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O Wage Inflation, Where Art Thou?
Submitted by Shane Obata and Richardson GMP
The labor markets have been improving steadily since the financial crisis. Some people would argue that the US is at or near full employment. Even so, there is one piece of the puzzle that is still missing…higher wage inflation.
The Fed’s mandate is to promote maximum employment and stable prices; thus, wage inflation is doubly important.
In the following sections, we will try to determine why it is not speeding up.
Jobs, Jobs, Jobs
At first glance, the US labor market looks unstoppable. The total number of employees is higher now than it was before the crisis:
Total nonfarm payrolls rose by 12,654,000 from January 2010 to September 2015.
The Phillips Curve
In economics, “the Phillips curve is a historical inverse relationship between rates of unemployment and corresponding rates of inflation…” In other words, falling unemployment tends to coincide with rising inflation. Intuitively that makes sense. If the demand for labor is higher than the supply then unemployment should fall and wages should rise. That said, the relationship has not held true this cycle. The following chart shows the unemployment rate (inverted) vs. the consumer price index:
Prior to this cycle, falling unemployment was accompanied by rising inflation, and vice versa. This time around, both the UE rate and consumer price growth have been falling.
Not Participating
There are two reasons why the UE rate may fall. The first is that the number of unemployed persons (numerator) falls. That is good. The second is that the labor force (denominator) shrinks. That is bad. Regrettably, the unemployment rate has been falling for the wrong reason:
The number of people not in the labor force increased by 10,842,000 from January 2010 to September 2015.
As a result, there is a growing divergence between the unemployment rate (inverted) and the employment rate, which does not consider the size of the labor force:
The UE rate is overstating the health of the US labor markets. That is one explanation for why the Fed has lowered its unemployment target.
Quantity Over Quality
Another reason that wage growth remains muted is the abundance of part time jobs. During the crisis, part time employment rose while full time employment fell. Part time employment has been relatively flat since then:
Full time employment is back to where it was before. That said, the high number of part time jobs may be putting downward pressure on wage inflation.
Along the same lines, many of the jobs that have been added are “cheap labor.” What that means is that they are not high paying jobs. The next graph shows the employment to population ratios by education level:
Contrary to what we may expect, the EP ratio for people with less than a high school diploma has been improving while the ratio for people with more than a high school diploma has been worsening. Therefore, it is logical to assume that many of the jobs that have been added are low quality ones.
To Hire or Not To Hire
In the US, there has been a lot of talk about job openings, which are at multi-year highs. Naturally, it makes sense to assume that more openings would imply a larger demand for labor. That, in turn, would lead to higher wages. The problem is that openings do not always get filled. As we will see in the following diagram, hires are lagging behind openings:
Said another way, the number of openings is rising faster than the number of hires is. Part of the cause for this trend is the mismatch between what employers want and what candidates have. In addition, employers are being extra choosy “and are intensifying their hunt for the “purple squirrel” – candidates with the perfect combination of skills, education and experience…”
Wage Growth or a Lack Thereof
After the financial crisis, wage growth rebounded quickly and then peaked at 4.37% YoY in October of 2010. Wage inflation has been relatively steady since early 2011:
The upper bound is ~3% while the lower bound is ~1%. Currently, wage growth is the middle of that range; the last reading was 1.63%.
Not So Full Employment
Positive wage growth is a good thing. Still, it is not accelerating the way it would if we were at full employment. The US labor markets are not weak but they are not as strong as some of the headline data suggests they are.
If we look beneath the surface then it is clear that there are multiple explanations for the lack of growth in wage inflation. Many people are leaving the labor force, some of the jobs that have been added are low quality ones and openings are outpacing hires.
There is still slack in the labor markets. Maybe that is why the Fed has not moved yet.
If our analysis is right then what are the implications? Rates will stay lower for longer.
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H-1B or not to be.
Waht is this faggot smoking, beside pole?
"If we look beneath the surface then it is clear that there are multiple explanations for the lack of growth in wage inflation. Many people are leaving the labor force, some of the jobs that have been added are low quality ones and openings are outpacing hires."
OOOOHHHH now I get it. All this time I thought it was the abusrd c-suite pay packages or billions in stock buybacks funneling into executive bonsues.
"The US labor markets are not weak" - like hell they aren't.
With a record number of unemployed, it's a buyers market, but only the low wage, part-time workers need apply......
5-10 years experience in perl, java, php, c++, bash, cobol, unix and microsoft server administration, VoIP, help desk, project management, BS in STEM but Masters preferred for a part time unpaid internship.
Sorry buddy. IBM moved all their programming jobs to India. You get to compete with Habib. Who lives in a reed hut. With his 12 siblings. It's your own fault to. You should have created Alibaba yourself. You didn't. So, you get to compete with Habib. Sincerely, Jack Ma.
using namespace Fucked
cout<<"skills don't mean shit. It's an international world full of hungry people working for rice. You get to compete with that." //too many people. not enough jobs. too much debt. www3 coming our way.
Move to Brazil.... That's where a lot of it is moving to.
And the women look,,, well,,, now that would be sexist in our new perfect equal world.
Unfortunately, the Brazilian government is going full retard.....
if you ain't a ceo you ain't worth a shit
...yeah....but bartenders and wait staff are people too....
"The labor markets have been improving steadily since the financial crisis. Some people would argue that the US is at or near full employment"
Sorry, had to stop right there. One sentence was all I needed to know this retard doesn't know what the fuck he is talking about.
There are people who still argue that the world is flat......
Ditto Doc... WTF?
Your a hard person Doc! Come on...
The Tylers have to let their ABC side get equal time. lol.
