'Your pay is still – not – going up too fast'
nominalnews.com
nominalnews.com
> "The problem – economics research has repeatedly shown that this is not the case."
And economics research has also repeatedly shown that this IS the case. I'm not supporting that argument, I'm just saying that you have conflicting bodies of research. Everyone here is engaging in motivated reasoning, depending on who they think the boogie-man is.
Humility means being clear about how much you can possibly say from the evidence at hand. Humility means thinking more about confounding factors than about things that you believe to be true.
I'd also love if we talked more about access to resources instead of money.
* Companies have normal profitability in the long run in a competitive market.
* If costs go up, companies must raise prices to maintain normal profitability.
* If wages increase, costs go up.
Here is the paper I assume is referenced in this article: https://www.google.co.uk/books/edition/Wage_Growth_and_Infla...
But the blog article says: "The Economist piece appears to have repeated the old theory that wage growth causes inflation spirals. As discussed, empirical evidence shows this is not true"
I don't think many economists would argue that wage inflation causes no price inflation, and that also doesn't seem to be the finding of the paper they are referring to - which finds that wages CAN create inflation. The debate is about the amount of passthrough (e.g. how much an increase in wages affects an increase in the price of goods).
Then the blog article says:
> there is evidence that it is elevated inflation that causes wage increases.
But that can be true while the opposite is also true. Inflation can cause wage increases. Wage increases can increase costs. Increasing costs can lead to price increases. Price increases cause inflation. Inflation can cause wage increases. Each step in diminishing quantities, but still multiplying the initial effect of inflation.
I think this article is very cherry-picky of the facts.
Due to the simplicity and logical appeal of this theory, it has been heavily tested empirically. Most empirical studies to date suggest, however, that wages do not cause1 inflation. Schwerzer and Hess (2000) from the Cleveland Federal Reserve did an overview of the economic research at the time and found very little evidence supporting the idea that wages cause inflation. Only one study showed a causal impact2, while three others, and Schwerzer’s and Hess’ own work were not able to find this causality. The reason for the ambiguity in results is because inflation and wages move so closely together that attempting to separate and isolate which one causes which is not straightforward to do. Their own work focused solely on establishing the direction of causality, using what is called in economics and statistics “Granger causality”, which is a test whether the future values of one time series3 (inflation in our case) can be predicted by past values of another time series (nominal wage growth) and vice-versa. The review and analysis conducted by Schwerzer and Hess suggests that increasing wages do not cause inflation. On the contrary, evidence likely points to inflation driving increased wages."
So I would say so far the preponderance of evidence suggests there is unlikely to be causality of wage growth on inflation. Multiple methods have shown the causal link is unlikely.
However, it is true that if wages didn't rise (that is workers would take real pay cuts) then inflation would fall, which is the main channel central bank interest rate hikes work to reduce inflation.
What is more important in the current inflationary surge, is that the behavior of wages is entirely consistent with previous similar historic inflationary episodes. If anything, they're actually a bit lower than in the past. The focus on wage growth as a concern is not warranted at these levels.
That is only true if salaries make up a significant amount of production.
My favorite example was a job at a cookie factory. A hall full of giant machines, multiple production lines. Mine, counting 5 humans produced FIVE HUNDRED THOUSAND boxes of cookies per day that cost 99 cent in the store. In a 5 hour shift I earned 35 euro.
5 X 35 = 175
500000/175 = 2857 euro for each 1 euro worth of salaries
IOW salaries make up 0.035% of what customers pay.
Would the cashier or the truck driver be earning 100 k per day? The 30 ish people in the office? Would they get 100k for "running" multiple production lines?
It is frankly insulting we pay people to talk economic rubbish like that. The giant building, the ovens & production lines, the trucks and the ingredients must be handed down by the gods for free?
In my current job I clean trains for ohh something between 5000 and 20 000 people per day. Assuming a 20 k day each traveler pays me 0.0075 euro while a ticket costs [say] 50 on average. THREE out of TWENTY THOUSAND pay for my labor.
