As an employer in the warehousing/distribution sector I can tell you that here in Maine wages are up several dollars per hour over a few years ago. Even entry level jobs have gone up substantially and the quality of worker has gone down, my guess because the better workers are not in entry level jobs anymore.
The policy suggestions shown here are not in accordance with what Mr. Krugman had said early in 2017, if I remember correctly.
But final line explains, and I love it.
Thank you, I enjoyed reading this piece very much.
I get the monopsony arguent here, but in order to explain the departure from the old relationship between unemployment and wages, one would need to show that more firms have monopsony power than they had before the crisis. This seems counterintuitive given that communication technology continues to tear down barriers between localized or otherwise fractured labor markets. In other words, the easier it is for workers to learn about jobs all across the country, the more competition employers effectively face, the flatter is the labor supply curve they face.
Low interest rates do nothing but increase the price of risk assets (equities, housing, etc.). They actually hurt lower income savers (lower interest income) and lower income people in general (higher rental housing costs). After ten years of failure with easy monetary policy Paul should see the truth and push for a better fiscal policy (taxation and spending).
If skittishness about the durability of a strong economy were the primary driver of lower wages there shouldn't be an elevated number of job openings vs. actual hires, but there is.
If monopsony, we shouldn't see the near record number of employees quitting their jobs to take other, higher-paying jobs. Also, we wouldn't see the mismatch between hires and openings among small employers without monopsony power -- but we do.
Given these observations plus rising wage growth for job-switchers, vs. actual *declines* in wage growth for job-stayers, the closest fitting hypothesis is niether monopsony nor skittishness (although these factirs may play a role),
The closest fit with observation is "economic taboo:" essentially a decision to leave profits on the table because obtaining them conflicts with an even higher priority held by the employer.
Credit to New Deal democrat at http://bonddad.blogspot.com/2018/05/dear-professor-krugman-say-its-name....
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The Fed today (Wednesday, 5/23) has acted in concordance with Krugman's advice: letting the rate of inflation increase. Hail to the Shadow Chair!
1
You never mention unions. With the strong positions of the employers and the weak or nonexistent unions that we have today I would expect wages to stagnate.
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Dang Doc, you didn't close the deal with Figure 7. This is the monopsony paradox. The Employer will hire where Marginal Cost = Marginal Revenue Product. The labor hired will be traced to the supply curve. (as he did) In a fully competitive market the wage rate would be about 20% higher than the wage in monopsony. (trace from the intersection of of the supply curve and the marginal product curve/demand curve to the vertical axis.) Not only that more people will be employed. (drop a vertical line to the horizontal line, that is quality employed. I realize I have absolutely no credibility in these pages. However, I have been beating on this subject for at least two years now. Your wonderful capitalist pig employers operate in an environment where they pay less, hire fewer and maximize their profit. Wonderful, beautiful, it is great to be king.
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Two percent unemployment is full employment. Congress should spend until we get there. Raising or lowering interest rates is a distraction.
For the same reason - because they can. Wages will grow more with a tight labor market when that labor force can stand equal to the employers, when labor can negotiate with equal standing with management. Right now that's not the case, except for a very few jobs with very large competition for a tiny pool of applicants. Ordinary entry-level, middle-management, or 'experienced' workers need not even consider it. Imagine applying for a low or minimum wage job, or even a typical mid-level white collar job, and seeking to 'negotiate' the wage, benefits, perks, and golden parachute. Right away you're "not suitable" because you are not suitably compliant. You might be a troublemaker. You might even want to try to take some 'collective action' to get a better workplace, or more money, or just to enforce labor regulations. Wages are rising very very slowly because employers can do it. There is no partner with equal leverage, no partner to negotiate with, so employers can set the wages by decree, not by negotiation. "Take it or we'll keep looking..." and that's it, unless you are a very select candidate, with highly desired skills. Of course, even those can be outsourced, or contracted for. Solid wages, good benefits, and job security are all going away because they are bad for profits, and because employers can withhold them without consequence. "Because they can" is the punchline of an old risque joke, but its also the best description of why of wage stagnation.
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Right, but when do we get to the place where "they can't"? I would love to change jobs and have marketable skills, but I'm not going to leave for the same pay. My pay and benefits are OK. Commute OK. Manager and advancement potential lacking.
One problem: I basically can't move. I have a low interest rate mortgage. Jobs of interest are concentrated in two geographic areas here, which are non-commutable to one another. To move to the other area, not only would I have to pay points to get my rate back down, but I'd lose 6% of my home equity in the transaction. It's a smoking hot housing market, so that's a non-starter. There must be more people in my situation. People not being willing to move will restrict the labor market somewhat, unless increased wages (or at least relo packages or signing bonuses) happen.
I realize this isn't a macro argument, just a circumstance. But I'm curious about how labor mobility comes into play.
1
What about the minimum wage?
In the past, we mostly assumed it would grow with inflation. Rising minimum wage would also raise the wage floor for those slightly-above minimum wage.
Since 2008, the adjusted (national) min wage has slipped lower every year. Average wages slipping lower every year should be expected - and may even be desired by those in charge of policy.
2
Minimum wage at $15 per hour? Let's price many young people, looking for their first job, out of the employment market. Why should young people have an opportunity; to Heck with them. Let's encourage them to apply for disability, making them permanent wards of the state who religiously vote for Democrats.
So what about rent and utilities and insurance? The cost of those things have increased by a lot. Why should the minimum wage not rise with the cost of everything else? How is your argument even logical? Many people are priced out of having their own place to live and a lot of people can't afford to have a car. Young people are definitely priced out of a lot of things. Holding wages down doesn't do anyone any good, except for employers. As long as people have attitudes like yours, the economy will never recover.
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A glaring example of Republican hypocrisy: feigned concern about growing wealth inequality... but siding with their donors (owners?) when the discussion turns to raising the minimum wage. Then it's "oh golly, that would costs jaaaawbs!" I wish Prof Krugman would study & write about how much that $15/hr would add to the economy. After all, the little people spend what they make... and not at Tiffany's.
1
As a small business owner I am relieved and grateful that the Supreme Court didn't make it possible for my employees to sue me for wages. I have all the risk and am barely making it. Unions in large businesses still have their rights - that wasn't effected.
I am also in a situation where my market's volatility demands that I try to stockpile some profits. I could go out of business in a week with just the right conditions prohibiting my securing inventory.
Theoreticians like Krugman will never get it. Of course I will raise my wages the minute I feel it is viable - that is good business - not to mention humane!
Paul can't seem to comprehend how effectively free markets work over time, but is quick to react and blame and want to meddle when business people may be justifiably spooked after the recession was followed by anti-business Obama policies. We (business owners) are just trying to survive. And we are the economy, stupid.
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Another business owner who knows his business but has no clue about the economy.
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Yet he underscored Paul's point when he used the word "spooked": the memory of the Great Recession, which held perils for employers as well as workers, is fresh in the minds of many. Hence the reluctance to raise wages unless they absolutely must. They don't want to get stuck in a position where they risk business viability if we have another downturn. It's a stalemate.
Employers complain they cant find labor. Which is a partial truth, esp. when it comes to certain higher level skills. Skills that are arising suddenly due to tech (in production or services) changes, that either they or the education system do not meet. Employers want employees fully formed and trained, often refusing to train old or new staff in any real way. And our education systems, public or private, are wholly not keeping up with changes. (Which I expect to get worse with the Education Dept new leadership.)
Or, and this a newer trend in need of quick response - employers refuse to bend to the elasticity of their employees lives. Namely, too many employers are stuck in a very rigid shift/schedule model. The basic 9-5 model, that is fast becoming archaic as the workers lives and demands on same require more flexibility in schedules.
To those too quick to blame immigrants...please...take a step back and refocus your ire. Immigrants dont take jobs, they are given them by employers seeking ways to maximize their bottom line. Be they a large manufacturer, or a local contractor or mom/pop shop. And the guilty parties are across party lines and scope of business.
If you want justice and fairness, then elect those seeking such ends. Not those vilifying people, and making absurd claims to build structures to their egos.
The way out is to regulate, strengthen and enforce laws and employee protections. Not what just took place this week with SCOTUS. Re; arbitration.
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I am baffled as to why economists and financial folk continue to scratch their heads at this. IT'S GREED. It's the same reason why the average McDonald's worker would need to be on the job for 895 years to make what their CEO makes in a year. It's the same reason $15/hr is seen as a great potential milestone for ordinary workers as opposed to slightly less of a disgrace. It's because America is a slave state where the financial economy is the vampire to the real economy and activist shareholders need to get paid and are more interested in their boards having the headache of worker shortages than (God Forbid) trying to attract better workers by offering a living wage and cutting into robust profits. It's always been this way and it will only get worse.
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Jeffrey: Right you are on all counts, all evidenced by the desertion of the center in politics: simply because people are finally figuring out they’ve been had by both sides playing against the middle. Your, younger generation in America are looking to the much more equitable European Model-as the Europeans in particular working class French are trying to ward off the Americanization tactics of Rothschild Investment banker anointed President, Macron. Other Europeans, notably Italy this week have given up and are turning to the extreme right. It would be nice if we could peacefully reintroduce a fair division of profits in America, but I don’t see that happening. It seems to take a revolution, a slaughter, World War or all three to get the rich to share for awhile, historically that’s the only way things change, the last illustration was the gilded age( now) the depression(the really big one is coming), then WWII(III is probably coming), it brought about the great middle class in Europe and America.
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But Krugman's cherished democratic party (& the republicans too) flooding this nation with 10's of millions of desperate immigrant workers, who serve the purpose of union-wage killing scabs, had nothing to do with the fact that after decades of mass immigration the minimum wage is 28% below its 1969 level? And 50% of Americans are making less than $15/hr? There's also the matter of his flat-earth, globalization obsessed economic priesthood forcing Americans, preaching that we are mysteriously morally obligated, to "compete" with no-rights slave wage workers in the Global South for four decades via the movement of millions of manufacturing jobs overseas, and the coercive power to threaten to offshore the rest of the jobs this gave the 1% to kill and hold down wages for what jobs remained that he has conveniently forgotten! Why doesn't Krugman describe these in slave-labor market terms as one of the major causes of low wages? Oh that's right Krugman is a propagandist for the 1%, AND the democratic party - which is the political brand of welfare - giving people who vote for them just enough gov crumbs to stay alive. A democratic party using the Marxist strategy that "a revolutionary must take every opportunity to increase the misery of the people" which immensely benefits from having an ever higher percentage of Americans in poverty. A democratic party whose supporters, therefore, are as much to blame for intentionally doubling the US poverty rate as the republicans are.
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Winthrop: Very well said.
Rising wages in the rest of the world -- the result of globalization -- gives US companies more customers. Which we expected when we started on this path.
