The labor shortage is the catalyst for sustained inflation
warrenbisch.medium.com
warrenbisch.medium.com
Openly opposing wage increases for workers is political suicide, especially given the context of decades of flat wages and income inequality, and of the pandemic and essential workers, and given that it displays brazen greed and self-interest at the expense of the rest of the country.
But if they convince enough people - not everyone - that wage increases cause inflation, while they also stoke fear of it (remember during the Great Recession, fear of inflation was a tactic against Obama's policies), they can reduce the wages paid and keep more profit. It takes convincing people not directly affected by the issue, such as white collar workers who are already highly paid (ironically) and retirees, which IMHO is easy and often done. It also takes convincing people directly affected that their own wage increase somehow harms them, or that they should sacrifice for the country; that's harder, but as we've seen, many people vote against their economic self-interest and even risk theirs and their family's lives for political movements. Remember, they don't need to convince everyone, just enough people.
If inflation risks significant harm, and if wage increases are a significant factor (which I don't believe), I think suppressing wages is the last thing we should consider, if we consider it at all.
Imagine if they said, 'SV company pricing is causing inflation' or 'wages in SV are causing inflation'.
The narrative slants aren't even subtle.
Asset prices skyrocket: "Look, the economy's booming! Hooray!"
Wages go up somewhat: "Oh no, inflation! Watch out!"
[EDIT] I mean for general coverage of these topics in the media, not picking on this particular author.
Tangentially: I know that's a norm (or almost one) but I think that they do, and that we all do. We are all responsible for our communities. Their state, good or bad, improving or not, depends completely on our actions.
If a %1 demand increase causes big price distortions in a RE market, you have much bigger problems in your city than airbnb, which is usually linked to supply control via restrictive and often corrupt planning boards putting up large barriers that you have to 'pay to win' to get past under the table, as has been shown recently in SF.
> My argument is actually that the economy is built on the backs of underpaid workers, and now that these workers are demanding their fair value we will either see inflation or the failure of many businesses.
I don't see how it's inflationary from some money to be shifted from the owners to the employees. Also, I don't see how that causes a business to fail, unless it was operating very close the margin. Corporations are doing very well; Bezos has over one hundred billion; paying employees more won't bankrupt these businesses or have any effect on people like Bezos.
They want to say they don't want to pay their maids more without saying that their maids don't deserve more money.
Not sure I follow where you’re going with this — are you suggesting SV salaries aren’t causing inflation in the local area? They absolutely have kicked off an inflationary feedback loop in SV real estate.
* Pay tech workers more to attract them to SV.
* Housing prices rise.
* Pay tech workers more to compensate for higher real estate prices.
* Repeat.
Suddenly you find yourself in a situation where $400k in total compensation for a single FAANG employee isn’t out of the ordinary. Great for them, terrible for everyone making normal amounts of money — houses cost $1M+.
Sorry I wasn't clear. My point was that people now focused on rising wages causing inflation are typically wealthy professionals (such as in SV). I imagine a different response if someone attributed it to the wealthy people's income.
It's often: 'We need to cut their taxes so they can stimulate the economy more!'
Which do you think is a better approach, evaluating arguments on their merits or evaluating them on the basis of who might benefit if the arguments are valid?
We live in a world flooded by propaganda; we are committing political and social suicide by not addressing it. One powerful method of addressing propaganda is to identified beneficiaries - the people behind it are necessarily doing it for their own benefit.
And at the same time, evaluating arguments on their merits exposes us to propaganda: First, a well-known reason: it is much easier to make up lies than to determine the truth; the propagandist can easily consume all the resources of the person looking at merits. Second, humans are significantly worse at determining merits than they imagine (says much research).
Looking at merits depends on some good faith: The person submitting the argument is trying to present a valid argument. Propaganda is built on abusing that good faith.
The workers on the other hand, not as well.
Highly doubt AirBnB is a big contributing factor to housing prices.
Rentals? Sure.
But considering travel (the use case for AirBnB) has been locked down and housing prices continued to soar makes this pretty dubious.
And tons of condo buildings don't even allow you to use the unit for AirBnB anyway.
As for America, this can only be good imo because the inequality has long been way too high. Nonetheless, I don't agree that America will see long and sustained inflation and there are things that will stay too expensive even with rising wages (e.g. healthcare) so these effects will probably be short-lived unless the government policies will change something more substantly (and with the new stimulus packages coming, it could happen).
Can you elaborate on how it is redistribution of wealth for low earners? Genuinely curious.
We’ll see if that actually happens though. Articles like this are designed to stir up fears of inflation so that they can get people on board with policies to keep wages lower.
EDIT: Saw the author’s reply higher up. It sounds like this isn’t their intent, but when the sound bite is “higher wages means more inflation”, it collectively feeds into the “be afraid of inflation” narrative that’s been building
Or profits for the capital class.
...Inflation affects savings too. So it doesn't matter that ones salary may increase at the same rate of inflation when the buying power of your savings in diminished by the rate of inflation. Tired of hearing the myopic view that inflation effectively does nothing if wages rise in step, it's just straight up incorrect.
I can say without any allusions that white collar work is saturated and competitive, so you are showing up to the wrong port.