They need multiple people to clean and drive the train of course. It quickly adds up to.... nowhere near a million euro.
Building a train, train stations and laying track involves a lot of people but it isn't that (to put it scientifically) the workers are pulling the rails out of their ass or are hammering out the components on an anvil. It involves a ton of equipment.
So they put down tracks 50 years ago using machines build 60 years ago in factories build 70 years ago using tools made 80 years ago in factories build 120 years ago. etc
Lots of labor, it took very few economists. They sit in the train, eating cookies, complaining about how expensive the ticket is. One says it must be labor, they are still talking about this to this very day and will continue to do so until the end of time.
As an aside, I think you might be underestimating the percentage of costs that staffing take - Take your example of train operations.
The report below shows that Staffing Costs are approx. 28% of a train operators costs within the UK (NB: this would not include costs maintaining the rails).
https://www.orr.gov.uk/sites/default/files/om/toc-benchmarki...
In your job with the cookie factory, you are also underestimating the amount of labour - I assume there were office staff, people who transported the cookies, people who made the raw ingredients, shopkeepers who put it on the shelf, all of whom have to be paid for within the ultimate retail cost. At that scale of production you will also require technical managers, maintenance engineers, marketing teams, QAs...
Long long ago there was a bakery, the owner baked cookies and sold them. People were able to buy the cookies. He made a living doing that. We've somewhat upgraded the process from there.
We went from factories full of people producing many cookies to halls full of machines. We went from really expensive custom machines to unbelievably cheap ones.
The maintenance engineer works many lines, he has to do some work when something breaks but between those repairs tens of millions of cookies are produced. The designer does his job every 1-2 billion boxes of cookies but only if it is a custom job. If it is a generic machine it will be many billions more. He costs 20-30 boxes of cookies per day. If they pay him 15 or 45 it changes nothing.
Ford wanted his employees to drive cars. Do you think 35 euro per day is a budget with room for cookies? Do you think it is justified for anyone to complaint about my salary? Show me the man brave enough to say it to my face? Each of these jobs involves someone having to tell you your salary. The body language is roughly that of a doctor telling you you have 1 week to live.
I just needed work asap, this was what was available. Not very surprising, no need to ask why the last guy left. I cant say I didn't enjoy it, it was a marvel of engineering that few get to see from the inside.
I remember a time in the 80's when manual labor paid really well. About 4000 vs 700 per month and purchase power was infinitely greater* People were proud, they cared about the company, they made an effort to keep things running, meet deadlines, run the extra mile. No one asked if they wanted to work overtime, it was obvious when the job had to be finished. People had a sense of duty.
Now the cookie factory has 5 job agencies with ~50 people looking for the next idiot to enslave in the factory only for the victim to vanish unexpectedly creating a constant state of panic and increased pressure on the recruiters.
It was hilarious how they shouted at me over the phone when my time to vanish came. Apparently they lost 3 that morning. During the call I looked up his salary online. I told him 3600 seemed nice but I wouldn't take a job shouting at people over the phone.
I've done cold calling too, I know shouting at people is not very likely to get you what you want. It is hard to convince a recruiter to increase the salary if his salary depends on not understanding it.
The spiel is obvious, they want to throw money at it until they find a stable pool of useful idiots that they won't have to pay.
It's been 8 years and the job offer is still plastered all over the job websites. They promise at least one 5 hour shift, you will be on call all week for all 3 shifts 7:00 till 23:00, have to be there in < 15 minutes.
In a context like that should we really blame those damn cashiers with their 5 euro salary? Oh wait, it is all self checkout now. Strange, the cookies are still 99 cents?
I read UK Railway workers earn wages 70 per cent above the national average. 28% / 1.7 = 16.47% Then they are "overpaid" 11.53% already.