It also shifts jobs in the US to services. We also expected that. For example, NAFTA includes money to help workers retrain. It looks like there might not have been quite enough money. It also looks like people get stuck in the idea of the right job for them.
The hoards of immigrants have many obvious disadvantages so you really ought to be able to compete with them for the better jobs. If a worker's skills and experience were valued by employers this would be easy. Return on Experience (look it up) seems to not be working for many workers.
Given actual Ds in office, the government is more willing to help with this. Fixes to Health Care for example. Enforcing safe working conditions. Vote this way and you will get more leverage to improve things.
You are delightful when you discuss economics.
On a good day, this paper seems to be able to put the pieces together. The decent jobs have left small-town America, shipped overseas. The young people who remain in those small towns are killing themselves with drug abuse, trying to support themselves on minimum wage. Their aging parents, still stunned by the loss of the jobs they used to have (now long gone), elected Donald Trump in their inchoate rage at America's elected leaders. Yes, the wages never rise, but we hear constantly that employers can't find employees to do the work, and we're all racists.
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Boy a lot of comments on this thread don't get it. You guys are mumbling intellectual junk: Krugman is saying this:
1.Wages did not fall in the last recession like they basically would due to expectations that the decline was not permanent....indeed it wasn't.
2.EPOP/LFPR are down because of decline of cohort size. Enough about them. They aren't going back to 2000 levels AGAIN! Period. They can't.
3.The UE rate the BLS uses falls lower in smaller cohort patterns. Notice the post-war era, unemployment had to fall to 4% just to generate any wage growth. In otherwords, 7.8% now is what 8.8% was when Clinton was President......a time when wage growth was surging.
4.When the period of adjustment ends, wages shoot up, I mean shoot the "Frack" upwards in a matter of a couple of months.
The leads me to the ECI which's first quarter wage component rose to 2.9% from 2.5% in the 4th quarter, that is explosive wage growth and the Fed's favorite wage tool over the BLS. Even the BLS's own stationary models showed a rise in the first quarter. Wages are a lagging indicator in any cycle. I mean, they just are. When they are hitting their peak, the cycle is almost over. The 90's was a bit noticeable that the peak and the end of the expansion was longer than normal, but that was a historical moment in US economic history. Not the norm.
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I sure hope you are right. I note that in Paul's post, the quit rate has only just caught up to where it was pre-recession. We might be on the precipice.
>
Only bourgeois economists are puzzled. There is no puzzle, no mystery, read your Marx, and not his puny scribes as to future society(s) but his huge volume of scribes as to capitalism.
Marxist economists are quite correct as to the economics of the situation; their failings reside in the belief that human beings will become more reasonable.
As E.O. Wilson opined about Marxism "Wonderful theory, wrong species". (On Marxism, which he considered more suited to ants than to humans.)
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Right about the puzzle. “Marxists” can only be critics of political economy, but no economists, or what is the same, apologists of bourgeois society.
Unfinished and open ended better than puny. The first youthful writings were Feurbachian, but after the Grundrisse the clear and dialectical mind shines over all the economists and social critics before and after his physical demise. Indeed his opus goes beyond economy and unknown insights about the social constitution of humanity.
He clarified the social domination of the abstract over the concrete, or value over its empirical manifestations, the unconscious over the conscious, and necessity over freedom. However, hinted at the possibility of abolishing value and necessity by the abolition of wage labor given its ever increasing productivity and capacity of wealth creation.
The poor white middle-class is now feeling what those 'other' peoples are feeling as our president puts it. Those other people are of course a different shade then the president's people. Those other people that are trying to come across our borders and take away those great paying jobs; be happy that you have a president that's looking out for your welfare. That too is Robert Mueller's fault, along with those Hollywood types, ant that right Milennia.
What I have discovered is the many, many women and men in the service sector working two and even three jobs to make ends meet for themselves and sometimes children. the proclamation of "Full employment" is a false god that belies the desperate nature of decent hard-working people without the benefit of health insurance because they are "part-time", without sick leave or vacation benefits; Why? Because this is what competition with labor in China, India, or Philippines looks like.
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Greed has, it seems, completely taken over corporate America (and SCOTUS). Between the Citizens United decision, and that decision yesterday to eliminate the ability of workers to sue their employer for the continuing shameful treatment of employees, 1984 is now here. Greed is the reason wages have stagnated, as Krugman suggests. I could see the labor riots of the 1920s pale in comparison to what is coming in this century. Hopefully, a Trump president of the next Trump Republican won't call out the military on its own citizens.
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The evidence failed to change your mind on your favored policy. Not surprising.
The professor is back! Thank you, Dr. Krugman, for this detailed economic explanation on your views on wage stagnation and unemployment. You're at your best when you put on your educator's hat. I feel smarter for having read your post.
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History also provides guidance on this situation.
During the German occupation of France (1940-44), the Germans sought to use French POWs and, later, French men to take the jobs German men held before mobilization. It was called Service du Travail Obligatoire (STO--obligatory labor service). While the French workers were far better housed and fed than concentration-camp inmates (the Germans tried that as well, and, according to Albert Speer, the Armaments Minister after 1942, this didn't work)--but they didn't want to help their conqueror, and many hid from STO and later roundups to "recruit" men for STO.
(Ironically, after 1942 many German women entered the labor force, which they found to be a liberating experience--as they had money of their own and it took them out from under the thumbs of their parents!)
You don't recruit people to do their best work by making them into a lesser form of life, while overcompensating CEOs and allegedly putting stockholders first. An educated, talented labor force is essential--unless one wants to become a vassal state to another power.
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Chart the downward trend of workers buying power and compare to the downward trend in union representation and marvel at their similarity.
The use of mass manipulation to demonize labor unions has been as effective as tobacco marketing was until recent years. That push on the part of big business and the rentier class was the start of "fake news" and the public got snookered.
How about a 40th anniversary tribute to "Norma Rae" and showings of "Harlan County" would not hurt either.
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Great article. In 2018 It is hard to understand US labor markets without taking into account foreign markets. The twin revolutions that occurred between 1995 and 2005 in transportation and telecommunications have changed the way US labor markets work.
Many employers, even relatively small ones, will consider having their product , or parts of the product made or provided overseas. Even relatively small firms can have parts or all of their product made in Mexico or Asia more easily than 20 years ago.
Small firms can now outsource services like web site construction or engineering design and calculations overseas where they find wage rates for skilled workers or professional services may be significantly less.
We used to think services like accounting or design were less importable, but American ingenuity has overcome much of that. Technical services can be imported as even small firms will have services performed in Argentina, Sri Lanka, or Thailand as easily as in New York or Michigan.
Finally, overseas outsourcing, especially for services, is more flexible. You can terminate the contract more easily and with fewer consequences than terminating a US resident employee.
All of this tends to attenuate the increase in wage rates that might occur as the US economy reachest full employment, and may also lower the economy's maximum "natural" growth rate.
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I'm with you on monopsony, but I'm still skeptical on full employment. The "trend" in ePop is valueless: the slope is based on a single data point right before the 2008 collapse.
The quit rate seems compelling, but remember this is only the rate among people who have a job, and therefore does not include those on the wrong side of the ePop ratio. That we should be ready to accept a lower ePop now is kind of disturbing. This is hysteresis, not progress. We can call this full employment only by classifying a million or so workers as not worthy of work. Then in the now more exclusive worker pool of "worthies" it is in fact easy to get a new job.
The high quit rate also invites the question: why are these people quitting? Evidently it's not for higher wages elsewhere. So are they quitting for better working conditions? In the past that was not enough to tempt people away from their current job. More hysteresis? Has work environment replaced wage as desideratum in a job?
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Paul Krugman, here is a simple question. If Corporations have additional cash because of a huge tax cut, and if profits for Corporations are higher, should not corporations have excess cash on hand they did not have before from both these sources? If yes, doesn't that give them the ability to make the decision to pay their workers more? Yes, they are worried that they will lock in those increases for the bad times, but bad times may come regardless. How about sharing some of the wealth? What is the downside - other than sharing some of the profit with workers? Does that ever happen simply because it's the right thing to do? Likely not. But how about other benefits? Are there any? More cash now means that more lobbying can be done, CEOS and second and third level administrators can get bonuses and pay raises, and stock owners get a boost when shares become more valuable. Why cannot it mean that workers get a boost - from their employers? You can tell me it is more complicated and difficult. OK. A further argument for more worker power - yes - at the cost of Corporate head power. Why aren't wages going up? Can it be that there is little desire among those in power to raise them? Could it be that simple, and couldn't your eloquent analysis help support that view? What forces still exist now to increase worker wages? I do not realistically see any, given what you have said here.
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It is the onslaught of A.I. that is causing the slowing of wages. Workers will soon be replaced by robots and machines that can do their jobs thousands of times faster than any worker could dream of doing them. It is the future and business is all in on it. The workers, the government are way behind the curve in dealing with the real problem.
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And who will buy the products? With what money?
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We all were taught the 1794 invention of the cotton gin (engine) was a great step forward. It could separate as much cotton in 1 hour as 10 slaves could do by hand in their 10 hour day--a factor of 100. Of course this didn't mean that 99 were let go: cotton still had to be picked by hand. The gin led to an increased demand worldwide for cotton, which led to desire for more land to grow more cotton, and more slaves to keep the new machines busy. Thus the number of slave states more than doubled between 1794 and 1860. The Indian Removal Act of 1830, though enacted for gold, not cotton, resulted in the death of an estimated quarter of the Cherokee population. That takeover in the southeast soon proved to be insufficient land. Enter the Mexican-American War to annex Texas. It has been quite some time that machines have been taking jobs, sometimes at an incredible human cost beyond unemployment. But some folks made a killing...
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In America we specialize in making things that are simple unnecessarily complicated. people need better paying jobs to keep up with the cost of living. people also need affordable housing. Most of the jobs associated with building housing pay well and don't require a four-year degree. we would do well to follow the lead of nations such as Germany that have robust apprenticeship and skills based training programs. The mid-century explosion of the middle class had a lot to do with building. We just sold our home built in 1950. Most of the homes we are looking to buy in another state, were built between 1940 and 1970.
Why don't economist's ever address the reality that wages should be tied to the actual cost of living? They quibble over the possible damage to the economy if the minimum wage is increased buy a dollar or two an hour, but never discuss how much damage is done to the economy by so many people being unable to afford a minimal standard of living. There are homeless crises in some of our most economically profitable cities and states, like NYC and San Francisco. sure you can attribute some of that to population density, but even skilled and educated workers in San Francisco have been reduced to living in adult dorms because they can barely afford one bedroom apartments on salaries close to 100K per year. They are being priced out of home ownership and the ability to build wealth during their Prime earning years.
