Unemployment in the U.S. Is Falling, So Why Isn’t Pay Rising?
bloomberg.com
bloomberg.com
Still, this is overly simplistic. The problem in my mind is that unemployment rate is reflective only of those looking for work, and labor force participation rate is low. https://data.bls.gov/timeseries/LNS11300000
The result is that as employers' needs for people rise, they can siphon off those looking for work at current market rates, and then, (maybe), people from the non-participating group can gradually replenish the unemployed pool.
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My own experience tells me that there is limited wage stagnation in modern high-skill jobs and that there is low unemployment there as well. In that market, wages seem to be rising, and talent seems to be scarce. (Read some recent earnings transcripts from companies like CDI that do staffing in these industries.)
On the lower or outdated skill market, though, companies have more people to choose from, likely lower transaction costs (non-benefits/salary jobs enable more employee turnover), and also slimmer margins. Why pay any more than they absolutely have to?
Where this becomes a real problem, though is that low-skill jobs are not even keeping place with inflation. As a result, real earning potential in many of these jobs is through the floor.
Personally, I look to the huge run in returns on capital in the equities market over the last few years as the primary cause. In many cases, historically low interest rates and fast growing equities prices have diverted efforts from business growth and innovations in the "core" to financial growth and innovations for the balance sheet. This will revert, at some point. But, as we have seen elsewhere in HN over the last few days, there is a large entrenched "Business Class" that knows far more about financial optimization and asset allocation than they do about the businesses that they actually run.
They can't get enough qualified people.
...for the price they are offering.
There, fixed it for ya :-)
Well, I was specifically referencing the top 5 biggest tech companies, and the pay may seem low to the people who have been working there fresh out of college but its still relatively high pay compared to most other industries with people of the same academic and skill level but in a different industry.
They interview alot of people and the people don't turn down the jobs because the pay isn't enough, they don't get the jobs because theres not enough qualified people.
So I don't know how your statement is relevant but I don't think they don't get hired and rejected from their interviews because they applied and changed their mind that the pay wasnt high enough....
That being said, given that the skill level sought out is hard to find, and the people with those skill levels are in such high demand with many many options at their fingerprints, including but not limited to never having to work in an office if they don't want to, that there is an argument the pay should be higher for the people that do have this skill level, and work long hours, despite the rest of the world protesting at the inequality of tech valley and not seeming to understand how much of a meritocracy it is RELATIVE to other high earning places like wallstreet and politics, where the old boys club is much more relevant than tech valley (all relative here) (and i dont disagree, people with niche skill who earned it and are needed should be evaluated appropriately) but this is not the situation I was talking about.
I'm talking about the situation where people get turned down from any of these jobs where they even have the luxury to complain a software engineer salary at a top 5 company is too low, because they don't have the expertise to get the job in the first place.
If tomorrow every electrical engineer salary went 10 times higher, supply would still take 10 years to improve.
"Free online course to learn Tensorflow"
"same for Elastic Search"
"intro to VR"
"Intro to Python"
"App dev"
etc...these are all free and accessible to the same people who work at coffee shops and browse twitter and facebook.....
So would it take 10 years for these people to learn the skills?
I think the market signals are being interpreted as intentionally divisive to people who don't have the skills, instead of a need for the population of people who have the skill to increase, and thus they protest the market signals as a response instead of utilizing free and open resources on top of their already paid for internet utilties provided by these relatively highly paid workers, to make it free and easier and more accessible for other people to learn.
Sure learning these skills outside of a part time barista job could take 2-3 years, but even an entry level software position at a just a-okay tech firm who starts them out at say $50k/yr with no benefits, is still higher than working minimum wage, by a large degree.
I'm not sure everyone who is experiencing a disadvantage from the pay difference wants to increase their skill level, or learn new skills.
There are plenty of people who do and work long hours and cant, but there are also plenty of young people who do not, and choose not to and make other lifestyle decisions, which is fine with me, as long as they don't throw rocks at me because I chose to do my math homework in highschool when they chose to go out and drink every school night. Sometimes peoples life choices do have an impact, and its not always the responisibiltiy of the most successful companinies in the world to calibrate everyone elses life to the minimum starting salary of the most skilled workers on the planet.
I don't know what IS a good solution, but I feel this is an unrealistic expectation. Regardless, these companies are making an effort to do this anyways as they are in need of this skills and creating venues to take people from 0 to 1 with never having known anything about software or math.
It's quite difficult to demonstrate qualifications to employers, I specialize in type theory and devote my nights and weekends to that. I've been doing this for a year but still have been rejected for every single typed programming job in NYC. I admit I am mentally slow, but I am willing to put in the work.
My point is you are trivializing the effort. Often we are competing against people with better minds/bodies, better home environments, better support networks, etc. The advantages build on each other. Yeah we fucked up in high school or earlier because we just didn't know. I suppose it is fair that we will pay the price the rest of our lives. Oh well.
I'm not saying its fair. I'm saying I think the biggest tech companies now never had the intention of opressing poor people and we have as a society found ourselves, as we always seem to do in quite a complex situation where its not easy to find one person or company we can point the finger to and say "its all your fault"
In regards to you conflation that not screwing up in highschool requires having better minds bodies and home environments, I grew up on welfare, in a trailor park, was the first person in my family to graduate highschool, and I juts liked to learn, but I constantly get shot down by people who drank and threw things at teachers and ignored me that not only do I not deserve the life I worked for, but my personal choices are an explicity effort to oppress them, and my success in life is a continual punishment to them for their own choices.