You get 70% more purchase power for shall we say 7% more expensive tickets? (guestimating maintenance this time)
How much extra disposable income would that 70% produce? 1000% ? 2000% ?
It's probably a lot of cookies, cookies every day! I think the economy would like it.
Besides - if the cookies are still 99 cents after all these years then they actually are cheaper in real terms.
So in this very specific case, the inflation that we've experienced over the past few years was NOT due to wage increases. You look in the microscope and see this to be true. Wages increases were not a primary cause of inflation (in this time period)
The problem is when you generalize and say 'Wage increases do not cause inflation'. The problem is that you have exited your historical context and you are moving into a new context. Wage increases certainly CAN contribute to inflation; they were not your most recent problem, but they might be your NEXT problem.
The other difficulty is that the human brain wants to be satisfied, it does not want to understand all possible context. So the brain loves it when you can just say "Here is the problem, the whole problem fits in this box, and here is the one single, simple cause of the problem."
(Apologies for overusing the word 'problem')
"Due to the simplicity and logical appeal of this theory [wage-price spirals], it has been heavily tested empirically. Most empirical studies to date suggest, however, that wages do not cause1 inflation. Schwerzer and Hess (2000) from the Cleveland Federal Reserve did an overview of the economic research at the time and found very little evidence supporting the idea that wages cause inflation. Only one study showed a causal impact2, while three others, and Schwerzer’s and Hess’ own work were not able to find this causality. The reason for the ambiguity in results is because inflation and wages move so closely together that attempting to separate and isolate which one causes which is not straightforward to do. Their own work focused solely on establishing the direction of causality, using what is called in economics and statistics “Granger causality”, which is a test whether the future values of one time series3 (inflation in our case) can be predicted by past values of another time series (nominal wage growth) and vice-versa. The review and analysis conducted by Schwerzer and Hess suggests that increasing wages do not cause inflation. On the contrary, evidence likely points to inflation driving increased wages."
So I would say so far the preponderance of evidence suggests there is unlikely to be causality of wage growth on inflation [in the US]. Multiple methods have shown the causal link is unlikely.
Are there circumstances in which wage growth can be the trigger of runaway inflation - I suppose there will be such conditions (how feasible/realistic they are is also a question). Have they occurred it in the US - does not appear so.
However, regarding the main issue at hand (i.e. current inflationary surge), there is even more evidence that it has not been the case, and we are nowhere near wage growth that would make us wonder about the wage-price spiral. Real wages are growing well below productivity.
Summarizing - you are 100% right that it is important to keep an eye out on external validity issues. It is also important to state the underlying assumptions (whether it is regarding the conditions of the economy or the mechanisms). It is something I am trying to get across with all of my writing and maybe could have done a better job in this particular case (although I have written a more theoretical post on the same topic, so that influenced the writing here)
"It’s now significantly more deadly to be homeless [in Cali]. Why are so many people dying?"
https://news.ycombinator.com/item?id=39578218
The idea wage increases are inflation is a disgusting.
No reason to cap wages because companies "might" pass the cost to consumers. They are already raises prices simply for more profits.
2. Yes companies hide behind real effects as a justification.
3. Those effects are real anyway.
Wage increases are ONE driver of inflation. The size of this effect depends on a lot of things.
Price increases are ONE driver of inflation. The size of this effect depends on a lot of things.
When something does not go the way you want, you can't just pick the cause.
No matter what starts an avalanche, it will continue to propagate itself.
It's fine with me if you are mad at greedy companies.
It's fine with me if you are mad at me.
My request is that we get more comfortable with the idea that multiple causes can contribute to an effect, and the size of those contributions can change over time.
Given economics is not a hard science, there will never be enough evidence in the world for conclusive "laws" as in physical science, so we have to make do with what we have, and there is a lot in the article to analyze.
Your point was "we need more evidence to justify these claims." I feel like the increase of people dying from homelessness is rather strong evidence real wages are not keeping up with inflation. Claiming wage growth causes inflation because companies "might" pass costs is also rather specious.