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I think a lot of people have been brainwashed by the garbage they hear. "If you increase minimum wage, you are going to price young people right out of a job." So what about the young people being priced out of owning/renting a home or owning a car? They don't see the connection and facts don't matter. Trying to talk sense into people isn't going to work. The only chance workers have now is to protest and demand higher wages.
1
Herbert Hovenkamp (the leading scholar of antitrust law) and Carl Shapiro (a leading antitrust economist) have written an important article about monopsony and employment, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3046224. There are quite a few other scholarly articles on the subject as well. The problem with all of them seems to be that clear data on monopsony is difficult to obtain. So what we have are shrewd opinions by the intelligentsia, but nothing sufficient for legislative action.
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A well written blog. Thank you Paul for muting your progressive ideology until the end, a refreshing change.
As an employer, I can offer some real world insight:
1) Yes, wages are sticky downward, employee morale is very important.
2) As older employees retire (at higher wages after many years of compounding), younger new employees are paid lower salaries and wages (compared to the retirees); therefore average wages are not increasing as rapidly as individual wages.
3) Often, it is better not to hire a new employee at a salary or wage which would disrupt existing pay equity, triggering a substantial upward adjustment in wages to preserve pay equity. Refer back to 1), to maintain good morale.
4) Bonuses are better than higher salary and wage increases; bonuses can be reduced or eliminated in recessions without severe morale implications.
5) General wages need to be carefully controlled in order to reward high achievers; it is very important to richly reward the most productive employees, and the employees with high potential as future leaders. Great managers and leaders are key to success, essential.
6) The world of business is very competitive; we cannot unilaterally raise prices to absorb higher costs. Global competitors are part of this equation.
By the way, I'm always happy to write bonus checks because:
1) It is very good for morale.
2) The company is doing reasonably well too.
3) It encourages individual employees to try to advance, improve as individuals.
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That's fine, if your employees can afford a place to live, their utilities, insurance, transportation, etc. There are many, many people whose wages do not cover even basic living expenses. That is the issue, and you are not addressing it at all. If you pay wages high enough for your employees to have a decent standard of living, then good for you. You are not part of the problem. The problem is that there are millions of people who work full time who can't afford to support themselves. Until that problem is addressed, then we are getting nowhere.
I just read "Crash of the Titans," about the travails of Bank of America and Merrill Lynch in their merger. The issues you mention are put in bright light. I'd rather pick grapes than be a corporate bigshot.
I never see shareholders worked into these equations, and it seems to me a big key to the problem. Someone in economics, wasn't that shift about the same time that income inequality began to skyrocket? (around the 80s)?
Companies are driven to please the shareholders with top management being part of that pool. It far outpaces any reinvestment in the business and certainly not invested in its lower level work force. We saw that in spades with how companies report spending their tax windfall...stock buybacks to up the price even further. Minimal to nothing to the workforce or improvements or expansion.
Add to this that stock price needs to increase every 3 months to keep shareholders interested, so every corner is cut and workforce minimized to be sure there is plenty to harvest and pass out to the shareholders.
As long as that remains the priority, I don't see how we get off this trainwreck, and only see it exacerbating over time.
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I am an employer. Because of a severe labor shortage in our area, we have been forced to dramatically raise our wages, 15% in 2018.
Not sure where you are getting your statistics.
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Your company may not be representative of all firms in the economy.
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When people don't find work they "settle" for a lower paying job or one for which they are overqualified. Why is it that when companies don't find the workers they need at the cost they are willing to pay they go on to complain that the economy is not providing them the labor force they need? Why can't they just give in to market forces and offer better wages? This has always appeared to me to be a very entitled behavior.
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I agree with the idea that we are near or at full employment but the reason wage growth is not increasing may be that only the U.S. is being considered as the economic system and not the entire world. More specifically, rapidly expanding economies such as China and India may be influencing the ability of workers in the U.S. from demanding wage increases. Outsourcing of labor and offshore production may be the reason the Phillips curve is not appearing to hold true any longer.
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The puzzle is not a puzzle when you look at the parts of an integrated whole in a synthetic manner. Constant capital (machinery, technology, materials of production, buildings and so on) increasingly occupies a larger portion than variable capital (human living labor) in the aggregate of global production. That was studied by Marx more than 150 years ago, but neoclassical and marginalism have refused to look at this logic. He looked at it as a trend with its counter tendencies and concomitant crises. No mystery. To that corresponds a struggle to defend labor rights and wages and capitalists efforts to gain more profit. The latter does not however explain the former, which is an intrinsic tendency of capitalist development
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how come you never let go of taxing the poor ? it only serves the wealthiest to tax the poor, it saves them from a booming economy, higher more rapid inflation against there entrenched bond wealth and the certainty of a known coming soon recession.
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I have often wondered how "unemployed" is counted. If it is when the previously employed receives unemployment insurance money, then the count is missing many and is grossly under-reported. Many who are out of work are not "qualified" to receive the unemployment insurance especially in the age of on-call, as-needed and part-time work such as we have been experiencing for years. Note: I was most recently a "term" employee for the IRS and my term has ended.
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While I agree with the majority of this analysis I have to disagree that we are anywhere near full employment. First off there are too many qualified individuals who are either unemployed or underemployed for this to be true.
Part of this may be explained by the extraordinarily uneven financial recovery. While many metropolitan areas have recovered, the rest of the country has not. Multiple studies have show this and there are various explanations as to why this is occurring. The one that I find most compelling is that many smaller businesses have not fully recovered from the financial recession of 2008. With the large companies driving the economy, they have the power to keep wage growth down and this will not change until small and mid sized businesses fully recover.
6
Yes. U6, which measures those who are employed part-time but wish to work full time, discouraged workers, others who are marginally attached to the labor force, and of course, those who are working, as a percentage of the expanded definition of the civilian labor force is currently running about double the headline rate.
monopoly power affects excess inflation in two ways
it can suppress workers bargaining power until unemployment gets much lower
and when wages start rising, because workers finally get bargaining power it can allow the monopolistic firms to keep raising prices, every time there is a wage increase, to preserve their economic rent
1
"and when wages start rising, because workers finally get bargaining power it can allow the monopolistic firms to keep raising prices, every time there is a wage increase, to preserve their economic rent"
It's called a wage-price spiral, and it can be started by either rising wages or prices. The typical fuel for this is too much money in the system (inflation).
What monopolistic firms are you specifically talking about?
Labor market is increasingly global, it is difficult to ask for pay raise when your position can be outsourced to low cost locations or given to H1B/L1 hire. Unemployment is low, but many people are underemployed (laid off during the crisis and had to take more junior position). There is also a lot of inertia as many hiring managers dont know how to function in low unemployment environment. They still expect scores of qualified candidates with stellar resumes willing to work for depressed wages. Also labor market is not transparent: job postings seldom mention salary range, but ask candidates for a compensation history. There are also non-compete, non-solicitation and other dubious employment conditions (used even for low wage jobs) that greatly reduce bargaining power.
7
I read your blog religiously but I don't do Twitter. Twitter is for celebrities. Can you really focus on issues like this while strolling down 8th Ave. thumbing through your Twitter feed. Besides, at your age you should be concerned about repetitive motion injuries. :)
4
Enclosed is a link to a Fred graph for quit rates for various employee groups. The group that seems to be driving the high quit rate is low-wage accommodation and food service workers. This information could provide some insight into the low wage-growth in a no-slack, low unemployment economy. The quit rate for manufacturing is a drag on the total private quit rate.
https://fred.stlouisfed.org/graph/fredgraph.png?g=jVdZ
1
Why wages don't rise
Assume you are worker in the US and employed in profession exposed to global competition.
You ask for a wage increase. Your company has 4 options.
1. E.g. in manufacturing. Your company states: can't
afford it, and moves the company to Mexico
( Being a steel worker liberated her, than her job moved
to Mexico)
2. Company says, you are fired, we can find better talent
abroad, gets more H1B visa (common Silicon Valley)
3. The company sees laying you off now vital to keep costs
down and hire folks in India (see below)
4. Your company happily agrees and increases your wage.
Pick most likely of above
As to the claim of economists that this befalls only low skill , manual jobs, read this
The NY Times, 2017
"Today, the company (IBM) employs 130,000 people in India — about one-third of its total work force, and more than in any other country. Their work spans the entire gamut of IBM’s businesses, from managing the computing needs of global giants to performing cutting-edge research in fields like visual search, artificial intelligence and computer vision for self-driving cars.
The company’s employment in India has nearly doubled since 2007, even as its work force in the United States has shrunk through waves of layoffs and buyouts."
NY Times 9-28-2017
Key sentence
"The work in India has been vital to keeping down costs at IBM"
And it started in 2007
9
Figure 2: In 2015, the labor market forces went in the right direction and wage growth went nowhere!
The "rising tide" that mattered (labor market) rose (tightened), and the workers' boat IS NOT FLOATING upwards.
That conundrum EXISTED; and still, the corporate tax rate was halved. So, what do "stuck" wage-earners get to hear yesterday? On "Face the Nation", Larry Kudlow debating himself: "Wages are rising, jobs are rising. Confidence is rising everywhere you look."
Also, Kudlow was 'bold' enough to admit who benefited:
". it's not trickle down, Margaret. It's incentives. It's don't punish success, reward success."
https://www.cbsnews.com/news/transcript-white-house-economic-adviser-lar...
Thankfully, Mr Krugman did retain a default position - to "favor policies that act as if we did (have labor market slack)". Good, because Americans want signs of inequality getting better, not worse.
Some policies to fix the holes that Corporate America bored into the workers' boat?
(1) PORTABLE healthcare (yes, just like ObamaCare);
(2) raise that federal minimum wage;
(3) REQUIRE TRANSPARENCY and PROHIBIT non-compete agreements for service industry workers; and
(4) champion labor agreements that PREVENT -
the systematic replacement of experienced workers with cheaper workers, the constant bid-shopping that rewards CEO's for outsourcing, and the taking advantage of part-time workers in order to limit the rise of full-timers' wages.
7
my experience as a technical professional is that employers dont cut wages to those already on the job, but they do reduce wage increases to zero. its new hires that experience the effects of the employment rate on wages. one thing that was not discussed was what contributes to the wage package. when considering wage hikes its not just the salary that goes up. employer contributions to social security, medical benefits, unemployment benefits, workers compensation, 401K matching contributions, vacation days all go up. if workers' wages were limited to before tax pay then there might be more of that as unemployment decreases.
What about the hordes of homeless? Shouldn’t that be considered an economic indicator that (1) wages are too low, and (2) all is not right in Denmark?
Just askin.
7
Yeah, economic policy ain't easy. But taking time to explain situations carefully, as your column today does, is great education for this reader.
