It’s off the front page now but I didn’t want this post of Tyler Cowen’s at Bloomberg to get by without comment. Wage growth has been very, very slow:
The most disappointing feature of the most recent jobs report is that wages did not grow very much, even though the U.S. economy is at or near full employment. For 2019, wages grew at 2.9% — but, since inflation is about 2%, real wage growth is about 1%. That’s hardly impressive. The last decade was the second-slowest for payroll growth since the 1940s.
If the roots of this slow wage growth were better understood, there might be better ideas about how to boost it. Unfortunately, there are few easy fixes, and at this point there is not much the Fed can do about it.
He recounts a number of different explanations for slow wage growth:
- The growth in the cost of employer-paid benefits
- Slow productivity growth
- Outsourcing, whether onshore or off
- Some firms today can generate a lot of revenue with relatively few employees
- Income substitutes (stock options, etc.)
I don’t believe for a second that last suggestion has much effect at all. I just don’t believe many people have such things available to them.
Also, what do they teach in school these days? Back in days of yore when I took economics, I was taught that productivity growth was a consequence of business investment. IMO that’s a key point. The result of financialization of the economy is that half or less as much of business investment is actually devoted to expanding facilities or anything else that will produce more or produce more efficiently which would imply greater productivity. Let’s say that 30 years ago you had to increase business investment by 10% to realize a 1% increase in productivity. Assuming a straight line relationship that would mean that today you would need to increase business investment by 20%.
Any here are his recommendations:
- more business investment—I’ve already talked about that. You need to run twice as fast nowadays.
- more governmental support for R&D—we already know there are decreasing returns for that.
- Reduce the costs of housing, health care, and education on the principle if you can’t raise the bridge, lower the river. IMO those all present the same challenges. It’s darned hard to provide artisanal goods and services to a mass market at lower cost.
My solution would be to change tax policy so that the incentives were much, much more targeted.
November Jobs Gains +266,000
Unemployment Rate 3.5%
Wage Growth +3.1% year-over-year
Inflation 1.4%year-over-year
The crazy numbers are wage growth exceeding inflation and not by a hundredth or two. Haven’t seen anything like that in my lifetime.
From USBLS:
https://www.bls.gov/news.release/empsit.t24.htm
Bennies and immigrants. Period.
In 2015 inflation was 0.1%. Wage growth was 2.5%, for the whole year.
I was hoping you would cover this. Conservatives believe that we are having record wage growth, at least the ones who post on this site believe it. Then you look at the numbers and see the truth. We continue to have very slow wage growth, even with low UE rates. There have been dozens of articles on this. I think this list of causes is as good as any since I dont think we know for sure, just as I dont know that we have a definite cure.
The one part I would comment on is Cowen’s suggestion about lowering the river. You can effectively do that just by moving. Leave Silicon Valley where you are making that $150,000 computer job. Move to Nebraska. Everything gets cheaper, but do you still make $150,000? Nope.
Steve
“Reduce the costs of housing”
News says that in CA cars and and trailers are the new shantytowns.
Also, ruthless MD’s are sucking the wind out of productivity increases.
Another thought is that easy credit and personal indebtedness, living paycheck to paycheck, makes it hard to improve one’s situation by moving, asking or changing jobs for a raise. Debt blinkers on, you can’t see past that next paycheck.
In the face of a need for greater investment and productivity, why is the government still heavily subsidizing breeding?
Steve: I obviously did not do my homework on the wages vs inflation comparison. The ol’ assumption thingy.
Tars- I do that way too often so I have no room to throw stones. After all, it is a blog and we arent proof reading to publish in Science or something. You write in good faith so I dont think anyone here is going to care.
Steve