Humility also includes "Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize," from the HN guidelines. You avoid discussing the topic entirely, and focus on... an ad hominem? [1]
Talking about money is also good, because that's how I pay my bills.
edit: the site layout seems completely messed up in chrome
Uncaught TypeError: Cannot read properties of undefined (reading 'value')
at Q (App.js:694:57)A good example is "By definition, inflation-indexed wages cannot result in a higher inflation rate. Wages indexed only to inflation will actually reduce the inflation rate, if productivity is positive, which it typically is." No - if you have an inflation-indexed wage, it will go up when inflation does, regardless of what productivity does. You can't just infer that productivity has risen because the inflation-indexed wage went up - in this specific instance, it's clear that it hasn't, because nothing has changed except the inflation index.
Inflation is best thought of as a feedback loop. Every expense is somebody else's income, so if expenses are going up across the economy, somebody is getting more money. That gives their suppliers leverage to raise prices and their customers a need to raise prices or go out of business. The rate is going to be uneven across different sectors, which is where the CPI vs. nominal vs. real wages behavior comes in. Real wage increases are nominal wages * CPI, by definition, so if most of the increase in prices is accruing to labor, real wages will be positive, while if most accrues to capital, real wages will be negative.
I am not asking this to be snarky, but do you recall any time in our lives where increase in prices mostly accrued to labor?
I'm reminded of a coworker who produced absolutely nothing of value for 18 months (his project was canceled at the end without ever launching), collected ~$1.5M in total comp, and worked 3-4 hour days. His productivity was sky-high: $1.5M in economic transactions for ~1000 hours worked. It's just that the economic transactions were basically lighting money on fire. For that matter, his department of ~3000 burned around $6B over ~5 years and is currently in the business of bricking otherwise-useful devices. It just had massive layoffs, but he transferred to another department, made his bosses look very good there, and survived the layoffs.
You really need a long enough time period to know whether the shitty quality products you put out will result in fewer transactions before you can interpret productivity data. Long-term (multi-year) productivity growth usually presages real wage gains. But short-term (couple quarters) productivity growth could just be an indicator of layoffs coming, which usually means real wage cuts.
In a less somber example, unions in the 20th century had some notable successes at labor-driven inflation dynamics (i.e. at least classically until Reagan broke the back of labor by firing all the striking ATCs in the early 80s). While everyone's purchasing power shrunk because of the oil shocks in the 70s, labor unions were better at fighting back for their share of the pie than the rest - so perhaps not growth, but they were certainly winning the redistributive battle in the 70s.
https://fred.stlouisfed.org/series/CP
The situation since 2023 really has been price inflation largely accruing to labor.
The main model used by central banks for modelling inflation is the New-Keynesian Model. This model explains that the rate of inflation is related to the level (sic) of real marginal costs, desired (Note: not realized) mark-up (profit margin) and inflation expectations. The main element through which wages feed through to inflation is the real marginal cost. However, if current wages are below pre-pandemic real wages (which for many still are), then real marginal cost is lower, thus pushing the inflation rate down below the 2% inflation target.
During the 2021-23 inflation surge, the supply shock and bottlenecks created significantly pushed up the real marginal cost of production (things like over-time, things like it taking to produce longer than before due to supply delays etc). This has reverted bringing back down the level of real marginal cost. Which is why we are close to the 2% inflation target.
The mechanism regarding price setting - between firms and workers - is actually really nicely put by a recent Werning and Lorenzoni paper - Inflation is Conflict. Interestingly, they are capable to generate a theoretical result where we have inflation with no money! Meaning there is no monetary policy.
My teenage son who was still in high school at the time went from $10/hr to $17/hr as a restaurant worker in small town Florida. This was 2022-2023. In the same period, my salary as a principal software engineer went up 3%
So the pay situation you describe isn’t surprising at all
For corporations who don't have a money machine, yes, it's not a good time. You will not get new funding. For established corporations, I'd say that it's pretty sunny days, especially considering layoffs.