Incomparably better than Twitter AND blogs for developing discourse is Google Groups. Topics can be developed, returned to (causing the more recent additions to appear near the top of the group topics list). The group posters could be invite-only members—all your favorite interlocutors—which could be managed by an assistant somewhere (at CUNY?)
4
Missing the fundamentals, again
Re: "After the crisis, wage growth dropped – but only about as much as it dropped in the early 2000s slump, despite much higher unemployment. " ... "It's a puzzle"
NO puzzle at all. The jobs that replaced the jobs lost during the recession were replaced by lousier, less attractive jobs.
How do we know this ?
The labour participation rate was 66.2% in 2008, 62.8% in April. The labour participation rate is a measure of job quality. It is high when jobs are good, low when bad.
In nutshell, companies used to the post 2008 recovery to accelerate globalization -> exporting good jobs faster abroad
2. RE: specifically, the fraction of prime-working-age adults currently working
EPOP is the labour participation rate. It 62.8% in the US, 82% in Sweden. See comment one on quality of jobs. In the US, to get it back to 2008 would require 5 million workers to re-enter the labour market.
3. Quits rates vary with the state of the labor market: The lousier the jobs, the more people move around trying to get "just a bit better job"
Mr. Krugman still fails to understand that 1,2, and 3 are distributive effects that he so relentlessly promoted ("In praise of Cheap Labor).
The chief economist of the "The Economist" nailed it down
in his fare well column "Thinking outside the box":
"Explanations for the strength of (post recession) corporate profits include the way globalization has suppressed wages"
Time to think outside the box, indeed.
19
Here's the thing; you academic guys are making way too much out of the possible causes of wage rigidity. It's really very simple. Anybody working in corporate America knows that the reason is Wall Street. Normal market forces do not apply now because businesses are mostly run on Wall Street's terms. Anybody in an American corporation wanting to hire someone knows that Wall Street abhors "head count." To Wall Street, fewer employees is always better. The same goes for wage increases. Wages are an expense and reducing expenses is what Wall Street wants. They don't care about details like the fallout that comes with running a business with too few people who are being paid too little. Head count and reducing expenses is what drives Wall Street, therefore there are no wage increases despite low unemployment. Simple as that.
8
Yup, exactly.
With such a low unemployment rate shouldn't the economy be thriving? Maybe for the wealthy it is. Maybe also in communities on the east and west coasts and a few other select locations. But for the rest of us, I don't see much change. Where's the spendable income at the end of the month? If we need to buy something expensive, it goes on the credit card, and people are reluctant to run up high balances the way they did before the Great Recession. I question that demand is up for many parts of America. There is a general feeling of despair or at least unhappiness about the future. This is why so many people voted for Donald Trump — because he promised to bring back the happiness. He's failed totally, of course.
5
In the Recession, more people became comfortable buying used cars, and shopping at thrift shops for clothes. Other economizing things are used books on Amazon, sticking strictly to house brand items in a grocery store when formerly one might not have, yard sales, and digging around to see if there is something in the garage that one already has that will suffice. Boomers in middle cohorts are downsizing, flooding the used market with furniture and housewares, while older generations at the end of their lives are also releasing goods into the market. Boomers are also still trying to stay employed as long as possible, yet we aren't counted.
There is an ethical trend too - Reduce, Reuse, Repurpose, Recycle. It comes from a sense of diminishing resources and worry about the future.
No, many of us on the ground are holding our breaths, not yet ready to exhale, years after the Recession "officially" ended. There is huge wasted potential where educated people who still want to work are discriminated upon, not only on account of age, but because we are educated. I think younger managers are reluctant to hire an older worker with qualifications that are greater than the job.
There needs to be a movement where older workers band together to create new kinds of work, found new businesses and hire other qualified older workers. Think of what we still CAN do! It's an idea that has been growing in my head for the last few years, but where to start?
6
"There needs to be a movement where older workers band together to create new kinds of work, found new businesses and hire other qualified older workers." Nope
It is hard enough to find ONE job without trying to organize a herd of elderly jobless. Small firms are very much "up against it."
People are living longer. Age discrimination is real. If people discriminate against older workers, the obvious answer is to create businesses or coops run by and for this older demographic.
Isn't that a version of bootstrapping that we hear extolled over and over?
A couple of thoughts, a personal anecdote and question for Dr. Krugman & the comment board.
First, I'm curious what effect the "Financialization of America" has had with regard to the jobs/wage puzzle. Several commenters noted a lack of corporate investment in productivity tools, innovation, labor, R&D, etc. Most corporate executives today are rewarded more via the stock market (often obscenely so) than by directly growing the topline. Topline growth via investment and innovation is difficult and risky. Gaming the system to pay no corporate income tax is a safe bet. Growth is hard; cost cutting (layoffs, wage suppression) is easy. A solution could be decoupling executive performance and short term stock market gains. Alas, I don't have 20 years for a sociopolitical solution that seems nowhere in sight.
Which brings me to the personal. I have a graduate degree, 20 years F500 experience ... and as an over 45 would have a hard time getting an executive position. You may not see this reflected in the unemployment stats, Dr. Krugman, but there's a lot of folks out here in the underemployed category.
I've read *too many* Opinion pieces that lay out theoretical causes ... but are light on real human suffering. So, an open question: What should 40-something professionals do? Build your own business? Work the Gig Economy? Disrupt the family and move to a proverbial Timbuktu to find an opportunity?
I'm truly curious to hear people's thoughts.
9
Since you put the questions generally: the problems you mention are not accidents. Rather, they are the result of deliberate policy choices enacted by the rich and powerful, who have every material incentive to continue exercising their power in this way.
What should you do? Vote socialist.
3
Corporations of all sizes are scared of raising wages because the Great Recession could happen again. They prefer to hoard the benefits of tax cuts. We know that cash balances are at an all time high. Here’s another thing I see: vulture capitalism as a philosophy has crept into many sectors. Finally, It’s the message from the White House and GOP via the insane tax cut atrocity from a few months ago: “party hearty, corporations.” Workers get pushed lower and that pressure keeps our wages painfully, wretchedly stagnant.
1
Perhaps you should go to "a proverbial Timbuktu," just to see how most humans live and toil---on the verge of starvation.
Could be that $ that would otherwise go to workers is being diverted to upper management, shareholders and buy backs.
There is no problem of wage stagnation for CEOs is there?
13
In the half-hour before reading this I read many stories about highly-skilled over-50 workers who can't get hired, anywhere. Sadly, many older workers give up trying when they finally conclude that they have become worthless, despite having knowledge, skills, and a strong desire to work. Many, many people have been discarded by this economy. Perhaps researchers and analysts should start including suicide rates with the other factors they pull together to try to understand the big picture.
6
Thank you!
It is really hard for people in their 50s and 60s to find new jobs, for instance, if their business took a hit during the Recession and is fizzling slowly. It is a hard transition and many are bogged down in debt, as well. These people need to keep working until they drop because retirement is too expensive. We are really not complaining--its a real crisis.
3
This article provides a good example of the limited usefulness of complex economic analysis in informing public policy analysis.
Krugman looks for systemic reasons for stagnating wages. But his focus on the economic system is misplaced; he should be looking at the political system.
For the past 50 years, American politicians from both parties have been screwing American workers. Whether you look at trade policy, tax policy, immigration policy, laws having to do with unionization, the story is always the same.
Laws are made to benefit the 1% in this country, not the average working-class or middle-class citizen. As long as Americans put up with this treatment, that's what they will receive.
13
This is a great argument for reducing the size and scope of the federal government.
We just need a competent, non-corrupt government. With professionals who are dedicated good outcomes instead of party benefits.
Smaller is a mantra, but the wrong dimension to focus on.
3
Philip....As long as Americans put up with this treatment...
But many voters are conditioned to go along with this, since they get constant anti govt messages from politicians dependent on corporate mega donors to run. And our media avoids the issue.
Look at the other reply here --- 'a great argument for reducing the size and scope of the federal government.'
The 1 percent have successfully identified their profits and political dominance with Americanism, freedom, liberty. Weak govt means weak democracy.
The purpose of elected govt is to protect the citizen majority from economic exploitation that was the norm thru history---that's why we have voting at all.
The US ranks below many nations on the GINI Index of economic equality. In other nations with a more secure middle class, govt regulations and unions are supported as centrist policy, as an equal and opposite force against corporate monopoly. They don't turn over their elections to the rich for financing.
NYT columnists never talk about this.
1
There are numerous issues touched upon here but I want to focus on Federal Reserve policy and the Phillips curve.
Federal Reserve Interest rate policy at full employment is based on the following linkages:
Linkages: wage rates are linked to unemployment levels, inflation is linked to wage rate increases, and interest rates increases can fight inflation.
If any of these linkages fails, then orthodox policy may be wrong.
1. Phillips curve- There is an inverse relationship between unemployment and wage rates. Is the current relationship an aberration or does this no longer hold because of structural changes in the Economy? Globalization putting downward pressure on wages, shift to lower paying service jobs, athe demise of unions in private sector, increased monopsony power of employers, and technological advances replacing labor with capital.
2. Assumption that wage growth due to lower unemployment is directly tied to the inflation rate. There is mounting evidence since the 1980's that this linkage no longer holds.
3. Orthodox Fed policy of interest rate increases as unemployment reaches low levels may be counterproductive if the relationships that are no longer holding as they seemed to be in 1950's and 60's.
Policy based on theory that is not valid leads to bad policy
2
The seeming paradox of low unemployment and wage stagnation reflects dysfunction in the both the labor market and the metrics.
Employers continually jettison from the productive economy costly older workers with too much experience. (And they seem to be jettisoning them at increasingly younger ages.) The presence of these spectral discards exerts a chilling effect on workers still employed. The fear that they too will be jettisoned even if they change jobs makes them reluctant to demand higher wages. Discarded workers who "retire" are conveniently uncounted. Those who eke out a living at much lower wages depress the wage statistics.
Meanwhile, employers demand cheap young workers who somehow manage to acquire just the right amount of exact experience. Employers won't train someone even with similar experience, as the cost would likely be wasted-- too many employees just aren't loyal until the day they're laid off. Besides, it's the employee's obligation to obtain the exact skills an employer needs at that moment. Thus, robots reject the majority of job applicants.
Employers complain that they can't find cheap young workers whose skills and experience level exactly match what they need, and who are willing to relocate at their own expense to wherever the employer gets the best handout from local government. But there are still enough uncounted surplus workers to keep wages down. It's thoroughly dysfunctional, but beneficial (in the short term) to some employers.
11
This situation is entirely true on the East Coast as well as the West. It is highly frustrating and discouraging.
1
http://cepr.net/blogs/beat-the-press/are-we-at-full-employment-taking-is...