You don't need to be rich to decide you want to be different than your surroundings, but yes often people assume my level of success is because I must have come from a good family, and I couldn't possibly understand the hell of growing up in a backwoods south Georgia trailor park where noone went anywhere.
I agree, once choices are made, its hard to undue them. I have friends with this story: You got drunk in highschool one night, your girlfriend decides to keep the baby. You both barely passed highschool. Life is going to be a struggle to make it work because you made some bad choices, and If I had the power to not have these people live their lives for the next 10 yrs recovering from their mistakes, I would change it in a heartbeat.
All I know is I chose to take less risky choices and maybe thats because of my personality and I'm calibrated differently or maybe not. Who knows, but I think the attitude of people blaming and demonizing successful people is destructive to the very people who are experiencing socioeconomic inequality.
I've definitely distanced myself from people who demonized me when otherwise I would have remained friends, and I offered to pay for my little brother to go to college after I graduated, he was a senior in highschool at the time but he said he "just didnt want to work as hard as me"
I tried as hard as I could to convince him otherwise because hes a smart kid, but he cares more about fitting in and fitting in at his age in his environment means not trying, and being in a garage band, and dating girls who don't do anything with their lives.
I love my little brother with all my heart, and I have the ability to financially support him todo whatever he wants to do, but he chooses not to.
When and if he comes around and ten years asking for help, and I hope he never has to because he does well on his own, I will help. Will it be easier for him by then? no.
How much control do I have over this? I don't know.
Noone knows the answer but I see our society degrading into fingerpointing and the haves and the have notes.
But from experience I've never met more supportive good hearted people than I have in college and in places of higher education, and its hard for me having been on both sides to make my hometown friends feel better about their assumptions that all my "new friends" are evil and wake up every morning with a newly devised plan about how to squeeze more pennies out of their paychecks.
I experience alot of what my exboyfriend use to call the racist thing. He noticed after 3 years of dating me, and coming from a rich upscale family in the Barkshires, that he told me he thought it was funny that he noticed his family is more subconsciously without meaning to be racist than I am. He meant that while his family was very liberal good hearted, voted for Bernie, grow gardens and spend their time teaching at disadvantaged school and being frugal with their money he said they had never lived in the ghetto like me, so when I had some choice words for some girl who was trying to beat me up, it wasnt because she was black, it was because she was trying to beat me up, and in fact I had many black friends at my school, and his town had 1 black person at his school.
His family was the kind of family who would make a minority feel out of place by trying too hard to make them not feel out of place, and I just judged people based on who they were, as people, and often being exposed to many different kinds, I find good and bad people to be rich and poor, and don't discriminate effort and character to be confound to income levels.
This was something he noticed and learned about his own family by living with me in comparison. Alot of people are at an impossible disadvantage and thats absolutely true. Alot of people are self destructive without meaning to be.
but alot of people are assholes, and jerks, and I'm not giving them a free pass because they are rich and can give me a good job anymore than I'm giving someone a free pass because they grew up in the same damn town as I did.
And its annoying to be lectured by people who grew up in constant privilege about my elitism regarding situations theyve never been in before.
I belive in equality, you know real like equality. As in, guys can be manipulative jerks but damn women can be too, and alot of women don't like me because I choose not to defend the choices of every woman on the planet because I'm a woman. I believe in equality that you can be an asshole and your income doesnt always determine that (but it can). I dont assume the character or motivations about a person based on their income level, and it's a little scary to me that in politics we are trending to that kind of subconscious assoication, and its even more disconcerting coming from recent ivy league grads working at google who grew up in rich suburbia connecticut, who think that if people in places like my hometown, had an extra $100 dollar in their weekly paycheck, the path for equality and a better life would be clear for them and everything would get better. I know its more complicated than that.
I don't think you "deserve" anything you. You dont deserve what you want or desire, you deserve what you do, and often times we all make mistakes including me. Mistakes don't bother me as much as how people respond to mistakes, and choose to use it as an opportunity for growth and I appreciate your dedication, but alot of people are not dedicated.
(The whole concept of growing up in the ghetto and having a harder time to achieve what society finds valuable is less familiar from my perspective, living in Scandinavia where welfare makes this less pronounced).
Yes, the answer is, it takes at minimum several years for a person working in the food industry to be anywhere reasonably close to being called competent in software engineering, because it requires you to change your entire way of thinking about problems.
In many cases it's flat out impossible, given that those people work full time. If your work is not in the same field, performing the mental shift to learning something in-depth in an unrelated field is extremely cognitively costly.
Another thing to keep in mind, many people working low wage jobs have families to take care of, which means even less time devoted to learning. In those cases, yes, it could probably take a decade for them to learn.
And considering how fast-paced tech is, it's likely their knowledge will be outdated by the time they would actually finish the self-learning process.
> Regardless, these companies are making an effort to do this anyways as they are in need of this skills and creating venues to take people from 0 to 1 with never having known anything about software or math.
