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Big companies follow big government

·Senior Markets Editor
·3 min read
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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, May 14, 2021

The battle for labor is heating up and big companies are acting fast

The U.S. economy is imbalanced.

Demand for goods and services is outstripping supply, pressuring consumer prices, hiring plans, and the ability of all kinds of businesses to meet demand. And with the biggest challenges today coming in the labor market, employers are faced with two choices: try to operate understaffed businesses or ramp up pay to get more workers in the door.

And America's biggest companies aren't waiting to make their decision.

McDonald's (MCD) and Amazon (AMZN) — who between them employ almost 3 million people worldwide — both announced plans on Thursday to increase pay at their lowest wage levels. McDonald's said crew members at its company-owned restaurants would get, on average, a 10% pay bump in the coming months. Amazon, meanwhile, said it would be hiring an additional 75,000 workers across the U.S. and Canada at an average starting rate of $17/hour in addition to a sign-on bonus of up to $1,000.

If we turn back the clock to 2015 and '16 when the labor market was finally starting to tighten there were a rash of announcements from employers like McDonald's, Target (TGT), and Walmart (WMT) that pay would be increasing for its hourly workers. After the last recession, it took years for labor pressure to increase enough for big employers to start raising wages to retain and attract talent. This time around it's taken only months.

Of course, this outcome is the direct result of the fiscal policy response to the pandemic. Critics of the trillions in stimulus pumped into the economy over the last 15 months note that we're in uncharted waters on what the long-term effects of these programs will be. Which is both true and not.

It is true that we've never engaged in such a forceful fiscal response to a recession. But it is also true that the fiscal response to the last recession was inadequate. Trillions in economic output — the negative output gap shows the distance between actual and potential GDP in the post-financial crisis era — were lost because stimulus plans following the financial crisis left too many workers underemployed for too long.

The biggest companies making the biggest moves to raise wages does not, however, come without potentially negative side effects. Last week, for instance, we highlighted a few vacation destinations that are facing challenges in staffing up ahead of the summer months.

And while leisure and hospitality jobs were a standout in an otherwise disappointing April jobs report, hiring troubles are clearly persistent across sectors of the economy. Better-resourced giants like Amazon and McDonald's raising wages merely adds to the pressure smaller businesses are facing.

Hotter inflation than we've seen in decades, while powered right now by constructive, demand-centric dynamics, is also not a riskless development.

But the swift and forceful actions of policymakers trying to restore a damaged economy this time around have been met with similarly swift and forceful actions from employers trying to meet demand exceeding supply as we grow out of the recession. Big employers like McDonald's and Amazon aren't raising wages out of the goodness of their hearts; they're raising wages because it's better for business to pay workers more.

Said another way, the government set expectations for the speed and magnitude of this recovery with its stimulus packages over the last year. And big business is merely following that lead.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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