Stock prices have nothing to do with the employment landscape
But for higher wage earners basic cost of living expenses (food/energy/rent/etc) make up a smaller percent of their overall income, and so they are relatively less affected. And if they don't aggressively demand their pay keep up with inflation then their relative rate of gain will naturally fall behind.
There was a hefty bit of catchup in the past few years for the lowest earners.
Energy prices happen to be going up because some people are ideologically committed to raising energy prices and reducing energy production in order to stop climate change. This includes the current US president, who signed a bunch of executive orders right after taking office that increased gas prices by restricting fossil fuel production.
The sanctions on a certain gigantic gas station that is currently at war with one of its neighbors are also a major driver of inflation. There was also transitory inflation due to pandemic era supply chain disruptions. When factories are shut down for health reasons, less stuff gets made and the price of that stuff goes up.
What did not cause inflation? People being able to buy houses, start businesses and find jobs because the interest rates were low. Raising interest rates and putting people out of work is just treating a symptom when the real solution to inflation is to lower energy prices by producing more energy. That means repealing anti-fossil fuel policies[0] and it also means trying to negotiate an end to wars rather than funding the belligerents forever with endless foreign aid.
[0]: Climate change is real and should be addressed via technology not austerity. We are not going to solve anything by making people in developed (1st world) countries poorer or by keeping people in developing (3rd world) countries poor. Those advocating climate austerity are the main motivating factor driving climate change denial because many people will assume its just a hoax powerful people made up to make them poorer.
I'm sorry, what?
https://www.cnn.com/2023/12/19/business/us-production-oil-re...
>> FACT SHEET: Biden- Harris Administration Announces Temporary Pause on Pending Approvals of Liquefied Natural Gas Exports
The administration here more or less admits high energy prices are driving inflation. Otherwise, why would they pause new LNG export licenses, even to Europe, where we're fighting a proxy war with Russia and US LNG exports offer a way to hurt Russia and its economy and help our allies at the same time? The climate argument doesn't hold much water, since it isn't clear it won't just mean increased domestic consumption--given that greater supply will, and in fact has, result it much lower prices (which last checked are at pandemic levels)--and even if it does mean less foreign consumption, it could be offset by more consumption of coal and other environmentally worse alternatives to LNG.
It's clearly a last-ditch effort by the administration to pull on a deflationary lever before the election.
https://tsscolorado.com/dems-unveil-system-changer-bills-to-...
I'm not certain the statement "Inflating the money supply by billions of dollars to fund several expensive conflicts" reflects reality.
The root cause IMHO is that especially in the US there is barely any competition any more. No matter where you look, it's at most five to six different (multi)national megacorporations... and so they can extract many billions of dollars from the economy every month. Enshittification, just on macroeconomic scale.
Big print newspapers were mostly independent and subscriber-funded, so they answered to their subs rather than advertisers.
The Economist is still independent and subscriber-funded. But, most sub-driven publications now have to fight tooth and nail to stay above water, so the writing needs to be tailored towards engagement/clicks :/
There was also more a desire to serve public interests prior to Reagan getting rid of the rules on media consolidation. It wasn’t perfect but it was much better than what we have now. News media is much more beholden to corporate interests now than in the past.
Pretty much every local newspaper has been bought up and now almost exclusively talks about ads... err.. I mean national issues. And it isn't even articles that these papers write, rather just the same article published by someone like The McClatchy Company.
Same thing happened to broadcast news.
This has never (really) been the case with "mainstream" media. "The media" in common parlance is a farce. Historical news has almost always been agenda driven, and was key to the American revolution, Labor reforms in the US, etc. Those things are not "mainstream media."
Management is not nearly as smart as they want us to think.