You're right, it's a good start. But it doesn't solve the underlying issue of how costly the education process is on behalf of the learner. These companies "disrupt" by reducing transaction costs, but the cost of the good itself remains prohibitively high.
Almost two years' experience in embedded firmware is not enough qualification to write embedded firmware? Because I wrote bare-metal firmware, and you want someone who's used your dev-board or your embedded Linux before? Come on.
Employers are currently very exacting.
I received similar feedback from recruiters, saying that once you've been in industry a couple of years, employers view you as specialized to exactly what you've done before. Apparently it got hard to even sell my resume for non-embedded roles.
This situation has been created by the employers. They've held salaries down, they've refused to give raises at all (which is why everyone changes jobs every few years, so they can get back to "market rate" instead of their salary being stuck at whatever they were hired at + minuscule cost-of-living raises), and they've had massive layoffs constantly. It's all added together to paint engineering and tech as a highly unstable career path, with high starting pay but lousy job security and the need to move to a few tech hubs, and nowhere else, so that you can take advantage of the frenzy and do well. Other careers with high educational requirements, like medicine, are not like this. Doctors don't change employers every 18 months like Silicon Valley engineers do.
Here are a few other things to consider about comparing software to doctor/medicine industry
1. The rate of change of which human biology changes is alot smaller than the rate of which technology changes, and this is a pretty obvious thing to know going in to either of these industries, so complaining about the continual learning curve I don't have much sympathy for here.
2. Doctors experience their fair share of misery as well
a. Doctors are one of the professions most in shortage in the U.S. as well as almost every other country, despite this acceptance rates into med school is insanely competetive, way moreso than a large tech company, and worse, to even apply to med school requires schooling from an official college, in an environment where college tuition has increased 500% relative to inflation in the past decade.
That means the majority of people paying 500% more to get enough school to apply to med school don't even have the opportunity to pursue their profession of choice, and experience competitiveness at an entirely different level, and are left with lots of college debt and forced to find an alternate profession.
For those who do make it, its another 10 years of school, and often not even the option to choose which genre of medicine you can go into.
99% of Doctors are happy to finally be a doctor and work anywhere, and most people who wanted to be doctors never got accepted into med school.
With software engineering, while alot of devs went to college, its not required by any means, and you can realistically learn for free never go to college and be a software dev.
Additionally, if you dont get into the top whatever elite tech firms and have bragworthy employment, you can get a job as a software engiener making a min $60k at literally almost any city in the United States, and most industrialized places in the world, it just may not be the job you want, but usually there is a large healthy range of software employment between working a low end sys admin job at a healthcare firm for $90k without having to ever increase learning skills, or working for the top 5 tech firms.
Maybe a more accurate comparison is Doctors who went to ivy leagues and have paid off their debt, and their quality of life compared to the amount of work a software engineer at amazon has to do to coninually stay at cutting edge, but your kind of mildly glazing over the 15+ years of academia and hundreds of thousands of dollarsd of tuition doctors invested before they had stable lives, after inching into the acceptance of a med school where the acceptance rate is multiple times lower than those who actually interview and get turned away from top 5 tech firms.
Youre also glazing over the level of responsibility, in 99% of cases, when a software engineer makes a mistake, someones life may not be a stake. The ability for a software dev to have impact and have their work be exposed and touch and improve is higher than a doctor, but the consequences of a doctor making one mistake is almost infinitely higher than a software engineer.
In addition, you practice under a liscense, and can be sued for malpractice. If you make a mistake as a software engineer, you may get fired, but not always and will be employable elsewhere.
You cannot rebase a github push origin master a heart transplant, or a shot, or helping giving birth to new life. If you mess up, you can't ever practice medicine again.
In addition, doctors usually have to start their own practices, so they have to be their own entrepreneurs very often much like lawyers. While software engineers can do this for free with no school or liscensing and no risk of malpractice if its in the hot field of social apps for example, you can easily work for other companies your whole life.
I just don't see the comparison between the two, or the sense of entitlement you have that being an employee at Amazon offers the stable benefits a doctor has after 20 years of schooling and paying off loans and establishing an independently run office.
With software engineering specifically, given the amount of people who have access to the internet, lets say like unemployed young men in theirs 20s working in the food industry or something, working part time and play video games for 40 hrs a week. If you have access to an xbox, then you have access to free online courses to learn machine learning, intro to programming, the entire internet where you can openly asked the internet questions and try to figure out a skill thats valuable and in software specifically, have multiple free venues of learning it.
But theres a lot of people who don't do that and don't take advantage of it, but also protest wages in silicon valley. There are people who work at coffee shops 20 hrs a week by choice, and go hiking by choice and had access to the same resources everyone else did, and came even alot from middle class to upper class homes, but don't want to learn high demand skills, and in fact protest them.
in this case, I'd say the pay is not only high enough, but it's so high they dislike the fact that not doing the work to get those high paying jobs is decreasing the quality of their life relative to everyone else around them.
obviously outliers exist, but what is it about software development, that, atleast for the population who can afford internet, and video game consoles, makes it so elite people arent motivated to learn.
I think some people don't want to learn or put in the effort, but also don't want to experience the reduction in quality of life as a result of other people putting in the effort.I think those same people protest more as the wages are increased, as they misinterpret the market signals for need as abusive to their lifestyle in which they choose to not go learn high demand skills.
