Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Productivity Wage Gap in 2026
Transcript
- Lucas: If walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: It really does help sustain the deep dives we do, so thanks for supporting the show while you listen. Lucas: And now back to the data. We are sitting here on September twenty-eighth, two thousand twenty-six, looking at a labor market that feels deceptively calm on the surface. Average hourly earnings for private workers hit thirty-seven dollars and eighty cents last month, which sounds like progress until you realize it barely moved from the thirty-seven dollars and sixty-five cents we saw earlier in the year. Luna: Right, and when you layer that against a Core CPI sitting at three hundred thirty-seven point eight, that gap isn't just noise — it's a structural drag on household budgets. Lucas: Exactly. And this is where the narrative gets interesting because most people think inflation is the enemy. But today I want to talk about the invisible tax on efficiency. We are seeing companies become significantly more productive, especially in services, yet that value isn't trickling down to the paycheck. It's staying in the margin. Luna: So you're arguing that the problem isn't that prices are too high, but that wages aren't catching up to the value workers are actually creating? Lucas: Precisely. Let's look at the Employment Cost Index from April, which was one hundred seventy-nine. That number tells us that labor costs for employers are rising, but not at the speed of output. Meanwhile, global debt has topped three hundred sixty-five trillion dollars, creating a pressure cooker where capital wants returns, not risk-sharing. Luna: That global debt figure is staggering. Does that international pressure actually bleed into our local wage negotiations, or is it mostly a Wall Street dynamic? Lucas: It bleeds everywhere. Look at China's industrial profit growth, which expanded only four point two percent in August. When the world's factory struggles to grow profits, supply chains get tighter, and U.S. manufacturers face input cost volatility. But here is the kicker: U.S. service firms are automating faster than ever, boosting productivity without hiring more heads. Luna: So the worker is doing more with less human support, but the employer isn't paying for that extra capacity? Lucas: That is the core of the squeeze. In the past, if you needed more output, you hired more people, which drove wages up through competition. Now, technology absorbs the demand. The median usual weekly earnings are twelve hundred and four dollars, but that median is being propped up by people who already have leverage, leaving the rest behind. Luna: It feels like the middle class is getting hollowed out by this tech-productivity shift. Is there any historical precedent for this kind of decoupling? Lucas: We saw flashes of it in the early two thousands with the dot-com boom, but this time it is different because the debt load is higher. Kevin Warsh and the Fed are dealing with surging Treasury yields, which makes borrowing expensive for expansion. Companies don't expand; they optimize. Optimization kills entry-level roles first. Luna: Which means younger workers are hitting a ceiling much earlier than previous generations did. Lucas: Exactly. And because the PCE price index is still creeping up to one hundred thirty-one point seven, the real wage gain is negative for many. You might see a raise, but your basket of goods costs more. It is a dual loss of income and purchasing power. Luna: I find it fascinating that the S&P five hundred is still near seven thousand six hundred even with all this headwind. Are investors blind to the wage stagnation? Lucas: Investors love margin expansion. As long as Apple or Microsoft can show that their AI investments are cutting labor costs while keeping revenue flat, the stock goes up. The market rewards efficiency over equity right now. Luna: So it's a political economy issue disguised as a tech trend. Who decides when that balance tips back toward workers? Lucas: Usually, it takes a shock. Either a massive labor shortage forces hands, or inflation gets so bad that consumption collapses. Right now, we are in the slow burn phase. The VIX is low, the markets are quiet, and nobody is panicking. Luna: But silence doesn't mean stability. It just means the pressure hasn't broken the seal yet. Lucas: Correct. And with Switzerland keeping rates at zero percent, global capital flows are shifting unpredictably. This uncertainty makes companies hoard cash instead of raising wages. They are waiting for a signal that never comes. Luna: It seems like the worst part is the uncertainty. Workers don't know if they should negotiate harder or just hold steady. Lucas: They should look at the JOLTS data and the NFP numbers closely. If job openings stay high but wages stay flat, that is a clear sign of employer dominance. The bargaining power has shifted decisively away from the employee. Luna: So for the listener hearing this, what is the practical takeaway? How do they protect their own purchasing power in this environment? Lucas: Skill acquisition is the only hedge. If you are in a role that can be automated, your wage growth will cap out. If you are in a role that complements automation, you capture the surplus. It is a brutal reality, but it is the math we are living with. Luna: Complementary skills. That is a great way to put it. It shifts the focus from fighting the machine to mastering it. Lucas: Exactly. And while we wait for the macro picture to clear, keep an eye on those ten-year breakeven inflation rates. At two point three four percent, the market thinks inflation is tame, but your grocery receipt disagrees. Luna: The disconnect between the macro metrics and the micro experience is going to define this decade of economics. Lucas: It really is. And as we move toward the end of the quarter, watch how the FOMC reacts to these lagging wage signals. If they miss the mark, we could see a sharper correction in assets. Luna: A sharp correction would finally force a reset in those employment contracts. Do you think that is coming? Lucas: I think it is inevitable. The system cannot run on extracted margins forever without consumer pushback. The question is just when the pushback becomes loud enough to matter. Luna: Until then, we keep tracking the gap. Thanks for walking through this with me, Lucas. Lucas: Always, Luna. Let's see if next week brings a surprise in the payroll numbers.