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Record Fall for Dow After Wages Increase for Workers

The Dow has seen two days of record decreases as investors fear rising wages will mean smaller profits

Brian Young's picture
Feb 05, 2018

Over the last two days, the Dow Jones has lost nearly 2,000 points. These represent the largest two-day losses in Trump’s term and wiped out much of the gains made over the last year. The cause of the losses? A Bureau of Labor Statistics (BLS) report that shows wages have increased by 2.9%.

Over the last year, Trump has touted every new rise in the stock market as proof that the economy is strong. With record low unemployment and a record high stock market, the economy looked strong, but many economists worried about low wages which had not risen to expected levels after the recession. Over the last ten years, companies have increased profits by reducing staff and not giving out raises.

With unemployment, at 4.1% the job market does not have the supply to meet employers demands. This gives workers an advantage. Since there are open jobs available, they have some leverage to negotiate higher wages. Of course, Wall St. doesn’t like anything that might lower their profits and so the sell-off has begun.

Some of the companies that saw big losses were the companies that have announced wage increases over the last year and companies that were affected by the 17 states that increased their minimum wages. Wells Fargo, which is raising their minimum wage to $15 an hour, was down 9% as of 3:30 PM on Monday and WalMart, who announced they would raise wages to $11 an hour, was down 3%.

While higher wages may mean smaller profits for some investors in the short term, it should mean more money for people to buy goods, especially expensive products that they may have put off. However, Wall St. is worried that increasing wages will increase the price of these goods, which would negate any benefits from a wage increase.

Investors also worry that increasing wages will lead to inflation. While the inflation rate has been historically low, investors worry that any increase would cut into their record profits. Basically, if it is good for the worker, Wall St sees it as bad news for them.

The behavior of Wall St. investors over the last few days is more proof that they will do whatever they can to protect their profits and keep wages low. For nine years, wage growth was stagnant while these investors reaped record gains. After nine years they are now ready to bail out and tank the economy because the people who create their wealth might actually get a little bit more of the pie.

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