Could this be valid in some cases?
I've also seen self taught developers - mostly "database developers" - who had the aptitude to break problems down logically and get something working but their code was unmaintanable except by them (barely), didn't scale, and required manual intervention for failure cases.
On the other hand, I've known plenty of business analysts who spend most of their time documenting processing and working with customers who could easily move into development. They seem to have a natural aptitude when it comes to breaking problems down logically.
Some people just can't learn to code. Their mind doesn't operate that way. No one would ever say that why don't people learn how to sing or play sports because those can be high paying careers, because most people understand that not everyone has the natural talent to do so. Why does everyone think that anyone can learn how to be a developer?
Almost anyone can learn how to play sports, or sing, or play instruments. It just takes time and determination. The ones that "make it big" also have luck on their side, but there are plenty of unknown people with equal skill.
Sure, legitimately dumb people will have trouble with knowledge work... but average intelligence is more than enough. The problem is that software is still a relatively new field and we haven't learned how to teach it yet.
I think we're still too focused on implementation details. Language is the medium for expressing ideas, incoherent or poorly developed ideas indicate someone that hasn't learned how to think about the domain yet. When mentoring students or doing code review for new hires, I've found tremendous value in focusing on questions and pointers to software/framework patterns instead of line-level errors. The little stuff matters, but those problems are often driven by higher level complexity.
If you take the neurotypical to autistic spectrum, someone on the NT side will find that work that takes advantages of the NT cognitive style adds to their quality of life, and work that doesn't detracts from it. The same goes for people further on the aspie/autistic side.
Someone with an NT cognitive style might love working in finance or politics or sales but hate working in STEM. The opposite it true for those with an aspie/autistic style.
The last few decades of not the last century since the industrial revolution has seen the rise of well/paying in-demand jobs that appeal those with a cognitive style more on the aspie/autist end of the spectrum. I think a lot of those on the NT end of the spectrum who have typically been in a position of earning power for most of human history are starting to resent the fact that systems are being engineered that automate and devalue skills That those with an NT cognitive style excel at.
It also doesn't help that that the supply of thosewith an NT cognitive style greatly outnumber those with a more aspie/autistic style for reasons of millennia of sexual selection for NT traits.
I think it's quite natural to resent high earners doing a job that you either cannot do or would not enjoy doing.
there are many who are just willing to grouse about their situation and not, how do you change them?
Of course, most companies don't do anything to train or build talent in-house anymore. If you do increase your skills, it is most likely in spite of your employer, and not because of them.
They dish out money to relocate them, buy out their mortages to help relocate, send them to training/tech school, and the many techs who worked under me on my team made $170k + a year being one of maybe a handful of people in the world skilled at working on a specific machine in the fab.
They can't get enough guys (edit: or girls, girls were treated well where I worked and there were definitely women in the fab with wrenches working on tools, did not mean to discriminate but yeh women and men, whoever is willing to learn and do the work, they will hire) to work in these places so they are seeking out workers from retiring generation plants and military.
They all had it really good, actually enjoyed their jobs and got to learn high tech skills but not sit an an office all day and work on really high tech machines, got to work shift hours, night hours and get shift and night differentials and spend their weekends off traveling or doing whatever. They had a lot of fun and good guys to work with.
As for me I was their fresh out of college Shift Engineer/Manager who was salaried at 1/3rd the pay with a Bachelors in Electrical Engineering and being salaried I worked 70+ hrs a week and was on call 24/7, but they got to turn their mind off at the end of the shift, and always ragged me about it, but in a fun loving way. It's actually really humbling to be managing people twice your age making three times as much as you. I learned so much about technology and in general life from these people who had tech jobs in odd places all over the world, and it's good to have a different perspective and get exposed to your industry from the ground up by people who genuinely work hard and know their stuff. I'm glad I got exposed to that industry/life/those people.
Theres definitely alot of room for working men with a factory/tech/military background to have jobs if they are willing to learn new skills.
And ultimately life is a constant set of new experiences so as long as you are willing to learn new skills you can/should in most cases be willing to find something, and right now industries are seeking out and paying people for these skills.
What I noticed among these men who worked here doing well making alot more than me and living a good life is while telling me awesome stories from their travels in the navy or what have you, they had had multiple careers before and never shied away from the opportunity to transfer their skills technical and mechanical and apply it to an ew industry.
Theres lots of guys out there with the same life experience, skill level who arent willing to adapt or learn new industries, and thats not the problem in my opinion of anyone else but that person who feels they dont need to learn new things because they worked in a factory once.
Definitely lots of need in areas more than software dev.
Right now for example, Samsung is hiring like crazy for these kind of tech workers in Austin TX, paying them shift and night shift differentials and starting salaries beginning in the 6 figures range. The more experienced ones get fought over to pick and choose and negociate salaries and paid even more to train new workers, live a really good life.
I have a 16 year old son who already has 4 years experience with combat robotics team, 2 years experience with VEX robotics competition and will attend community college his final 2 years of high school. He will most likely graduate with a 2 year Associates degree at the same time as he graduates from high school.
On the practical side he is somewhere between beginner and intermediate in skill with SolidWorks, has done a bit of CNC machining, a little welding and electrical wiring. And, they get a good amount of experience troubleshooting and repairing under time pressure during competitions.