May 21, 2018
Are We at Full Employment? Taking Issue With Paul Krugman
By Dean Baker
Paul Krugman had an interesting blog post * this morning in which he attributed the continuing weakness of wage growth to an increase in monopsony power. I'm a skeptic on this one, since the collapse in wage growth happens to coincide with the Great Recession. The big issue is whether the labor market is again back to its pre-recession level of tightness, when wages were rising considerably more rapidly.
To argue the case that it is, Krugman follows Jason Furman in dismissing the drop in prime age labor force participation as just being part of a longer term trend. This leaves me uncomfortable for a couple of reasons....
2
I'd be interested in the role increasing automation plays in the suppression of wages, even in a labor situation like today. Might employers be holding back on wages as they try to replace workers through automation?
1
I wish you would write about how College educated people cannot find a job even if they are willing to accept half of what they were earning
They can’t even get an interview
I know folks who apply to hundreds of jobs on the internet at corporate website and attend weekly networking events. People with real experience, an MBA and skills in implementing software and automation and still no call backs.
What should a 50 year old who doesn’t need health care to do?
13
We were better off when jobs were listed in the classifieds. At least it required going to the employer and asking for the application -- face time. In spite of cheerful messages on online job search websites, what they do is allow employers, anonymously, to not even consider many applications at all. The change has also had a side effect of hurting newspaper revenue.
Why is our economy so dismissive of experience? It is a missed opportunity.
2
@human - Why is our economy so dismissive of experience? A number of reasons, some good and others not.
First, experience come with higher costs. A recent graduate can be hired for much less than a 30 year veteran.
Second, current knowledge. As a (now retired) IT professional, I know that the new grads are much more up to date in their knowledge base than the veterans. Experience too often equals doing things the old way.
Third, and related to the above, there is a perceived (and all too often correct) inverse relationship between experience and flexibility. The 'This is the way it's always been done" attitude is often there, and even more often expected in experienced people.
The recession of 2008-9 caused a considerable squeeze on all government budgets. The stimulus was small and total real government spending decreased 2010-2014. State and local governments employ a lot of people, so cutting budgets and restricting salary increases for teachers among others must have a direct effect on the average and an indirect effect in other areas. This is not a result of monopsony but deliberate political actions - tax cuts for the rich but no raises for state and local government employees.
11
A friend of mine, a teacher, had to take early retirement social security at 63 because the local government raised teachers salaries, but failed to fund the raises. She wound up retiring several step increases lower than she should have, had the government funded the raises that had been approved. She has a law degree and a masters of education, yet she works summers at a CSA/fruit stand at $10/hour to earn extra income.
Employers hold all the cards when it comes to employment. Workers have no real protection, ways to appeal, or places to go when they are discriminated against on the job, fired for no reason, paid less because of their gender, or downsized because the employer decides to outsource the job.
When is the last time you looked at what job applicants have to fill out before they are even considered for a job? Online or on paper we have to absolve the potential employer of all guilt or responsibility if they dig up bad information on us due to mistakes they make. We're asked our age in sneaky ways (when did we graduate from high school). Then, if they do interview us in person if we look like we're anywhere north of 50 we're not considered for the job.
We might be at full employment but for many of us, especially those men and women in their 50s and 60s, finding a job is nearly impossible. Employers prefer to scream about being unable to find qualified people. That's not correct. We're out there. We're willing to work. They don't want to hire us. Employers want 25 year olds with 30 years experience. In other words, employers prefer to hire cheap, hire inexperience, and then complain. And we, the unemployed who want to work and have the skills, get to become the new poor, not because we aren't trying to find jobs but because employers don't want to hire and pay for experience.
28
Owners,especially those from autocratic countries and their versions of oligarchs investing on Wall Street, have created such a state of fear and desperation among American workers that even college graduates are afraid to ask for more money because so many jobs can be done from anywhere. No stable community. No stable country. No stable governments. Warlords and slavery, yes.
7
Thank you for an informative and clearly written piece. Perhaps the next set of iterations can indicate the more general effects of an economic structure that is marked increasingly by bilateral monopolies rather than by "free competition" among participants in both output and input markets.
The failure to look at institutional developments made possible by "monopsonies," such as the prevalence on "non-competitive" clauses in labour contracts that restrict the mobility of highly trained workers and, in effect, make them indentured, is not new to economic theorists. However, the importance of "power" exercised in markets seems to be a topic that economists generally avoid. It is the feeling of powerlessness that has been a major factor in the Drumpf phenomenon, one that has economic as well as sociocultural roots.
Please stick to attempts to educate NYT readers to economic realities and explanations for them. All too much attention has been given to emotional reactions to phenomena whose origins are not fully understood, largely because all that can be easily seen is the surface. Plumb the depths a bit.
2
Companies give scholarships to students heading to college, and sometimes even for high school. If they need more skilled workers, why not more work-school support, such as a 32 hour work week and two company-paid classes per semester? Tuition, books and expenses. Required passage to maintain the job, and regular hours on completion.
I finished college at night with tuition-only help from my employer, but limited class availability at night made it very difficult. Better work-school flex for work-related courses can tune up the workforce while they work.
5
You left one rather obvious factor, which is the decline of unions. Clearly, the money is going somewhere and if earnings are up while wages are flat, the somewhere is into the owners' accounts. The historic way way workers, from bellhops to ballers, capture more of the value they create is to organize, negotiate, and agitate. The decline of unions leaves ever increasing numbers of workers on their own and ripe for some degree or another of wage theft.
24
My experience with a union (university) is that they unwittingly accepted a moderate raise in salary in exchange for a decrease in benefits. Unfortunately, they failed to discharge their fiduciary duties to their members in that they gave away more than they got. I'm sure most of the members did not get into the weeds of the agreement enough to see that they had been short-changed, and re-elected the same union representatives to go back, unprepared and none-the -wiser, to be bamboozled again.
1
Unadulterated Greed. Period.
7
Three questions:
• How much money does one have to earn before you label them as "greedy"?
• What net worth does someone have to have before you call them "greedy"?
• How did you arrive at those numbers?
Dear Dr. Wonkish, may I call you Wonk? So most of the time, you're talking down to us? Monospony? What, we're you playing Scrabble out in the Hamptons this weekend and got beat by the word? Your growing desire towards Wonkishness is leaving me behind. What you consider Wonkish, I see as gibberish. (Oh, BTW, how do you thing the rich got rich in the first place?)
2
Skill shortage??? I’m a tech worker who aged out... I can’t find a job and have relevant skills. You don’t let look at the full picture, tech not only has sexism, it has ageism. If tech was willing to hire women and older workers they’d could take advantage of the skills advantage of the skills available.
But they want cry there are no skills to be able to outsource cheap foreign labor.
Your macro theories are not layered enough as many of the letters here discuss.
44
I'm in the exact same boat. I started full-time in tech. over 20 years after working as a securities broker for 5 years. In my first 7 years my wages rose rapidly as my skills and responsibilities grew. Then my wages flatlined for the next 10 years. Now, I'm back working at the same company after being laid off then re-hired as a contractor for less pay and no paid vacation days.
When I was laid off 3 years ago, in the space of 8 months I had applied for 300+ jobs that I was very qualified for, which yielded about a dozen interviews and no offers.
12
This isn't hard. Why aren't wages rising? Well, it's a sort of chicken and egg situation. People do not have enough money to buy stuff. We have just have 2 studies that showed if the typical American family had a real emergency & had to come up with some money, they couldn't do it. One said about half the people couldn't come up with $400 & the other that 2/3rds couldn't find $1,000.
Now businesses are not going to produce stuff people can't buy. So they have to keep prices low, & they can't pay workers well & still keep the big profits they have become used to. If wages we higher, people would have the money to buy stuff, but that's the chicken bit.
BUT we have a way to break out of this circle. Its called the federal government. It can create as much money as it needs out of thin air. It can then get the money to the people who need it & will spend it by simply doing stuff that needs to be done, e.g. fixing roads and bridges, helping with education, research of all kinds, a new power grid, efficient transportation, etc., etc., etc. Thus we can break the circle & improve our lives at the same time.
What about inflation? Prices are proportional to the amount of money in the economy (times its velocity), but INVERSELY proportional to the dollar value of the stuff we can produce. So if the money is spent doing good things, it will produce enough stuff to soak up the money. Excessive inflation is caused by something that prevents us from producing stuff, like shortages.
9
Twitter sucks for complex ideas
thank you for saying what a lot of us have been saying and thinking
but why did blogs die ?
blots weren't , actually, that good
Blog posts are often long and poorly written; it is much easier to skip a bad tweet then wade thru a bad blog post
for some reason, academics tendency to jargon get out more with blog posts then with tweets
every blog has a different format; this puts cognitive load on readers, plus, a lot of the formats sucked
twitter format sucks, but at least you only have to learn it 1x
Blog software sucks, so it is hard to put togther a high qual post with figures, yet we readers expect blot posts to have good production values
otoh, we readers are perfectly ok with tweets that are poorly formatted (to be kind)
1
I've recently started listening to podcasts. There are some very good ones.
Anyone know of a good Econ one they listen to? Dr. K, maybe you could start one? (hint, hint)
1
A major thing that is missing from this post is the collective power of workers. The fact is that workers have to act collectively to get higher wages, shorter hours and benefits. Individual workers simply do not have much power in a "free" labor market. Workers exert collective power through direct legislation on minimum wage, working hours or things like tax breaks for health care, and through direct action in unions. Even union action has to be facilitated by legislation. Union action in particular is most effective when times are good and wage demands can be justified by higher profits, so of course there was and is a correlation of economic performance - not just unemployment - with wages. Wages were always strongly correlated with nominal GDP, but this correlation weakened back in the 70's.
Unions have weakened and there has been a lack of pro-labor legislation, partly because of a political turn to the right for reasons ultimately related to racism, but also because employers can turn to foreign labor in other countries or to immigrants. Another thing that is missing from this post is the likely effect of the movement of jobs out of the country as the trade deficit increased. (No, it wasn't robots - productivity growth has been poor.)
12
The only monopoly that business does not like is the one that applies to the sale of labour.
4
Agreed, 100%. A lot of people like to point the finger at NAFTA, but in truth that trade agreement hurt Mexico -
especially Mexican farmers - more than it hurt us.
No, what really hurt us a lot more is the wave of outsourcing, facilitated by technology and voice+data networking, that first started about 20 years ago, then accelerated.
Another advantage to strong unions is that they can influence legislation. Legislation that might throw up an impediment or two to outsourcing. As it stands now, tax policy actually benefits corporations who practice it.
4
"Individual workers simply do not have much power in a "free" labor market"
That depends on the type of job being considered. In jobs like manufacturing, where the workers are fungible due to skill level not playing a large part, you are totally correct. In areas like tech or medicine, for example, individual workers have much more power as a good programmer can threaten to move on out and his potential replacement may well be unable to perform at the same level.
