Jong Won for holding Russian bank accounts in his name until 2016 or later.

The Details

Trump signed a denuclearization agreement with North Korea in June and promised not to impose any new sanctions while negotiations were taking place.

Little progress has been made since that meeting, however, and reports from last week suggest North Korea could be working on a new ICBM.

“The US will continue to enforce UN and US sanctions and shut down illicit revenue streams to North Korea,” said Treasury Sec. Steven Mnuchin. “Our sanctions will remain in place until we have achieved the final, fully verified denuclearization of North Korea.”

The punitive action on Agrosoyuz Commercial Bank follows reports of widespread sanctions evasion in Russia, including North Korea’s use of Russian ports for illegal oil shipments. Russia has also been accused of allowing thousands of North Korean workers into the country in violation of UN sanctions.

“Credible reports of Russia violating UN Security Council resolutions on North Korean laborers working abroad are deeply troubling,” says UN Ambassador Nikki Haley. “Talk is cheap – Russia cannot support sanctions with their words in the Security Council only to violate them with their actions.”

Why Not?

The Headline

Unemployment is down, so why aren’t wages growing?

The Grind

Labor Department data from the month of June suggests a historically low unemployment rate of about 4%.

Economists say 4% unemployment should facilitate wage growth rates of about 3.5%, but according to data released last week, growth is increasing at just 2.7%.

Some have blamed the weak growth on declining unionization – which limits workers’ ability to fight for higher pay.

“If wages are stagnating, that means that we’re doing all these great technological innovations, but most people really don’t see the benefit of that,” complains Dean Baker, co-director of the Center for Economic and Policy Research.

The Details

As others have pointed out, companies could be using that extra money on benefits like health insurance, retirement plans, and vacation time.

Other factors include low inflation (which makes small pay increases more valuable) and replacing retirees with younger inexperienced workers earning lower pay.

“I think we should be careful in assuming something’s broken because a tight labor market isn’t leading to greater wage increases,” says Stanford researcher Russ Roberts.

“I would simply say that the wage increases we observe are probably understating the actual gains to workers in terms of their standard of living.”

Did you know… In the Victorian era, they had special teacups that protected your mustache from getting dunked in your tea.