Higher wages are good for you, right?

One of the key passages in this illuminating article in the Los Angeles Times article is the one that describes the disconnect between real growth for working people and the mindset of the investor class (certainly a majority of workers in the U.S. are involved in some form of investment by this point, but they don't, as a rule, shift the market. If they did, their good fortune would be reflected in the market.)

The 3.3% annualized wage gain still lags behind the 3.4% yearly inflation rate, economist Bernstein said. And continuing pressures from globalization will subdue wage gains for some workers, he said. Employers in many industries still can shift production to countries with cheaper labor.

"If you are a white-collar worker in an occupation where information can be digitized, there is a good chance you are competing now with workers who are equally skilled but earn a tenth as much as you do," Bernstein said. "Of course that will have an impact."

Now compare that with this selection:

The bottom line: The labor market is tightening, which means more bargaining power and stronger wage growth for workers. Their earnings have failed to keep up with inflation during a five-year economic recovery marked by rising energy costs and growing competition with low-wage countries such as China and India.
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But the prospect of better rank-and-file pay and lower joblessness spooked some investors Friday because it threatened to reignite inflation and limit corporate profit growth.

Investors fear that inflation pressures could force the Federal Reserve and its new chairman, Ben S. Bernanke, to boost interest rates more than hoped for. That, along with weakened profit growth, could halt what has been a promising 2006 stock market rally.

Real wage improvements for a majority of the population is looked upon with trepidation by the market? I've taken a few econ classes, I understand the reasoning from the investment angle, yet rarely is the gap illustrated so clearly. At the very least, the market should look at the increased purchasing power wage gains can represent.

A robust stock market does benefit everyone, yet a country made up of workers who are seeing their purchasing power steadily decline while their jobs go overseas doesn't sound like a recipe for a strong economy.

Focusing on corporate revenue and stock prices only tells you so much. If consumers are no longer able or willing to purchase your product, all the corporate restructuring and foreign borrowing will amount to nothing.

The market hasn't even seen the real shock. The energy crisis has been somewhat mollified due to a mild winter. What happens if we see weeks of serious cold? The reappearance of energy bills in the hundreds of dollars will put a serious dent in the economy. It will translate to higher revenue for energy companies, thereby guaranteeing a stock boost, but what will the real long-term effect be on the economy. No one seems to want to answer that question, especially in times when a state government is willing to allow gas companies to penalize its customers for installing energy-saving equipment in their homes.

- Murphy