As a retired systems analyst and programmer, I had experience working in both Union and Non-union environments, and I had much more control over my wages in the latter. In the Union shop, management could not reward me according to my abilities but had to stick to the contractually defined increases, which is why I left for a non-union environment.
1
As Rima Regas implies, those employment figures are a red herring, as people do have "jobs", but jobs that are not steady ("gig economy" jobs), that underpay, and that are not contributing to much in the way of increased demand.
So, though our unemployment numbers are low, are "underemployment" numbers are still quite high, and, with more and more pressure from advancing technology and foreign competition, they are likely to remain high. And this greatly contributes to wage stagnation.
I don't doubt that the forces that Paul speaks of are also part of the explanation, but one can make the trees hide the forest--or, in this case, the number of cares with "T" license plates on the roads hide the numbers.
5
Where are the robots?
There's an ongoing disconnect between fears that robots will replace human workers and the reality that productivity growth remains depressed nearly a decade after the Great Recession ended.
Productivity equals real output of goods and services per hour of human labor averaged over the whole economy. If robots were replacing humans then measured productivity would be soaring now since hours worked by robots don't count in the productivity calculation while their real output does. And more importantly to the current debate about full employment is that productivity measures don't care one iota about wage rates or other labor compensation only hours of human labor performed.
So the paradox here that economists have been missing is how an economy can be at or near full employment while business investment in labor saving technologies remains depressed. Where are the robots?
3
Have you ever involved social psychologists and sociologists in those discussions? It seems that domains such as group identity, emotions, decision making, or social movements could contribute. Getting into the minds of managers and business owners to understand why they make the choices they do; while economists often assume things like rationality or perfect information, we all know human beings are not fortunate enough to experience those assumptions.
6
Decision makers can make mistakes, but they try to make the ones that are right for them. If they fail to do so, it is open to rational analysis. A profit maximizing enterprise that hires on the basis of social and cultural aspects, rather than for expected economic contribution will not realize its objective. Similarly, what motivates individuals to make decisions concerning education, choice of occupation, degree of involvement in the enterprise, is "economic" in the sense that there are costs and benefits involved. Rational choices just can be wrong, not because of irrationality, but due to risk and uncertainty as choices are made on "perfect" information today will usually be wrong in a longer time context.
An interesting concern of social psychology could involve why people make decisions as though they had both the appropriate analytic framework, all the relevant current information and true path of the unknown future. Isn't the answer one that emphasizes risk-taking capacity (or plain ignorance)?
1
Maybe we have “full employment” but not to do what needs doing. The things needing doing aren’t things the private sector has interest in: infrastructure, rehabilitation, education, environmental protection, child & elder care, affordable housing . . .
And the private sector actually needs fewer and fewer people; it is mechanizing, automating, robot-izing and workers have to compete against fewer openings and 24/7 expectations. It’s a parallel to the movement from agriculture to the cities of centuries past.
The shift from private sector widget making and paper pushing to actual important work is confronting society, but corporations are inhibiting the transition by control of Congress and the White House to do nothing.
If people could work for projects that float all boats instead of competing for corporate sanctioned me-me-me activity, wages would indeed go up.
7
A well documented study in regulatory capture and rent seeking:
In The Captured Economy , Brink Lindsey and Steven M. Teles identify a common factor behind these twin ills: breakdowns in democratic governance that allow wealthy special interests to capture the policymaking process for their own benefit. They document the proliferation of regressive regulations that redistribute wealth and income up the economic scale while stifling entrepreneurship and innovation.
6
There is another possibility for why wages remain low. Workers remember the Great Recession and are just glad to have a job. Many don't feel confident enough to demand better wages. The quit rate may be up, but that may represent a lot of lateral moves from "Just glad to have a job" back to "Back on my career path."
When something as big as the Great Recession happens labor becomes inefficiently allocated. Reallocating to more efficient use would raise the number of quits, but not necessarily raise wages.
7
I live in an area like most places where hospitals have consolidated. A class action suit was filed against them second real years ago for salary collusion. They all communicated to each other what they paid their employees and tacitly agreed to all keep their wages the same. So I submit that employers in America have done the same thing. They don't want to be the employer who increases wages and is viewed as the "trouble maker" making the other employers have to follow suit. And as long as they all keep wages down no one has an unfair advantage, they can then blame stagnant wages on difficult to pin down "economic factors" and avoid greed as the underlying cause. This is very much in line with blaming, and subsequent reversing, Obama policies as "bad" and having nothing to do with racism.
27
Why is it salary collusion when the employers get together in an industry to set wages, but good negotiation when the Unions do the same thing? How often did the UAW, for example, use the fact that they got a certain wage and benefit package at GM to force Ford to give the same thing?
1
On twitter-based "publication" - I very much agree that twitter is a chaotic mess and really shouldn't be used for in-depth discussion of serious issues. It's fine for news snippets, especially if you feel you need to know the news within a few milliseconds of its first reporting. But it has never been possible for me to follow things logically on twitter.
1
So long as the corporate bottom line is the single-most important metric of performance, employees will be a necessary evil and employee pay/benefits will squeezed to the zero lower bound. The uncoupling of the rich from the poor, corporations from employees, and government from workers did not occur overnight. Now add the uncoupling of the broader economy from workers. All of this has happened because of a well-planned and well-executed agenda perpetrated under the guise that it was always about empowering and enriching workers.
11
I'm convinced by this hypothesis and support. However, I would like to add. Monopsony (would the NYT please add this word to their spellcheck!) is about one company. Price fixing, on the other hand is about collusion of many companies, and from my humble survey of corporate wage pegging having looked for a job for a decade (so it's literally hundreds of employers) to be able to tell workers, you don't like it, go elsewhere knowing full well everybody is as stingy as they are.
Add to this in the name of "eradicating inefficiency" what has really happened is the shifting of inefficiency from corporations onto the backs of workers while destroying worker's ability to protect their position, again intra-corporate collusion.
Corporate actions from raiding pensions, to choosing health care plans but sticking employees with the cost, to non-competes even for sandwich workers and temporary workers, and that's just a start, wages are set by price fixing than market value, much like has been coming out about NYC rents that also has gone by other names, names determined by landlords.
6
Mr. Krugman gives me each week a task of learning a new word, this week "monopsony " while suffering the same as I did during business school in econ classes "what is he talking about?". I read the articles never the less.
My big takeaway is that Mr. Krugman should step up to the plate and build a "blog like" curated site where maybe economics could be discussed rather in the 280 characters. It would not the technology that is the challenge, but I suspect to get professors to actually submit articles and have rational arguments in public, even if that public is mostly academic. That said, Mr. Krugman has the visibility and credentials to pull that off.
1
Captive workers.
Why don't wages go up?
Workers have no savings. They have no union, no collective bargaining power, and the downward pressure of being replaced regionally or overseas.
The economy has been held up by consumer spending, now they are yolked to their jobs. For one company to pay more, there would have to be a unique, boutique reason to have that worker. The worker is perceived as a fungible world wide resource, like the price of cotton.
26
CEO and executive pay, including stock bonuses, may need to be tethered from regular wages to fully solve his puzzle. Paul is assuming a rational market not influenced by an executive emotion: greed. Companies may be keeping down workers wages just to have a given profit number and their own maximum total benefits. They may be less concerned about worker moral than their own moral boost of increased income for themselves.
9
The most likely cause of the next recession is the Fed raising rates too quickly. Which is why they need to be very careful.
1
When we talk of wage stagnation, are we talking in aggregate? Because the impact on wages of any given job - say a fast food worker and a retail worker or a programming engineer - might rise with demand, but aggregate wages will stay the same.
Because companies are jettisoning their expensive workers - the 50 year olds with higher health costs - and replacing them with highly-paid-but-cheaper-benefits younger people. And the once highly paid older people are working for Target now. Or Uber. We have high employment, but there is a significant measure of high underemployment in the numbers.
When you get to the root of it, we have more people programming robots and mail order algorithms and data storage and processing, but fewer people doing accounting, industrial engineering, financial management, procurement, inventory management - these jobs are going the way of the secretarial pool and the guys who gassed up your cars. And of course, we all know that highly paid manufacturing jobs are under stress from both automation and foreign competition.
So the slack theory and the monopsony theory both have merit - we have a few in control of the wages, and we have people qualified to earn more who cannot.
When the numbers are out of whack from the model, you look at the base assumptions for big changes. In the US it is the type of labor and the age of the displaced worker that has changed.
8
Only being an economics enthusiast, with only a basic understanding, most of this is beyond me... But... Could part of the wage stagnation problem be that we are solidly into a global supply of labor for many items now? Plus manufacturing going more to automation? With a global labor force and not always needing a local labor force, wages are more influenced by global conditions.
7
For all the studies, analyses, and deep thoughts you seem to have come to the same conclusion as my grandmother watching re-runs of Wheel of Fortune. As the old song goes: "the rich get richer and the poor get poorer. In the mean time, in between time, ain't we got fun!"
10
What about the other side? I would think if there's increased monopsony power on the input side, wouldn't it be likely there would be more price power on the product side, or at least widening profit margins? My sense is that side of the market really hasn't changed in recent years (yes, it is higher than years ago, but not higher than, say, 2005). Should one just tell a "China" story that global forces are suppressing wages (and prevent US firms from boosting margins even higher)?
2
There is a global market. We should expect that, i) The tradable and non-tradable industries affecting unemployment have diverged more sharply than earlier. ii) There is a huge effect through product diversity beside productivity growth..such for unemployment change. iii) global supply shocks did not just take place out of productivity growth, with time, greater amount of labor accessed the global employment market. iv) intercultural consumption behaviors diverge, so that capital (but also) and labor rents in some countries are more positively affected through such channel. policy issues...i) higher standarts in non-tradebles' industries could result higher employment increase. ii) Product diversification is now an important source of employment change. iii) It's a sensitive issue but the equivalent factor advantage for supply shocks for America compared to China's story could only take place through immigration. iv) there might be hierarchies for inflation mechanisms, let's pretend that below 4 % inflation is totally determined by psychological means. So if inflation < %4 for a given country, the long run persistence in such range would be a natural value which is affected by habbits possibly not an issue for change.
1
When economists stuck themselves in puzzles like wage stagnation and assign psychological motives to explicate it, we see signs that the dismal science is really an ideology in disguise.
Rates of low investment in relation to profit, the rentier or financialized nature of concentrated and centralized capital, the decreasing ratio of labor per output or increase of productivity, the tendency of wages to move to a world average (including those of China and India) in similar industries, and the unimpeded flow of capital across borders are seemingly unconnected variables without a driving subject. Just flukes or whimsies of the “animal spirits”.
At least the suprasensible Hegelian spirit acknowledged its manifestation in its empirical forms of appearance. But it never mistook itself for them or declared them to be a fluke or psychological whimsy of its agents.