I am always on the lookout for career paths forward for my kids. Would love to hear a bit more about the skills and work of this team.
Thanks
True. But then question is whether money saved by offering the lower pay is worth the additional productivity brought in by new employee or not. If it is not then it is fair to say there is a shortage of people in Tech industry.
then throw in some who hold their skill set to highly with no basis in reality. just because one XXXX language programmer can get a set figure does not mean they warrant it let alone near where they live. I have seen people turn down jobs because they did not like the drive. Damn, you need the job, you do what it takes to keep your family whole!
Imagine a model economy of 10 companies with openings, and one person with the skills to fill them. All 10 companies can fill their openings by sequentially raising their salary offer to that person.
If you don't account for the openings that are created along the way (as the one person sequentially jumps for the higher salary), you'll have a mistaken impression there is no skilled labor shortage. After all, each company hired someone.
The issue is that automation drives efficiency, but large corporations are buying most of the limited supply... which crushes smaller businesses and drives down wages of unskilled labor.
My answer is that we need to invest in adult education and infrastructure. The labor market is struggling to adapt to demand because the cost of acquiring technical skills is prohibitively high for adults, and struggling consumers have undermined domestic manufacturing chains by both being unable to afford the output and unable to fund competitive infrastructure due to low wages.
We need to seek the healthy equilibrium is where most labor has enough demand to personally profit, and enough supply that most businesses can afford to compete.
If there's any definition available for "labor shortage", it is what happens when a middle class increases and wealth disparity decreases.
But anyway, your point about education stands by itself.
On the labor side, getting a $120k+ job out of a 4 year/$14k investment also sounds like a labor shortage.
When machines were created, many clothing companies folded because cotton become more expensive. It was expensive because machines could make clothes cheaper, so people brought more. Is that a shortage?
At any time there's trash on some street that could be picked-up by hand. That's a job in direct competition with yours, yet there's nobody there hand-cleaning the streets. Is that a shortage?
This discussion and the original article is focused on analyzing why wages are falling with unemployment. "Businesses are failing because they are uncompetitive" describes most businesses. The question is: Why are the failing? How does that impact down-stream systems? What up-stream systems could have had an impact? Follow the chain of cause -> effect.
Ineffective labor cross training into high-skill high-demand jobs -> labor shortages -> only large scale operations can afford to bid -> dramatic efficiency gains -> lower asking price of products -> businesses that couldn't bid collapse due to uncompetitiveness in the new market -> surplus less-skilled labor and economic disparity -> less taxes for infrastructure -> less regional competitiveness -> ... so forth, hypothetically.
Which is why I concluded with investing in education (root cause resolution) and competitive regional infrastructure (new growth, avoid another labor glut from overcorrection).
On the other hand, if an external (non free market) force sets the price, then you will have a shortage. Say, for example, that a bushel of wheat in the Roman Empire would go for 10 dinars in a free market. If Octavian passes a law that says that wheat must cost 8 dinars, the result will be a shortage. Now you have way more people willing to pay for the 8 dinar wheat than would be willing to pay for the 10 dinar wheat, and that discrepancy (the difference in available goods) is the shortage.
Price setting (like rent control in NYC) is a common cause of shortage, but there are lots of other causes. Often companies won't jack up prices because gouging has negative externalities (people start to hate you), and this unwillingness technically creates a shortage. In a shortage, you'll see behaviors emerge like queuing (like in the Soviet Union for sneakers) and also the emergence of a black market where goods are sold at the higher price (often with an additional premium attached).
However, I am saying that shortages exist because our market is imperfect. Given the axioms of a perfect market, ours is absurdly inefficient:
* Homogeneous supply of products: No. there are huge disparities in skill and personalities. Evaluating quality is very challenging.
* Perfect Information: No(ish). glassdoor/blind are improving transparency but pricing / performance information is still suppressed.
* Low barriers of entry: No. People cannot enter this market without large personal investments (which many lack).
* Minimal externalities: No, all of my posts here were focused on externalities... especially ones that raise the barrier of entry.
* Zero transaction costs: No, it's expensive to change jobs and businesses expend lots of money searching for quality candidates.
* Rational profit-motivated sellers: No, candidates do not seek to maximize profit. Less profitable offers are accepted based on location, ethics, social status, peer network, business domain, tools, or even just not caring to negotiate.
* Rational buyers: ehhh ... employers have rational intent, but do make unprofitable decisions due to low and inconsistent quality (less of a concern for those that pay the highest rates).
As I described earlier, these imperfections harm related systems and markets. My suggested path back to an ideal market was public education and infrastructure investments.
http://economics.mit.edu/files/10284
Labor market models are much more about flows, and frictions to those flows, rather than "static" views of labor supply and demand.
When I was studying econ, I found some of these models and equations to be the most well thought-out and powerful tools presented whereas a lot of the other things I had to learn were toy models or very, very far removed from reality.
The Japanese have a long history of low unemployment and deflation working together:
http://www.tradingeconomics.com/japan/unemployment-rate
Maybe the idea that lower unemployment always leads to inflation is just wrong.
For now, wage decreases have been masked by cuts to employer-funded health insurance programs. Eventually, there will be nothing left to cut there leaving the possibility that we'll see across-the-board wage cuts.
