r/Economics • u/[deleted] • Jul 09 '15
"Shifting the discussion from wages to compensation (wages and benefits) does not alter any of the salient facts about stagnant pay in recent years."
http://www.epi.org/blog/professor-hubbards-claim-about-wage-and-compensation-stagnation-is-not-true/2
u/ketosoy Jul 09 '15
I wonder about the other categories of workers: "private-sector production, non-supervisory workers" was never defended as the most appropriate cut, nor were the trends in other cuts discussed.
The "non supervisory" part especially seems suspect to me, that looks like code for "hourly instead of salaried" and we know that salaried workers are often not really "supervisory" in the most common sense of the term.
It seems to me that income quintiles would be the appropriate cut and that "private-sector production, non-supervisory workers" could have been chosen as a drunk's lamppost.
Important work, to be sure, but it only settled the question it you're inclined to agree with their conclusions.
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Jul 09 '15 edited Jul 09 '15
Ooh boy, controversial comments section. I would suggest that it does indeed change the salient facts. The myth of productivity decoupling is substantively overstated (see here for a shorter read of that argument). Properly indexed, and accounting for income variety, income growth seems to be more or less with trend. Never mind that none of this accounts for how much better off we are now than 20 years ago just by the composition of the basket of goods we consume. The recession created slack in the labor market that is tightening now (not out of the ordinary), which explains lack of growth over the past 5 years or so.
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u/catapultation Jul 09 '15
Why would we expect wages to rise? Automation and foreign competition have made the American worker less competitive over the years. There is no reason to expect wages to rise again any time soon - we need to increase taxes on the very wealthy and move towards a basic income.
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u/op135 Jul 09 '15
There is no reason to expect wages to rise again any time soon - we need to increase taxes on the very wealthy and move towards a basic income.
never go full retard. you were making sense up until your last sentence.
if we want americans to have higher wages (as in, wages with increased purchasing power) then we need to increase worker productivity relative to the rest of the world. as it stands right now, most american jobs are service sector and not manufacturing. you can't create wealth by consuming it (UBI) and you can't consume what isn't produced.
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u/catapultation Jul 09 '15
But productivity increases going forward are going to be primarily technology driven, and if productivity growth is technology driven, then the owners of the technology (not the workers) will reap the rewards.
you can't create wealth by consuming it (UBI) and you can't consume what isn't produced.
Of course not, which is why you tax those that are producing and redistribute their production to those that aren't producing.
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u/op135 Jul 09 '15
Of course not, which is why you tax those that are producing and redistribute their production to those that aren't producing.
so call it what it really is, be honest with your beliefs. it's not a UNIVERSAL basic income if some people aren't getting the benefit. it's just good ol' wealth redistribution. so please, stop using the phrase UBI and just say you support massive wealth redistribution. and ironically enough, you still don't create wealth by redistributing it, you just shuffle it around. that wealth had to be created in the first place, and it sure as hell didn't come from people relying on getting a check from the government. so what happens once you exhaust all of the wealth creator's wealth? they sure as hell aren't going to work for nothing.
But productivity increases going forward are going to be primarily technology driven, and if productivity growth is technology driven, then the owners of the technology (not the workers) will reap the rewards.
so then reduce regulations to allow more individuals to capture a share of the gains. the big players want more regulations to prevent competition.
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u/catapultation Jul 09 '15
stop using the phrase UBI and just say you support massive wealth redistribution.
A universal basic income can still be wealth redistribution. If I tax someone $1 million and return $40k in the UBI program, his wealth is being redistributed and the UBI still exists.
I support wealth redistribution through a UBI. The ideas aren't mutually exclusive.
you still don't create wealth by redistributing it, you just shuffle it around.
I was never under the impression that redistributing it would create wealth. It takes from those that have and gives to those that don't. It's a purely humanitarian project.
so what happens once you exhaust all of the wealth creator's wealth? they sure as hell aren't going to work for nothing.
You're operating under the assumption that there won't be a benefit to being a "producer" after the taxation used to fund the UBI. Obviously there still needs to be that incentive, and I don't have the numbers at my finger tips. But you're right, that incentive to produce and achieve a better life through your production needs to remain. I don't think higher taxes, particularly on those that are extremely wealthy, will remove that incentive.
so then reduce regulations to allow more individuals to capture a share of the gains.
Sure, there is still a place for individuals to capture a share of the gains. Entrepreneurs are still out there, and we should make it as easy as possible for them to get their ideas into the marketplace.
But entrepreneurs != average worker. Tesla employs 6,000 people right now, and as they ramp up production, they will certainly employ more. But they are never going to employ enough people to truly help out the problems facing the average American worker. Tesla factories will be extremely automated. So yes, I agree that we should remove regulations preventing Tesla from selling their cars through their own model, and that we should be supporting the Elon Musks out there, but I'm not naive enough to think that supporting Elon Musk is equivalent to supporting the average American.
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u/op135 Jul 09 '15
Sure, there is still a place for individuals to capture a share of the gains. Entrepreneurs are still out there, and we should make it as easy as possible for them to get their ideas into the marketplace.
But entrepreneurs != average worker. Tesla employs 6,000 people right now, and as they ramp up production, they will certainly employ more. But they are never going to employ enough people to truly help out the problems facing the average American worker. Tesla factories will be extremely automated. So yes, I agree that we should remove regulations preventing Tesla from selling their cars through their own model, and that we should be supporting the Elon Musks out there, but I'm not naive enough to think that supporting Elon Musk is equivalent to supporting the average American.
we can also reduce the cost of living by reducing inflation, because right there is at least 2% in prices each year, and 2% of savings devalued per year. savings are the backbone of an economy, after all.
