One of the brightest spots in the strong Nov. 2 jobs report was the acceleration in wage growth for workers in the retail industry. Assuming the economic expansion continues at a robust pace in 2019, conditions should get even better for retail workers next year. It’s just that we’ll probably end up with fewer of them.
Wage growth for retail workers was 4.6 percent in October, which was the fastest pace in nearly 20 years. This robust pace of growth doesn’t appear to be a fluke, either. In five of the last eight months, the annualized pace of wage growth for retail workers has exceeded 5 percent. Just like for workers in the economy overall, a tightening labor market for retail workers continues to produce an uneven but upward trend for worker pay.
The question is whether the pace of wage growth in the industry is sustainable. For the workers in the industry the answer might be yes, but for the industry as a whole the answer is probably no.
There are some ways to deal with this for a while. Perhaps you can increase financial leverage, but there are limits to that, especially when interest rates are rising. Firms can also accept lower profit margins for a while. But eventually wage growth in excess of inflation and productivity growth will break a business, particularly a notoriously low-margin one such as retail.
There are a few possibilities here. Maybe cashier-less stores take off much sooner than expected, enabling a rapid productivity acceleration in the industry. Maybe retailers just take the margin hit involved if wage growth is in excess of 5 percent. But more likely, it means closing underperforming stores.
This need not be bad news for workers.
Here’s how it could work: Retail workers get pulled by the strong economy into better-paying, more productive nonretail jobs. This creates even more of a scarcity for retail workers, driving wage growth higher for those who remain. The end result in the retail industry is fewer workers in a shrinking number of stores, with wage growth at the highest level of the expansion.
Rather than broad-based growth, the growth we’ll get will be more uneven, with companies and industries bidding for resources, with some able to pay the higher prices and some not. The hope is this new phase of the expansion can last for a while longer.
Conor Sen is a Bloomberg Opinion columnist.
