Workers in the tightest American labor markets are finally receiving pay packages that are growing faster than inflation.

According to an article in the Wall Street Journal on Jan. 1, in cities such as Minneapolis, Denver and Fort Myers, where unemployment is around 3 percent, the labor market is so tight that businesses need to increase wages to attract employees. In Minneapolis, for example, where unemployment is 2.3 percent, wages have risen by 4 percent.

We need to applaud higher wages because they enable people to spend more. This sets in motion a virtuous cycle: More spending by consumers creates demand, which both gives companies the need to hire more people and the money to pay them with.

Economists predict that labor costs need to increase by at least 3 percent to push inflation closer to the 2 percent inflation the Federal Reserve believes is necessary for a healthy and growing economy.

The Labor Department’s Employment Cost Index, the broadest measure of labor costs, increased to 2.5 percent. Wages and salaries account for 70 percent of employment costs. Benefit costs such as covering health care represent the other 30 percent.

Signs that the labor market is robust include: people who had dropped out of the workforce are rejoining it; the percentage of full-time workers has increased; the minimum wages is to rise in 18 states, including Florida, in 2018; the Bureau of Labor Statistics reported that black workers’ unemployment rate had fallen to 6.8 percent, lowest in the 45 years that data has been tracked.

Another positive sign is our ebullient consumer confidence index. US consumer confidence jumped to a near 17-year high in October in anticipation of changes in the tax laws. The Tax Cuts and Jobs Act should contribute to the virtuous cycle by raising wages, increasing consumer spending and boosting the economy.

Wages have risen less than the inflation rate despite unemployment declining to its lowest level in 17 years. Thank goodness the situation has improved for skilled workers in industries such as construction, information technology and manufacturing, in which workers got raises.

Here are two examples cited in the Journal article:

Ultra Machining, a precision machine shop in Cuyahoga, Ohio, makes parts for medical device makers and the auto industry. To attract the additional workers it needed it had to raise pay 25 percent for weekend workers, to institute a $5,000 hiring bonus and add to offer a $2,500 retention bonus for every year a worker stays on the shift.

To retain workers, Patrick Grimes, owner of Generations Hardwood Flooring LLC in Hayden, Indiana, raised key employees’ wages to $75,000, an increase of $10,000. He also started covering 100 percent of the workers’ health-insurance premiums.

The increase in wages has not been enough to alleviate the issue of growing income inequality. According to a report by the Haas Institute at the University of California Berkeley, 54 percent of the country’s wealth is owned by 3 percent of Americans and the bottom 90 percent own about 25 percent of the wealth.

I subscribe to many of the Haas Institute’s suggestions for helping the bottom 90 percent increase their wealth:

• Increasing the federal minimum wage from its current $7.25. A $15,000 annual income for 2,000 hours of work is not a living wage.

• Increasing the standard tax deduction. The Tax Cuts and Jobs Act has almost doubled the standard deduction. For married joint filers, the deduction will be $24,000; for single filers, it will be $12,000.

• Developing policies that will encourage higher saving rates, such as programs that automatically enroll workers in retirement plans.

• Providing universal Head Start and pre-K programs to improve the quality of early education for lower- and middle-class Americans to reduce persistent income and wealth inequality. These programs would encourage social mobility rather than our current economic stratification.

Originally published in the Sarasota Herald-Tribune