2
How about talking about actual wages? 40 years ago when I was working retail, I was making about $4 an hour. Now they are paying $10 an hour. AND I had healthcare. Which you no longer get as the kid behind the counter. 40 years ago, CEO's made $200k now they make two hundred million. Seems a bit lopsided, don't you think? smart people with skills aren't going to work for those wages if they can find others ways to support themselves. Like being in business for themselves or the underground economy, etc.
42
You’re the economist and I’m not. Your explanations of downward wage rigidity and monopsony make sense to me. If large employers with monopsony power agree to not entice each other’s employees with better pay, or if covenants not to compete become so widespread that sandwich delivery drivers are signing them, it’s time to enforce laws appropriate for today’s economy against pernicious restraint of trade practices.
But I’ve heard anecdotes that suggest additional factors to this amateur. Before the 2008 crisis one often read employers required more and more work out of existing employees because the cost of training new hires and providing them benefits such as health care was so high. But I’ve heard suggestions that some industrial firms now offer white collar employees both decent pay and decent hours, so that one could hope to live a 1955 - 1965 “Leave It To Beaver” lifestyle on one income where the cost of living is low and two incomes where the cost of living is high. But much administrative work today can be outsourced to firms that automate much of the work. And I’ve heard some outfits even outsource blue collar work to companies that provide and supervise many of the blue collar employees who run the plant or factory.
You’d have to get the data to see if that’s right. But more people making good pay working reasonable hours sounds like a good idea. And I’d think you’d have to work through whether traditional policy tools work the same way when work is outsourced.
3
In my field (insurance defense litigation) insurance companies are chasing the same few available litigators. They all offer the same salary. No young attorneys are willing to take the jobs, which don't pay enough to service their school debts. Older eve of retirement attorneys take the jobs to top off their retirements but of course they are timing out. The companies refuse to raise their offered salaries. The jobs can't be off shored. It's a fascinating game of chicken.
14
A recent study reported in the Times seems to confirm that we continue to have a serious wealth gap and income distribution problem. https://www.nytimes.com/2018/05/18/opinion/wealth-inequality-families-ch... "Why the Wealth Gap Hits Families the Hardest" By Christina Gibson-Davis and Christine Percheski.
Families in the lower 50% of household incomes are loaded with debt and seem to be totally financially insecure.
In the 50% to 90%, I was surprised that with the promised results of the big tax cut that people would be much better off, maybe it is too early for the trickle to reach the larger economy, but I don't believe the country on the whole are doing that well.
I agree with your position that it would be a mistake for the Fed to be raising rates.
I also think that we are forgetting that there is a global unemployment problem that creates a downward pressure on U.S. wages.
I think the coming Nov 6 midterm election will reveal how financially secure most Americans feel. I believe that if all those voters who vote their pocketbooks as a means of sending a message to Congress will cause some constructive change initiatives to improve the efficiency of the economy and accelerate the innovation engine that historically powers the US economy and perhaps begin to make a difference in all American's financial security.
6
I with you james. We have just have 2 studies that showed if the typical American family had a real emergency & had to come up with some money, they couldn't do it. One said about half the people couldn't come up with $400 & the other that 2/3rds couldn't find $1,000. I think that illustrates the bottom line.
But there's something else here. Economists have a concept called the velocity of money. It is how often it changes hands in domestic commerce. I like to think that it measures the usefulness of money. A billion sitting in Scrooge McDuck's basement doesn't help the economy one bit. It has velocity zero.
Now you can can look at two graphs. One is the velocity of money (including money in financial inveatments, i.e. MZM) (https://fred.stlouisfed.org/series/MZMV) and compare that with the share of the wealth of the country held by the richest 1% or 0.5%. (Fig 3 in https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statisti...
You will see these are about the inverse of one another. The more money that goes to the Rich, the less useful money becomes. In particular, look at what has happened since 1975.
7
Dr. Charlap,
Thanks for reading my comment. I appreciate what you have added. In my view this issue needs to be featured by our political system. There should be a contest for policy ideas that will do a better job of harnessing the economy to more broadly benefit the people who make up the economy.
There are plenty of challenges that could use more investment that would help out a larger share of our population and the World population. I am not convinced that our private financial, insurance, and real estate industries are capable of working for the improvement of standard of living and health of most Americans. What I see is more and more investment going to the eyeball grabbing systems. It seems to me that these systems like highway billboards are providing more return on investment than the highways. (Think Turner Sign)
I always look for your comments. They never fail to illuminate the issue.
I wish economists would stop mentioning the official unemployment rate as anything other than an artificial political football. It makes me question the validity of your entire profession.
As a layman, the short version of why wages are depressed below expectations is: capital won.
68
The unemployment rate is just what it is, a "stylized fact" that enables a quick perspective on a specific labour market condition. If the media don't look deeper, e.g., full and part time jobs created and lost, workers that enter/leave the labour force, it is not the fault of the U Rate. If politicians use it for political purposes - what do you expect them to do?
7
you don't give any specific reasons why this statistic is bad; it is easy to be cynical without offering an answer
can you tell us why this is a junk number or statistic ?
with all its faults (many due to how the media report the data) it is a consistent data series that tells us a lot
1
Let me see if I have this straight. After four decades of planned wage suppression (starting abruptly in the mid-1970's by ending productivity raises for wage earners and dismantling pension plans), your are saying employers discovered they couldn't lower wages any further during the "great recession". So now, with a tight job market, they want to make up for the theoretical loss of discounted wages during the recession by not paying fair market wages for the skilled workers they need to grow their businesses today? Is that what you are trying to say?
55
Agreed, and I "recommended" your comment. There is validity, though to Paul's writing this here in the forum of the NYT with a simultaneous shout out to the twitteization of academic discussion. What academics do is test the notions that we all have and make them official or discredited. Similar arguments were made about the intelligence of newborn babies in the 60's to today. So many mothers protested that "what now that psychologists say babies are more attuned than we thought, they are? The mother's new the whole time, but academics are what changed child care and finally figured out SID was babies suffocating on their tummies.
Yes, Paul's "wonkish" posts may be stating the obvious, but it's also putting what we all know on the official record, out of the shadows of anecdote. It would be more productive to chime in as your own personal piece of evidence to confirm or point out an exception to the hypothesis discussed rather than ridiculing the messy process of fleshing out the truth.
Paul, thank you for your work that may not be ground breaking but every bit as important as that ground breaking, as an elder in the field modulating the new ground breakers from the position of experience and wisdom.
5
Petulant plutocrats!
2
There's another fact that argues for not being near full employment and that's sluggish business investment and low productivity growth. Business can and will substitute capital for labor when labor becomes scarce and is insufficient to meet the current or expected future demand for goods and services. This ability to use more capital to boost the productivity of their existing workers has more to do with the demand for output than the current wage rate. In other words, even if wages are being held down by monopsony power a true labor shortage would still force employers to increase their investments in labor saving technology but that's not happening. It did happen during the late 1990s and productivity growth went way up as a result.
What's actually going on is that final demand is still too weak and that also explains low inflation, which is not driven by wage gains as the accelerationist position supposes. As Dean Baker points out CPI inflation that excludes food, energy and rent has been falling for years and is now just 1.2% higher than one year ago. Inflation cannot increase if final demand is too low to force businesses to increase their investments in labor saving equipment to meet that demand. That businesses are able to meet final demand using their current workers and without boosting their investments in labor saving technologies shows their complaints of labor or skills shortages are just not credible.
4
Is it possible that the largest employers all decided at the same time that it would be easier and cheaper to instill fear in their employees than it would be to give them an effective wage increase. The years since the housing collapse have a hangover effect equal to a great depression. People lost houses, jobs, investments and lifestyles. If it didn't happen to you, you knew someone it happened to. There was a complacency that came to the workforce with high unemployment. That and the fact that, with a Democratic President their was every reason to downplay the good news in the markets and the unemployment rate. Obama tripled the stock market and halved the unemployment rate but you would never know it from the "carnage" language coming from the right. That language leaves a mark. My own, impossible to prove, theory is that scare tactics and a sense of paranoia have added to this game of chicken that the companies are willing to play until we stop acting like chickens.
31
Anecdotal as i have no data here. But conditions in the greater Boston area seem to be similar to SF and other urban service labor markets. Due to Nimbyism and transportation issues for just a couple of reasons, rents are very high and employees in the service industry and other lower paying jobs, employees can't live near to where these jobs are located. And in labor intensive businesses with tight margins, like food service, there's only so much that wages can go up. It's not enough to justify the commute for the workers. Businesses seem to be trying incentives - signing bonuses, help with tuition, whatever - but that labor shortage is still there, and probably not going anywhere. And the wages are still essentially going to be stuck.
13
Just for fun, here's an article that sums up a good chunk of the problem. Considering that a very large percentage of jobs created are service (food, eldercare, etc), it's not too difficult to see the problems here.
https://www.bostonmagazine.com/restaurants/2016/07/10/boston-cooks-short...
I noted you mentioned the employers remembering the great recession and not wanting to lock in wage increases. I didn't notice where you discussed employees remembering the great recession.
Perhaps, many employees remembered the effect it had on them or someone the know. There is a hesitation about moving to a higher paying position that involves a risk of unemployment. In many cases employees at companies with Monospony power fear that leaving opens them to a risk of falling into a trap of short term employment stints between bouts of unemployment.
In other words, employees feeling of security is trumping (no pun intended) their desire for increased prosperity.
14
The idea that labor shortages, like those of commodities or raw materials, should drive up prices (wages) is a simplistic application of market dynamics. As much as capitalism is a vehement rejection of all other economic systems, most notably communism, we cannot allow labor to ever be measured as equal to capital. In addition, artificial constraints like the 40-hour workweek and government interference in personnel matters like scheduling, termination, required breaks and gig employment have attempted to distort the labor market to enable the ever-present anti-business liberal agenda.
3
If that's the view you have of "artificial constraints" such as those silly child labor laws and other methods meant to prevent a return to the era of wage slaves and robber barons, it seems clear you need to find a new vantage point. The one you have now is obstructed by relentless greed and a ruthless disregard for human beings.
I suggest you find a different place to sit.
3
I don't know about Sit, but working in a factory when he was 12 made my Irish immigrant grandfather a better American. When he was big enough to be moved to mining coal at 16, he didn't feel entitled to a high school diploma or go running to the government. He hated the mines so he ran away, lied about his age and joined the Navy.
So you're against child labor laws?
Let's begin with a baseball comparison that sheds light on the difficulty of economists are having in describing wage slack. Begin with the recent radical shifts in baseball, where the entire field of players shift for certain batters, leaving entire sections of the field open. Hitters, too, have changed their form. Pitching strategies have reacted to the changes. So the game of the 1950s is no longer played the same way. This is what economists have missed.