You may have thought that by training, any person could be employable. As an employer we no longer think that is a viable option, instead we say "never teach a pig to sing; it wastes your time and annoys the pig". There has to be some degree of aptitude for the job
New way to improve investment skills http://www.decisiveinvesting.com/blog/general-en/how-to-trade-forex-anywhere-in-the-world/
One trains Monkeys,,, but teaches skills to humans.
I went through a three year industrial apprentice program at a steel plant long shuttered and moved to China. Three nights a week classroom, three years OJT under a journeyman until journeyman status. These days, if one can replace a light bulb they are knighted the title of electrician. Training is done by Mr Digital,,, quick and cheap.
Bottom line,,, you get what you pay for. Years ago employers wanted skilled workers, today they want trained monkeys with a piece of paper from college trained PhD's whom never worked a day in their lives.
So how do government wages look? Take those out of the numbers and its a train wreck I betcha.
There are 4 sorts of persons. Intelligent and hard working, a secretary comes to mind. Intelligent and lazy, well that is management. Stupid and lazy, that is your average employee. The stupid and industrious should never be employed.
I thought industrial strength stupid was congress?
Business is Business. And Business must grow. In spite of paying livable wages, don't you know.
No no. Remember when the Keynesians redefined inflation into cost push and demand pull price metrics? They also told us that paying workers more would cause a "wage price spiral". This is to be avoided at all costs, which is why the printed out of thin air digital money must only go to the elitists and their banks. Wouldn't want "inflation" now, would we?
Isn't it strange that all the "socialists" push Keynesianism as a panacea for the economy because to them it means more government control. They must be more concerned with increasing the power of government rather than helping the poor and working class, huh? Who would ever have guessed that.
Fake socialists are what people on the "right" have always hated. It wasn't about hating the poor originally, it was about hating little pissants with power who stole your labor and property. But it was all balled up into a neat package of lies that was mislabeled "socialism" and "communism". Meanwhile the same little government and oligarch dirtbags have been growing their license to steal and making the victims hate each other for it.
it is simple economics. as the amount of available labor increases (through H1B, illegal immigration, or through the myriad of other work visas that are available these days), the price for that labor goes down.
There is essentially an infinite supply of labor that is being tapped into on the world labor market and thus competing with the American worker. the result is zero wage growth for the American born worker. The vast majority of the new jobs that the US economy is producing are going to foregn born immigrants right now. the result is severe dperession of US wage growth.
The question is whether the US government is going to do anything (through managing immigration volumes) that will help mitigate the negative impact on the US born lower and middle class workers
it is simple economics. as the amount of available labor increases (through H1B, illegal immigration, or through the myriad of other work visas that are available these days), the price for that labor goes down.
There is essentially an infinite supply of labor that is being tapped into on the world labor market and thus competing with the American worker. the result is zero wage growth for the American born worker. The vast majority of the new jobs that the US economy is producing are going to foregn born immigrants right now. the result is severe dperession of US wage growth.
The question is whether the US government is going to do anything (through managing immigration volumes) that will help mitigate the negative impact on the US born lower and middle class workers
Government data comprise an alternate reality. The world is in a cyclical recession within a depression. Markets are inflated and losing momentum, to put it mildly. Teetering on the brink is more like it. The system of extraction is running out of juice because it has squeezed the life out of the middle class, worldwide.
An old farmer said it best, "You can fleece the sheep every year, but you can only skin 'em once."
"The labor markets have been improving steadily since the financial crisis. Some people would argue that the US is at or near full employment. Even so, there is one piece of the puzzle that is still missing…higher wage inflation."
Well...THERE'S YOUR PROBLEM!!!
Sorry if this sounds like a knock-knock joke.
Q: What kind of demands on your labor time fail to make it possible to raise prices as a way of selecting whose work you will do?
A: The non-paying kind.
Obviously people like to keep themselves bussy because you only have to look at one graph only to understand it all https://sobata416.files.wordpress.com/2015/10/not-in-the-labor-force-oct...
Record 94 Million Americans Not In The Labor Force; Participation Rate Lowest Since 1977 http://www.zerohedge.com/news/2015-09-04/record-94-million-americans-not-labor-force-participation-rate-lowest-1977
It's gotten so depressing I don't like looking for work. Most of the time they just want free samples. With a steady stream of new applicants I don't think employers are looking for "purple squirrels" so much as they want work done for free by prospective employees during the interview process, who are never going to get the job, because they already did the job.
Recently got sucked into one of those, again. A position as an "Academic consultant." Hiring manager praised my resume and work via email, but said that to continue in the hiring process I needed to turn in a very specific two page APA style paper including a title page and reference page with citations entitled "Children and Screen Time: How Much is Too Much?" I thought it was a little fishy but wasted a couple of hours of my time writing this. I got a very brief reply that "Your work is not up to our standards." I asked him to be more specific. He sent me a link showing exactly what they were looking for, which looked exactly like an undergraduate paper for say a sociology class, and said that my reference page was not strong enough but if I could reformat it he would consider hiring me. At this point I researched the company indepently from the link they had provided and realized I'm not consulting anyone--just writing the papers for people who need to get a degree. That used to be considered unethical but anymore I guess it doesn't matter? I'm sure the student will change the byline to his or her own name,.
Even more galling was realizing that an undergraduate student ordering the exact paper my hiring manager was asking me to write would be charged $96 for it, of which even if I was paid, I would make at most $20. I cleaned up my references and paper, but alas, "Academic writing is not your strong suit." It's been awhile since I was in graduate school but I recall being told by more than one professor that I was an excellent writer. The bar for purple squirrels is getting higher every year, methinks. How many job applications do you think that guy goes through in an average day?
"Millenials".