JPMorgan Chase Announces Raises: Are Wages Finally Waking Up for the Rest of Us?

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On Tuesday morning the labor market got some news.

In an op-ed for the New York Times, JPMorgan Chase CEO Jamie Dimon announced his intention to give 18,000 bank employees a raise.

"Our minimum salary for American employees today is $10.15 an hour (plus meaningful benefits…)," he wrote. "Over the next three years, we will raise the minimum pay for 18,000 employees to between $12 and $16.50 an hour for full-time, part-time and new employees, depending on geographic and market factors."

It's a big raise that will mostly reach branch-level employees, such as the tellers who process your transactions. Under Dimon's plan, the lowest paid workers at Chase (those moving from $10.15 an hour to $12) will still get an 18% raise.

This is a big deal for bank employees, but it's also a big deal for everyone else, because for the first time since the recovery began, it's a sign that the economy is, maybe, actually starting to behave normally again.

For years economists have puzzled over the seeming paradox between slow wage growth and rapid employment gains. Put simply, wages are supposed to follow the ordinary laws of supply and demand. The less there is of something (available workers), the more it should cost to buy (in the form of pay).

Yet that hasn't happened. Unemployment has more or less steadily tumbled for years, while wages have barely percolated.

It's enough to make an honest economist start forecasting the LIBOR with tarot cards.

In the face of big job numbers out of June, which did a lot to hold off looming fears of recession from May, that paradox would only be compounded if wages failed to meaningfully move.

Yet they have, both anecdotally and in the data… somewhat.

In June national wages perked up by 2.6%. It's less than the 3.5% the Fed wants to see, and seems somewhat more dismal in light of the 1.3% year-to-date figure, but it's one of the few signs we have that job growth and wage growth are tentatively linked again.

Dimon's announcement is another one. Made on the heels of an announcement by Starbucks CEO Howard Schultz on Monday that baristas will all receive 5 to 15% raises, it's a sign that major companies have increased their competition for talent.

"Chase's announcement of a pay raise for workers is something we have been waiting on for employers all year," said Tara Sinclair, chief economist for the job site Indeed.com, "as we've seen record job demand with mediocre to stagnant wage growth."

"Usually strong employer demand leads to higher wages, but one of the conundrums of this economic recovery has been growing job postings across industries without the commensurate pickup in salary for the average worker," she added. "Chase's decision, along with past announcements by companies such as Starbucks and Walmart, may prompt more employers to make similar moves to retain or attract talent. But the past year has shown us that nothing is certain in this economy, so only time will tell if it moves the needle at a national level."

Sinclair's point is well taken. While exciting for many bank tellers and baristas, in the wake of an announcement like this, it's important to sort out the signal and the noise. Last year, Walmart and Target made similar waves when they announced big changes to their pay scales, and McDonald's followed suit.

Nevertheless, 2015 ended with median wage growth hovering just above 2.2% (far short, again, of the Federal Reserve's 3.5 target).

The economy is still waiting to catch that second wind when wages reflect a tighter job market and Economics 101 begins to make sense again. 

That doesn't make Dimon and Schultz's decisions any less laudable. Tens of thousands of Americans will be better off because of their actions. In that moment, however, it's worth considering that these corporate giants cannot do quite enough with the stroke of a pen.

In that sense, perhaps the last words are best left to Dimon:

"We face many challenges. But they can be overcome by government, business and the nonprofit sectors working together to build on models of success that advance economic opportunity and create more widely shared prosperity."

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