We will need those blue collar jobs, and if industry starts filling it with immigrants while you are off trying to study up and failing to get that white collar job, you’ll lose out double (no income for all those years). All while this is happening, the blue collar industry will further depress wages because they have even cheaper immigrant labor now - the new standard.
People will resort back to saving whatever money they have, and living at home with their parents. The economy will stagnate, and inflation won’t be a problem because we were overzealous on the reality of our economy.
The market sets the price of labor just like the market sets the price of goods. People think that the minimum wage will force employers to raise wages when in reality it just makes those jobs illegal, even if both parties, employer and employee, have an agreement. E.g. what are you going to pay California's hundreds of thousands of homeless people with little to no skills $15/hour to do? Are they really better off with a $15/hour minimum wage working 0 hours and making no money? They have no path up the economic ladder if we chop off the bottom rungs.
It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems.
Not an economist.
Labor systems will definitely be seeking AI replacements, but just because they are needed now doesn’t necessarily mean they are available now. Although you make a very good point, and I think we will certainly see acceleration in this direction.
Personally I go to a restaurant to have face time with people, the phone (or tablet) is a wrench in that, and not worth it. I’ll pay a premium to not use an electronic interface.
Edit: it does make sense for fast food, especially mobile ordering (I salute the McDonald’s UI/UX(though recent updates are making it worse.. typical))
Businesses buy machines, AI, and other automation systems to improve their standing. They do this regardless of the price of labor (unless labor gets really cheap but this is broadly not true in the US or EU). Investing in such assets give them an advantage.
The problem is when everybody does this. Then its no longer an advantage but a necessity. There's probably something to be said about this also raising the barriers to entry in certain fields (e.g. try opening up your steel foundry).
Therefore, businesses will look to technology to augment and/or replace labor whenever they can. This is regardless of the current labor market (barring extreme circumstances, of course).
But a big part of "can" is whether or not the solution using technology is cheaper than the solution without it. And a big part of that is the cost of human labor. If human labor is more costly, it is more likely that a technology solution that allow more value to be produced with the same human labor will be cost effective. Conversely, if human labor is cheap, plenty of technology solutions that would allow more value to be produced with that labor simply don't make business sense--you'd be spending more for the same output.
So while it's true that businesses are always looking for uses for technology, regardless of the current labor market, whether or not they actually end up implementing them does depend in large measure on the current labor market.
There must be a business case for bringing manufacturing jobs home, or I've missed something.
Reality is that automating the easiest jobs is the hardest (old Minsky observation) and most essential services you can't substitute fall into that category. No robot plumber or roof tiler in the near future.
Article is right to point out that the pandemic together with the anti-migration stance and isolationism is going to push the cost of labour as well as goods.
All of which require chips that even companies like Toyota can't get enough of to maintain their production goals. When Toyota says, "Yeah, this chip shortage sucks, we're going to be 40% lower in monthly production," you know it's not just a few people suffering gaming GPU shortages.
Which means that if consumers do get pushed to alternatives, it might be getting a frozen pizza instead of a restaurant pizza.
When a business manages to automate in some small way that allows them to reduce staffing, that's a good thing. It's hard to do. If enough of them do, raise wages again to make up for it. In the year 3021, every 10th person works 10 minutes a day while the robots hum, and with their wages can take care of 9 other people.
Sraffa went over this in his Production of Commodities by Means of Commodities:
> In essence, Sraffa shows that:
> 1. It is not possible to identify a law that simultaneously determines the wage and the rate of profit because: i) the rate of profit can only be determined by setting the wage (or vice versa); ii) it is impossible to measure capital without also determining prices (including the profit), so it is not possible to calculate the profit based on the value of capital (as its remuneration).
> 2. It cannot be assumed that, as wages increase, labour is replaced by capital, as the value of the capital depends on the duration of the initial investment; considering capitals of different duration, it may well happen that we prefer to replace capital with labour even if wages increase (so-called "return of techniques"); consequently unemployment cannot be attributed to the increase in wages.
* https://en.wikipedia.org/wiki/Piero_Sraffa#Production_of_Com...
If anything, the reverse looks to be true. High unemployment is generally accompanied by high inflation.
Yes, Trump did that, but he hasn't been President for a while.
https://www.cnn.com/2021/08/12/politics/us-mexico-border-mig...
>(CNN)The Biden administration is facing a "serious challenge" at the US southern border, Homeland Security Secretary Alejandro Mayorkas said Thursday, saying the US has encountered an "unprecedented" number of migrants illegally crossing the border.
>During a news conference in Brownsville, Texas, Mayorkas stressed the sharp increase of migrants arriving at the US-Mexico border, many of whom are fleeing deteriorating conditions in their home countries.
>In July, US Customs and Border Protection apprehended 212,672 people, up from June and amid some of the hottest summer weeks -- when arrests usually dip -- and of those, 95,788 individuals were expelled. Twenty-seven percent had previously tried to cross the border, Mayorkas said, acknowledging that a Trump-era policy that allows border authorities to turn migrants away has contributed to people trying to cross the border multiple times. July marks the highest monthly number of migrants detained at the US-Mexico border in two decades.
Adding 116,884 immigrants a month will solve a labor shortage pretty fast.