Regardless, you're still at a low rate of growth, not deflation. If labor force participation was the issue, we'd see that trending up, which we do a bit, but not much.
One other theory somewhat consistent with the data is that we're seeing downward pressure from automation, yet if that was true productivity should be rising faster.
[1] https://www.clevelandfed.org/newsroom-and-events/publication...
The actual labor force participation is what counts.
And therein lies the answer to the "why isn't pay rising" question:
http://www.tradingeconomics.com/united-states/labor-force-pa...
(switch to the 10-year time view)
As participation (supply) goes down, wages should start to go up (to entice people back into the labor force).
What we have is declining participation AND stagnant wages.
If you don't agree with that, then there aren't any good stats, hence the use of the labor participation number, as the "default" goto for unemployment.
If you want alternatives, may I recommend:
https://www.bls.gov/news.release/empsit.t15.htm
This does suggest that U-5 at least is a more realistic figure, or perhaps the average of U-5 + U-6. That would make real unemployment somewhere between 6 and 7.8, and indicates plenty of slack in the labor force.
Likewise, homeless populations are not counted. Not everyone who is homeless is necessarily unemployed, I guess, but it's patently ridiculous not to include any homeless in unemployment statistics.
There was a government project to count the number of homeless on a particular day. When the stats came out, the number had fallen despite anybody who ever walked around a town centre knowing the numbers had gone up.
So the radio station interviewed a local outreach worker who had been tasked to get the stats in her town. She was told to only count people on public property - so, somebody sleeping on the Library steps was counted, somebody sleeping outside a supermarket was not.
There's unemployed and seeking work, unemployed and not seeking work, under-employed, and so on
Not to mention the composite figures derived from these.
Employment Reports list all of these, it's just people want to consume short sound bites, not complex social and statistical topics.
The question is: Who is employable (outside of disability, student, etc) and not for legitimate reasons.
The U3 (4.4), as I understand it, is more a "moving target" of recent numbers... it's the number of recently unemployed and still looking
the U6 (8.6%) should be closer to "real" unemployment since it includes discouraged, marginal and part time workers (those under utilized).
"Look, here in America, there are plenty of people that have jobs, some people even have two or even three jobs! Now that's some great employment."
However the larger question is why we would necessarily want this ratio to be as high as possible. If we, for example, have a higher percentage of stay at home parents today then we had in the 90s is that a bad thing?
https://www.bls.gov/cps/cps_htgm.htm
It's still a useful number for comparing unemployment over time as long as the rules for how it's computed don't change.
Also:
Some have argued, however, that these unemployment measures are too restricted, and that they do not adequately capture the breadth of labor market problems. For this reason, economists at BLS developed a set of alternative measures of labor underutilization. These measures, expressed as percentages, are published every month in The Employment Situation news release.
At best it allows you to compare snapshots in identical situations over very short time periods assuming nothing significant is going on.
It's just abused in the public sphere as a whole-story statistic.
You might be right that it does capture info about how hard it is to find a new job as the software developer, or a lawyer, but tells almost nothing about blue collar jobs.
If you stop looking for jobs you are not considered unemployed as someone not actively seeking work is not considered to be in the labor force. That is a different issue entirely and you will have to look at a different statistic. There are different types of "unemployment rate" and maybe what you want is U-4 or U-5 which include discouraged workers. Either way you can not expect a single number to encapsulate something as large and complex as the US labor market.
Either way you can not expect a single number to encapsulate something as large and complex as the US labor market.
Oh, and I am not buying the "demographics" narrative (baby boomers retiring, not interested in working), because a lot of 60+ folks need to work, because they don't have enough savings.
Don't you actually have to register with the government and tell them you are without a job and looking for work in order to count as unemployed?
A lot more people could be without a job and looking for work without having told the government about it. So the government figures likely underestimate true unemployment, even if we ignore those people who are without work and have given up hope of finding a job and so have stopped looking, and those people who are without work and don't want to work or can't work for some reason.
Unemployment rate is job-seekers/(job-seekers + employed). Long term job seekers should technically be included (many are) but when they can't find a job long term, they tend to re-classify as students, stay-at-home parents, early retirees, disabled...
In practice, that statistic is usually most relevant for estimating the number of people receiving unemployment benefit. The data collection is intimately tied to this: you don't need to tell anyone you're unemployed unless you are applying for a benefit. Places (eg Ireland) with generous unemployment packages will generally register a higher unemployemnet rate because people have more of a good reason to register as unemployed, even if they expect to be re-employed quickly. Places (eg US) with much more generous disability benefits than unemployment payments will have a lower unemployement rate as people (that are borderline cases) have a strong need/incentive to be classed disabled. Australia has generous student welfare programs, this reduces measured youth unemployment. Etc. ad infinitum
Basically, unemployment is a measure of (more or less) unemployment welfare recipients/applicants. It can't be used to compare between regimes.
It also happens to be an unreliable lead indicator for short term labour market changes. I think this is what has given it its current usage.
What the press should be reporting on is employment rate: Employees/18-65_Adults. This is not gameable, and it means the same thing in every time and place. It measures what people care about when they report on unemployment rate. Alternatively, they could also report "total salary" for the country. That's how most markets get measured (eg total oil sold, total market returns, etc.).
