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This morning we are discussing the labor market. Why is the labor market making news right now?

Right now, the labor market is making news because it is on a tear, Last week, we learned the number of Americans filing for unemployment benefits is closing in on a 44-year low, signaling that the job market continues to tighten.

Initial claims for state unemployment benefits dropped to the lowest level since March 1973. It was the 104th straight week – that is two years – claims remained below 300,000, a threshold associated with a healthy labor market! This is the longest stretch since 1970, when the labor market was much smaller. This is good news for workers, but it also will have some ripple effects that will reach your wallet.

 A 44 year low! What does that tell us?

It tells us that the labor force is close to full employment – meaning that all the workers who can easily or usefully be hired are working, and new hires can only occur by luring people from other jobs by offering them higher wages. In short, we have fully recovered from the depths of the financial crisis.

The unemployment rate peaked at 10% in October 2009, when more than 15 million americans were actively looking for a job but couldn’t find one. Since then, those numbers have been cut in half. As of January, the unemployment rate was 4.8% and around 7 million were officially unemployed. In fact, the labor market is now stronger than it was before the recession.

What does that mean for american workers?

First, it tells us American workers are likely to see improving wage growth going forward. As the labor market tightens, employers are now having to compete for qualified employees, rather than having job seekers compete to get a job. That means that the bargaining power has shifted to workers, which is good for wages. I think we will see more workers getting bigger numbers on their paycheck in the wage of the sustained economic recovery of the past 7 years.

It also means employers are increasingly being required to take the competition for talent beyond wages and provide other compensation, such as training for workers. According to a survey by the Wall Street Journal and Vistage international, a San Diego executive-advisory group, nearly two-thirds of small businesses are spending more time training workers than they were just a 12 months ago. That signals that professional development is back on the table for many workers, and it could mean workers with less experience may have more opportunities to build their skill base and advance to higher skill and wage jobs.

You mentioned that a strong labor market could hit our wallets. How?

We are likely to see another interest rate increase this month. A strong labor market is one of the largest considerations for the federal open markets committee when it is deciding whether to raise interest rates. With the labor market tightening, it is looking more and more likely that the committee will do just that.

And as we discussed in December, that can affect your finances in several ways. Credit card interest rates are likely to rise, which means carrying a balance will costs you more. If you have a variable rate mortgage, you are going to be paying a little bit more when reset time comes. One positive note? Higher interest rates mean that your emergency savings account is likely to see a small improvement from higher interest rates.

Any other things to keep in mind?

I have mentioned this on previous Money Monday shows. but it bears repeating: there are ways you can take advantage of the tight labor market. One of the best ways is to hone your professional skills. If two-thirds of small businesses report they are providing more training to new employees, this is a sign they are having a tough time finding the qualified employees.

If you tailor yourself to the job you want, you can make the tight job market work to your advantage. This may mean signing up for an online course, or simply hitting the books to broaden your understanding of your industry. Improving your command of the relevant skills will certainly give you a boost when it comes to advancing your career.

Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.

 

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Money Mondays: The Labor Market Is Up; What That Means For You  was originally published on blackamericaweb.com