Economists are still enumerating the score, counting runs, hits and pitches, but haven't fashioned an understanding of how the game has changed, of how the pieces and strategies have been altered; how the new shifts are working out, how the new interconnections are influencing the game.
Economists are abiding by the old rules, which still govern the game, but miss the new strategies that are determining its outcome. In dialectical terms, a shift has occurred; a new path is being followed. A qualitative change has happened, as economists are focused on the quantitative.
To accurately describe the new actions, new descriptions of the interior relations of the different pieces must be mapped. Paul's work here is a good start.
15
Parallels to this discovery process are at work in the study of quarks in the formation of neutron stars (shifting from studying cold quarks to up and down quarks). Revision was an important part of understanding DNA (as a ladder spiral) and in the drug cocktails that treat HIV.
Galileo lead such a shift (he was excommunicated for it!), when he revisioned the earth as an orbiting planet. In politics, Trump tapped into and activated an internal shift of racism and blame that was present but ignored because it was latent and dormant.
GMO foods use the same process, albeit without recognizing the inherent dangers in reconfiguring foods. Climate control is another example. Gay marriage has been its most important social success!
Look around; examples abound!
2
EPOP might be distorted by increased levels of drug use and addiction in certain sub-populations in the past decade (along with better tools for potential employers to detect it). Hiring managers say "I can't find qualified workers who can pass a drug test." This phenomenon makes a portion of the potential labor force effectively unemployable, even if they might be qualified otherwise. Has anyone tried to quantify this?
11
Speaking for seniors, we don't mind interest rates because we are not borrowing. Rather, we would like to earn more on our savings and investments. Borrowing money should cost something. It should be taken seriously so that it is taken care of properly. The Fed should have some cushion to make downward monetary adjustments if needed.
We do not like inflation because we are on fixed or limited incomes. We have inflation now. Health costs are increasing rapidly. Gasoline prices are going back up. Food is increasing. Local taxes are always increasing. Makes one wonder what is measured.
Wages need to be increased. Half of this country is living paycheck to paycheck; and some not making it at that. I hate to say conspiracy, but big money is trying to latch on to every dollar they can; at other's expense.
80
Gasoline is too cheap. Just look at all the SUVs and pickups.
2
Agreed.
Increase taxes on gasoline. People will conserve. Vehicles will be more efficient. Funds can be used for tax credits on EVs, charging stations and mass transit.
EVs can be charged by home solar systems.
Use a carbon tax and dividend, and/or on the gallons, and/or by miles traveled.
I too wonder what productivity has to do with this. It seems to me that during the recession many corporations layed off more workers than their expected sales decrease required, thus instituting a forced productivity increase from the remaining workers. Are they now resisting increasing wages to maintain that productivity increase?
5
Interesting idea, Stan.Unfortunately, it ain't true.
" We see that the labor productivity growth rate (shown in red) for the current business cycle is the lowest productivity growth rate in the chart, sharing that distinction with a brief sixquarter cycle in the early 1980s which also had 1.1-percent growth. "
https://www.bls.gov/opub/btn/volume-6/pdf/below-trend-the-us-productivit...
3
But labor productivity is per hour; employers are more interested in per dollar.
''But now demand has recovered, unemployment is low, and normality has been restored. Once again, firms are complaining that they can’t find workers without raising wages – which is the normal state of affairs. ''
The real question ( that is never answered ) is why this is considered normal. ( that the more rich you become the less taxes you pay and the full weight of society gets unloaded onto the ''middle class and the poor) ?
We continue to discuss the statistics and the numbers in the abstract ( of course they are so large ), but we never talk of what it means to be a member of society and what are our obligations and freedoms there of.
We talk about how we are going to distribute the immense wealth of society, but only at the bottom. We talk of wages and stagnation and so on.
The real question is should a single person/family should even have a billion dollars or multiples there of ?
Just as much as there should be a guaranteed income for every living person, there should be a cut off at the top as well.
Chew on that for a bit.
100
Having more than a billion dollars, while other Americans subsist on around $12 per hour, is both bizarre and apparently acceptable in Trump's America.
That income and wealth inequality are getting worse, shows there is something seriously wrong with America in 2018. As the 0.1% vacuum up more of the wealth and income, the working poor grow in number and frustration.
Trump's tax changes were further skewed to mainly benefit the mega rich.
Other developed nations are trying to boost wages for their workers, but it is the corporations calling the shots, and they are all for higher dividends and CEO remuneration packages, rather than paying their workers what they are worth.
41
"Having more than a billion dollars, while other Americans subsist on around $12 per hour, is both bizarre and apparently acceptable in Trump's America."
That was perfectly acceptable in Bush and Obama's America too. Which is in large part why we're in Trump's America now.
1
The funny thing is, the most frequent case of enrichment is through inheritance, and that proportion only grows with low income mobility.
A lot of people also reap the benefits of public services, infrastructure to enrich themselves at the expense of society at large. See Gates, Bezos, Jobs etc. Not to mention the financial system which devoured 30% of the economy and was at the heart of schemes that triggered the great recession.
The world is upside down. War is peace. Poor is rich.
9
In some business publications I read on welding - are articles on how to deal with the shortage of welders. Never to they suggest raising the pay and hiring more women to train as welders. Just complain about the shortage. Women make great welders and they show up for work everyday.
In nursing - higher pay brought more into nursing (my wife is a retired nursing educator) and also opened up the field to men, many going back to school in their 30's to become nurses.
It works.
66
Apples to not even oranges but rocks. Nursing is an essential white collar profession with arduous education requirements taking a substantial investment of time, effort and money to acquire. Welding is a largely menial task that is often learned on the job.
2
I cover this in my piece:
"Why haven’t these programs been successful? The biggest reason, according to Kermit Kaleba, the federal policy director of the National Skills Coalition, is that communities such as Clarion that see factories shutting down are often suffering economically. That leaves few other opportunities for people, no matter what skills they can learn. “Training doesn’t create jobs, training provides opportunities while there are jobs,” Kaleba told me. “If a factory closes down, that doesn’t mean there’s a set of corresponding work opportunities.”
Of course, there may be jobs in other communities. But they present yet another problem: the low likelihood that workers will relocate.”"
https://www.rimaregas.com/2016/12/04/the-maddening-variance-between-econ...
17
Welding is much more than a menial task - highly qualified welders besides having great skill must know a great deal about various metals, welding procedures, equipment and end use. I spent more than 30 years as an engineer, and engineering manager in the metals industry. While I wouldn't want an welder to take care of me in a hospital - you wouldn't want a nurse welding high pressure pipe on a rolling mill that is going to produce the skinsheet of the aircraft you travel in. Maybe they are apples vs oranges but paying more and hiring women in to welding could go a long way towards filling the shortage of welders - just as paying more and bring men into nursing has help reduce the shortage of nurses.
1
My experience says that employers have incredible power and that workers still live in fear. I was a teacher for many years during which we watch ed the the power dynamics shift completely to the side of employers. The stories of a fluid job market and a shortage of teachers may have been some way statistical but not actual. There were always many more applicants than jobs; would-be teachers were working in other fields, then would surface when jobs appeared. Employers understood their power and would treat any issue including wages with, "you're lucky to have a job!". To remedy any teacher shortage, they would increase the workload(more students per class) on the remaining teachers. We became more "productive", processing more kids each day, each year. Since a teacher cannot move to a "better" job and there was in reality many who could be hired to do the job, there was no incentive to offer more money. This is the reality in many fields, with individual workers unable to oppose their employers who hold all of the cards.
100
"...individual workers unable to oppose their employers who hold all of the cards." True, and a reason teaching is one of the few remaining job categories that are unionized.
Employers, including the government, are winning the war against unions.
5
Yikes, too many cross-references, but I finally understand this text. The tweets are a nuisance, so I focused on this text till I understand then went to the tweets. Fortunately, I like puzzles.
4
So Karl Polanyi is proved right again -- i.e. labor (and other factors of production) do not behave like commodities because they are not commodities.
22
What about low labor productivity growth?
1
While I realize that it is impossible to discuss all possible factors in a short column or blog, I do think that a low minimum and lack of union power have much to do with low wages. Dr. Krugman, as once wrote, the country would be far different if Walmart were unionized. Both a rise in the minimum wage and strong unions would have a ratchet effect on all compensation. It is also surprising to me that so many firms are able to get employees to sign to non-compete agreements.
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Your argument seems to suggest two other policy implications as well:
1.) Break up sector-controlling firms so that multiple companies in a market segment lose monopsony power and find themselves obliged to compete on wages for employees.
2.) Support unions that act as a counterweight to this buying power in the labor markets.
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How what serious discussions should be initiated and backed up these days is a sign of the times. We are no longer in an environment in which policy is being carried out by people who truly believe in one tack or another. The last three decades have led to the oligarchy we are in now, with beholden professionals (politicians, lobbyists, media personalities and, yes, certain economists) proffering notions that seem like policy but, in reality, were and still are nothing more than a means to further rig the game on behalf of certain captains of industry. The game comprises of two parts: our political system and our economy.
Fast forward to the Great Recession... Real jobs with important functions that used to fetch a decent salary either no longer exist or pay a third of what they used to. For the longest time, those we used to call 99ers (long-term unemployed) either sat it out and dipped into retirement savings or, to the extent they could, retrained (many with disastrous results).
Fast forward to today. With prices that never really stopped rising at the pump, supermarket, and rents going through the roof, the same measly salaries are being offered, with terrible benefits and no relocation. https://wp.me/p2KJ3H-2tP
What's an experienced professional to do? Take the right job at a salary that doesn't pay the bills or work themselves to death in the gig economy?
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https://www.rimaregas.com/2017/01/02/new-year-ruminations-lucky-among-95...
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As for us being at full employment, we are not anywhere near it when we remove from the equation all of those undesirable gig economy jobs that, at least as far as Uber and Lyft are concerned, will go away just as soon as they figure out a way to put self-driving cars into service. The same is true for any job that involves moving goods. The same is true for a sizable number of jobs that will go the way of the dodo in the next ten to twenty years.
Inflation, when so many Americans need real jobs with full benefits and as health insurance is expected to go through the roof for next year, is like wishing the ten plagues on two thirds of the nation.
What we have for a government now, barring a November surprise, should come to an end, with Democrats taking Congress back and moving into a position where they can dictate terms.
The question is, at that point, will they be willing to obstruct and nullify in order to force Trump to do at least some of the things this economy needed from 2010 on? Will Democrats be willing to listen to their base and stop triangulating?
That remains to be seen. That's the problem in both a plutocracy and an oligarchy. Democracy exists in neither space. The only difference is the degree to which moneyed interests have the upper hand.
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https://www.rimaregas.com/2017/09/04/triangulation-when-neoliberalism-is...
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