It's a complex topic but a click-bait-y title. It's basically looking at nominal wage growth and comparing it to periods where we had higher inflation. It's poor journalism (potentially intentionally misleading?) to not focus on real wages.
- There was a recession in 1980s , so it's shouldn't be used as comparison point
- If you look at inflation adjusted historic data: http://web.stanford.edu/class/polisci120a/immigration/Median... - in 2000 adjusted, there hasn't been any increase since 1970s. Since 1970s it's been ~40k in 2000's dollar. Using this: http://www.usinflationcalculator.com/ shows - ~40k in 2000 is 56.8k in today's money. Looking at real wages for in recent times https://fred.stlouisfed.org/series/MEHOINUSA672N - the last (2015) data shows: 56.5k So, it looks like real wages hasn't grown at all in recent history.
Note that I went looking for info to match what I've heard an economist say on youtube video: https://www.youtube.com/playlist?list=PL-uRhZ_p-BM4Pei6Xlr_A... (episode 4 is most relevant to current topic)
http://www.latimes.com/business/la-fi-american-airlines-rais...
Labor has been getting more expensive over time due to mandates and regulations. Additional benefits must be paid regardless of the employee's wishes, and some would probably prefer extra cash to that additional mandated perk.
Never fool yourself into thinking you'll get anything back from these vampires.
History shows otherwise with a very high rate of bankruptcies from lottery winners.
In the top 1 or 2% of households by income for pretty much doing nothing. Maybe not a literally obscene income though.
Sure, you could do that and maybe you would. However, most people who didn't earn their money don't.
Most of those same people think the rich "do nothing" and make money. It's this kind of ignorance that causes bullshit class warfare where it doesn't exist.
You don't often hear wealthy people complain about other wealthy people because they know how hard it is to stay wealthy.
It is a skill to make money with money.
Now do we get to argue over the source?
Does it somehow not fit your world view that managing wealth is real work?
As a cousin comment points out, it is even possible to buy management services.
- Dump it into the SP500
- Dump it into CDs
- Give it to a money manager and hope for the best. If it doesn't work out at least you can blame him/her.
Who's advise to take?
It's really starting to astonish me the financial ingnorance on HN which must be attributed to younger folks who had no skin in the game in 2000 or 2007 and think investing is easy.
Perhaps you could live off 25 million with a drawdown of 1%. That's 250K. So you live like that's your salary. But then the market tanks and 1% of your portfolio is now 120K. That's a big haircut.
Do you take 2% now? You've got a 250K lifestyle but you said you'd only take 1%.
You've now watched 13 million dollars vanish. Do you stay in the market and hope it goes back up or cut your losses?
People here seem to suffer from historical bias because they know the market recovers, but when it happens to you the future will be totally uncertain.
Mo money, mo problems. Totally true.
Maintaining wealth requires understanding and discipline, but the amount of "work" required is minimal. Essentially, all you have to do is not spend too much, which is fairly easy when "too much" means "any more than 10x the average salary".
And making money on your capital in a perma-bull stock market (casino?), engineered by the Fed is not that complicated.
>"Perma-bull stock market".
Uhg. If it were only that easy.
Making money on paper is easy right? Any idiot can see through every little dip in the market over the last ten years and not get rattled and ride it all the way to the top and then have the 6th sense to see the next dip for what it is, a crash, and move all their money to another asset class just before it happens.
No, that's not what happens. People ride it all the way back down and often end up with less than they started with. Then someone who knows very little about investing tells them, at least you should make 8% on average historically as consolation.
Tell me when to yank my money out if it's so easy. It's not. A correction is coming, but when, how will I know, and what to do when it does?
How did the "ruling class" get their money and what is their means of obtaining more in the future?
I certainly want in on it.
(And lottery participants are highly likely to be less well informed about managing money, since otherwise they wouldn't be lottery participants.)
Put 25 million in the S&P 500 (qqq) in March of 2000 and draw 2 million a year on it. You are out of money inside of 4 years.
There is no 100% safe place to stick that much money and live off of it. The world is too dynamic and it takes real skill and work to make money work for you.
But in any case, I said you'd make that much on average, not that you could withdraw that much every year. In reality, you would draw down a smaller fraction of that (but still an immense salary for no work). And since your capital would be growing on average, you could increase your drawdown over time accordingly.
I need to draw 2 million a year because my Porsche, Hummer, NetJets subscription, mansion and constant vacations are expensive and you said I'd have 2mill on average.
I don't work and I need to pay these bills with my 8% average. So what do you recommend I do in 2001?
I'm supposed to be living large like you promised but the market tanked. Am I now supposed to live off of 100k when you said 2 million? I already bought this stuff on a payment plan!
Seriously, think about it. You have 25 million and someone tells you you'll make 8% on average, but you can't actually spend it?
Try to really think what you could do with 25 million and no effort. Not much.
I'm really not sure what point you think you're making here? Yes, if you spend too much, you'll lose your money. So don't spend too much.
If you were given 25 million right now what would you do?
Your initial claim was you could put it in the SP500 and "make an average of 2 million per year (8%) without doing anything".
But then I showed you that market timing plays a major part in how well that average will work out for you.
So, what are you going to do with that money to live the rest of your life with no work and how much will you spend per year knowing that huge income volatility isn't a realistic life style?
