The U.S. labor market continues to deepen the divide between capital and labor, with data revealing that the top one-third of earners saw 6% after-tax wage gains in April, while the bottom group experienced a mere 1.5% gain. This disparity means low earners suffered a net loss of income, as the consumer price index rose 3.5% through March. This structural underpayment of labor persists even as weekly jobless claim applications rose last week, reaching 200,000 in the week ending May 2, though remaining at historically low levels.
The overall labor market is described as a “low-hire, low-fire” state, which has kept the unemployment rate historically low but has left those out of work struggling to find new employment. This condition has also resulted in a slowdown of wage gains, which could soon be outstripped by inflation. The total number of Americans filing for unemployment benefits for the previous week ending April 25 declined by 10,000 to 1.77 million.
Who Profits
Financial markets have rebounded near record levels, even as high-profile corporations like Morgan Stanley, Block, UPS, Amazon, and Disney have recently cut jobs. The investment required to develop the artificial intelligence boom is also making companies reluctant to hire, prioritizing capital investment over labor.
Prices for a barrel of U.S. crude oil remain elevated around $90 per barrel, 36% higher than before the Iran war began. This sustained elevation in energy costs contributes to corporate profits in the energy sector, while saddling businesses and consumers with higher costs. The Labor Department reported that U.S. employers added 178,000 new jobs in March, nudging the unemployment rate down to 4.3%. This followed a loss of 92,000 jobs in February.
Who Pays
The 1.5% after-tax wage gain for the bottom group of earners, contrasted with the 3.5% rise in the consumer price index through March, indicates a net loss of income for the working class. Consumer sentiment surveys show that workers and job seekers are “more downbeat,” despite official descriptions of the labor market as “solid,” “resilient,” and “steady.”
Gas prices are much higher since the Iran war began, with the national average reaching $4.56 a gallon on Thursday, burdening working families and small businesses. Small businesses, in particular, have seen hiring declines over the past three months, indicating a concentrated impact on smaller capital formations and their employees. Structural changes, including an aging U.S. population, a sharp reduction in net immigration, and technological innovations like artificial intelligence, are reshaping jobs, industries, and the economy, further impacting labor supply and job security.
The State's Role
Federal Reserve policymakers are increasingly split over the direction of interest rate policy, with New York Fed President John Williams noting “conflicting signs” between data showing stability and consumer sentiment surveys pointing to a softening picture. Williams stated that these indicators suggest “increasing labor market slack,” yet the proposed response remains to “monitor closely” for shifting conditions.
The Trump administration’s policies of immigration restrictions and mass deportations have shifted the trajectory of labor supply, directly impacting the availability and cost of labor for capital. The volatility in job numbers can be partly attributed to factors including “labor strikes,” indicating ongoing organized resistance from workers against the existing economic conditions. Economists and policymakers are still attempting to determine the “breakeven rate” of monthly jobs needed to keep unemployment stable, acknowledging structural shifts in the economy that their models struggle to contain. This ongoing recalibration highlights the state’s role in managing the contradictions of the system without addressing its foundational issues. Investors are betting that the labor market’s relative stability, combined with elevated inflation, will keep the Fed on hold through the year, protecting accumulated wealth.