It is when you have an unlimited supply of workers with zero protections. The breaking of the social contract makes all the old rules no longer apply. They will drive us to the absolute edge of torches and pitchforks and keep us there, forever. They will come up with newer and better ways of determining where that line is, and just how far they can push it. And we will sit here like obedient dogs and take it.
I had a grocery store clerk eyeballing my checkout yesterday with absolute amazement at the "luxury" of buying TWO boxes of name brand cream cheese. We live in two completely seperate worlds at this point, and I don't think you have any idea how bad things have gotten for the bottom 90% in this country earning <$100k.
Like, me and my wife have a very decent combined income of over 100k, but even then - 10 years ago I would have thought that with that kind of money we'd be living like kings, but in reality it just lets us save some money at the end of the month and not a whole lot else. If we actually wanted to move up from our 900sqf house or get a slightly newer car, it would eat up into all of that quickly. I think we've reached a point now where I literally don't understand who in this country is buying all these new cars and goes on holidays twice a year(forget expensive ones - I mean a few days in Spain with a budget agency). And I definitely don't understand how a teacher on £27k a year(or a nurse) is expected to make ends meet. It feels like an erosion of society from the very core, where unless you are in the top 1% you just aren't even playing the same game.
I feel like I am the only person in my friendship group who can afford things like a decent place to live and good quality groceries. This is all from me working hard to move into Software engineering from a languages and humanities degree. Honestly feel that the system is severely broken if the only way to afford a decent quality of life is to get into one of the most lucrative professions out there. Most of the people in my job have been screwed over by the market and have way more rent than me as well, so are probably not even able to do the things I can.
I feel a lot of pressure to get into FAANG or something in order to hope to ever get a house in my lifetime. Especially since my landlord threatened to put up my rent by like £400 the other day and my boss told me my raises will never keep up with inflation. But I'm a humanities person. I don't see myself becoming some sort of 10x engineer without it making me miserable. So, since the absolutely fucked announcements from my landlord and boss, I'm thinking of any way to leave this economic shithole of a country.
If you’re 25, you might as well spend your evenings trying to upskill. Make time for important things, but trim unnecessary leisure and invest in your skills/expertise/network. It’s much harder to do this when older.
Personally I continued to improve my technical skills, especially in getting into new areas like AI, while also building considerable domain knowledge, and taking on management responsibilities. You don’t really have to compete directly with yon 10x STEM rockstars - go for breadth, not proficiency. Someone who understands a lot of areas fairly well, and can communicate and document well, is incredibly useful to an organisation.
There might be some really tough maths on that course, but I’d argue it’s not exactly necessary. There’s undoubtedly a lot of people doing high paying “AI” related jobs whose main qualification is being able to identify a use case and coordinate a project staffed by engineers and data scientists.
Hyperbole is for good storytelling, not nuanced discussion or argument.
They will drive us to the absolute edge of torches and pitchforks and keep us there, forever.
Hardly an exaggeration to call this doomsaying.
You seem very petulant.
Or they would have to resort do massive immigration, destroying culturally their own country in the process, and laying the path to being replaced in the long run.
None of this path is good for them.
I live in a country where homes for the elderly (and the health system at large) have managed to remain profitable while overpaying doctors and severely underpaying just about anyone else. Now we're two months into a failing doctors' strike (because the doctors feel like they can extort an even higher wage from the state) and we're on the way to sign a memorandum for easier worker immigration from Phillipines because we need nursing and medical assistance staff and the (heavily subsidized and mostly state-ran) healthcare institutions can't by law pay native staff a fair wage.
What I can gather from that so far is that it sucks when you're being fucked over by a free market economy because some venture capitalist is being a miser, but it's 10 times worse when the miser is a legitimately legislated government. Immigration is not just a xenophobia issue, it's a genuine concern when an entity realizes it doesn't need to spend as much and starts mass importing cheap manpower from the other side of the globe.
Yup. Soon enough it'll just be two guys arguing over a fair price for Canada.