My point is, it's not nearly as easy as you've expressed.
You're sighting a lot of conventional wisdom that I've heard before. You won't find many success stories that followed your advise.
If you ever talk to people who actually live off their wealth don't be suprized if you find that they're not sitting back on the SP500 with a 4% drawdown.
They're most likely active investors working hard (not physically, as none of us do here anyway) to make money with money.
Edit: this was in response to a post that has been deleted.
>I guess "making" money and income are somehow different in your book.
I guess I should say consumption or drawdown rather than income. (My point is the capital still grows by an average of 8% even if you shouldn't spend all of that.)
>You won't find many success stories that followed your advise.
Do you have evidence that people who are doing this are failing, or do you just mean that I won't find evidence of success?
Pretty please.
Don't forget you're on a site owned by wealthy people whose day job is giving money to other people to bootstrap their companies. You don't get much more creating value than that.
To add a little meat to this vampire of a political exchange. Nobody is interested in the usual defense mechanisms.. lets open the hard shell and look at the heart. And here it is:
"I know you are right, but i have just so much invested into the current system, and can with my family at debt-gunpoint mount no enthusiasm as i could once when i was a tweenager. Why should i throw my hat in a ring, who as history shows often tramples hats and wearers on both sides? And how many couch revolutionary's are there, who wave the banner on the internet, but would throw a fit, if somebody would occupy their parking lot in real life. "
- more and more capital is being tied up in parasitic activity (encouraged by monetary and fiscal policies), instead of being invested in startups, infrastructure, etc.
- all profits/capital gains are distributed to capital holders (out of proportion)
Don't get me wrong, I'm probably more anti bank than the average HNer, but this particular criticism is nonsense.
Maybe just as many or more people are being employed just not in the U.S., and the pays of the people working overseas are lower relative to U.S. wages, but higher relative to the wages offered in the location of that persons job?
I feel like people are looking at the U.S. exclusively but in reality since the 90s we have to consider the other countries on this planet, as an average to normal way of utilizing job allocation resourcing as opposed to it just being large corporations that do this like in the 90s.
I'm not saying this method is overall good or stating opinions or whether i think its "right" or "wrong" as opposed to economics and how things have always worked , but it is a fact thats happening. Theres 400,000 people in China who have Engineering degrees or otherwise niche technical skill that are unemployed, and another 400k in the pipeline in Asia that are 12 yrs old taking Calculus and becoming trilingual.
I always wonder why we don't wonder why the average highschool student in the average city in the U.S. is less valuable than the average highschool student in the average city in Asia or India, instead of assuming the only reason we don't have the jobs we feel entitled to is because rich people are taking it away from us, when in reality theres really qualified hardworking people all around the world who would benefit from a fraction of the pay provided by jobs we had previous relative to the current living conditions.
The current living conditions being 400k unemployed Engineers and tech/manufactoring workers in Asia.
outside of simply being American, why are we entitled to jobs more than them, if theres a limited amount of jobs, and they are willing to do it for less because its better than Having a Masters Degree in Engineering and being homeless?
That others couldn't?
You don't need to be ruling or vampire to create value. Just to be innovative.
not
"We need exploitative rulers in order to create that value"
Were I in the ownership class, I wouldn't exactly try to temper my avarice in absolute terms, but I would at least try to remain less conspicuously wealthy than my peers. As they say, you don't need to outrun the tiger, if you can outrun your friend.
- global demand markets to sell to
- global labor markets to pick from
I guess saying that makes me a xenophobe or some such, but I guess I will have to live with it :-)
Globalization increases competition and consumer choice, which drives down prices and spurs innovation to compete. Tariffs do nothing but put up barriers to entry into certain marketplaces and favoring certain companies. Globalization seeks simply to level the playing field. Companies may benefit from increased access to new markets and cheaper sources of goods and labor, but the consumer benefits as well with better products at cheaper prices. Developing nations have benefited by being able to open their doors to foreign investment. Companies pay these workers a pittance relative to workers in the developed nation, but more than those workers would be able to make otherwise. Companies also invest money into infrastructure and education in these nations. The standard of living in developing nations that have entered the global marketplace has improved dramatically. And increased international trade binds nations together, reducing international conflict. Globalization can stop wars!
Globalization is not perfect, it has problems. It has hurt certain groups in the developed world, and things must be done to balance the situation. But it is still an impressive force for good that benefits a wide array of groups, and I don't like it when people just write it off.
Underemployment is also very widespread there. I'd expect parallels in the states in this regard.
If the business cost of employment is growing faster than wages, which I believe has been the case for some time (and anecdotally matches reality in my experience), then the culprit is a non-wage cost that is growing even faster than the business cost that will keep a company solvent. Employee wages are net of healthcare, new regulatory costs, etc. Healthcare cost growth rates the last several years are probably by themselves sufficient to explain depressed wage growth relative to business cost; the growth rate of overhead for wages has been high enough to eat up quite a bit of potential wage growth.
To make wages go up faster, you need to reduce the growth rate of employment overhead so that wages make up a larger percentage of the business cost of employment.
Also, there are many ways to account for 'employment' so this statistic can be misleading as well.
On top of that since bush they have widened the definition of what constitutes a job.