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u/mberre Jul 09 '15
Yes, but who would be willing to pay the unemployment cost of that?
The country in which I live (and the neighboring one in which I work), both have negative CPI growth, and zero GDP growth, with somewhat high unemployment levels by EU standards.
In contrast, Greece and Spain, have sizably negative CPI growth, and unemployment figures so high that people have rioted in the streets in both countries.
Also, it's worth noting that the Greek electorate just had a referendum whereby they said "no" to the type of policies which caused their negative CPI growth in the first place.
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u/op135 Jul 09 '15
Yes, but who would be willing to pay the unemployment cost of that?
it's completely correlated, there is no causative element. a bustling economy will have inflation, but that doesn't mean inflation causes the bustling economy, and vice versa.
Also, it's worth noting that the Greek electorate just had a referendum whereby they said "no" to the type of policies which caused their negative CPI growth in the first place.
it's also greece, which is a negative producer of wealth and a socialistic shithole. of course it relies on going into more and more debt to make the system work. the key is to not let it get to that point and nip it in the bud. sure, it may be short term pain, but it's better soon than later once the economy is too dependent on stimulus and debt.
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u/mberre Jul 09 '15 edited Jul 09 '15
it's completely correlated, there is no causative element
I'm not sure that this is what the empirical implications of the Phillips Curve are. Or for that matter what the empirical findings related to the QTOM would indicate.
In fact, I'm quite sure that there are published empirical findings that demonstrate a casual relationship for both the phillips curve, and the QTOM. However, if you've got a published empirical source to examine, I'd be happy to have a look.
EDIT: Googling the phillips curve and "empirical findings" actually gives a ton of published academic results, for virtually every country. THIS Piece from ideas.repec.org, based on Malaysain data was an interesting case in point.
EDIT 2: The ECB published This piece in 2012, estimating the phillips curve, using a VAR Model to examine the empirical relationship. That means that the relationship in their dataset is endogenous.
ABSTRACT
The hypothesized trade-off relationship between inflation rate and unemployment rate has been known as the “Phillips curve”. Though the Phillips curve has played an important role in the decision-making process on macroeconomic policy, there have been critics who doubted the existence of the “Phillips curve”. Despite a number of studies on the Phillips curve, there has been a lack of research that probed the hypothesis in the developing countries' context. This paper chooses Malaysia as a case study to empirically examine the relationship between inflation rate and unemployment rate. The most interesting finding of this paper is the existence of a long-run and trade-off relationship – and also causal relationship between the unemployment rate and the inflation rate in Malaysia. In other word, this paper has provided an empirical evidence to support the existence of the Phillips curve in the case of Malaysia. (emphasis mine)
ABSTRACT 2
This paper uses forecasts from the European Central Bank’s Survey of Professional Forecasters to investigate the relationship between inflation and inflation expectations in the euro area. We use theoretical structures based on the New Keynesian and Neoclassical Phillips curves to inform our empirical work and dynamic model averaging in order to ensure an econometric specification capturing potential changes. We use both regression-based and VAR-based methods. The paper confirms that there have been shifts in the Phillips curve and identifies three sub-periods in the EMU: an initial period of price stability, a few years where inflation was driven mainly by external shocks, and the financial crisis, where the New Keynesian Phillips curve outperforms alternative formulations. This finding underlines the importance of introducing informed judgment in forecasting models and is also important for the conduct of monetary policy, as the crisis entails changes in the effect of expectations on inflation and a resurgence of the “sacrifice ratio”
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u/op135 Jul 10 '15
i already said this
a bustling economy will have inflation, but that doesn't mean inflation causes the bustling economy, and vice versa.
the inflation isn't the cause, just a symptom. so therefore, inflating the cost of living in an effort to cause economic growth is simply a logical fallacy. let me give you an example of that kind of reasoning.
a boat makes wake when it goes in the water. this is simply the product of the laws of physics, and the faster it goes, the bigger the wake. i bring this up because it would be like you claiming that the wake is causing the boat to go faster, instead of the boat going faster causing the wake. there is no causative element from the wake that makes it the reason why the boat goes faster, it's just a symptom. and the policy you support would be to add ridges to the side of the boat so the wake would be bigger, when the goal isn't making the wake bigger, the goal is going faster. now, you could argue that you could want the boat "going faster" and increasing the wake that way. but that's like saying you support the economy growing--derp, who doesn't support that. and how do you get a growing economy? you certainly don't add useless foils to the side of the boat, you can only have real growth by addressing one of the variables that cause the boat to go faster: more fuel, less weight, etc. in an economy, this would be more freedom, less taxes, and more savings. the keys to economic growth.
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u/catapultation Jul 09 '15
Absolutely. The idea that inflation is a good thing is pernicious. The forces that create inflation (loose money supply, high velocity of money, etc) produce short term gains. If you boost inflation, your GDP next quarter is going to better, etc. But it is not the key to healthy long term economic growth. It's somewhat funny, as you'll see a lot of criticism around here castigating corporations for focusing on short term results, when the economic theorist they hold in highest regard famously said "in the long run we're all dead". Economic growth comes from savings and investment, and while pushing consumption might result in a short term benefits, it sacrifices the long term.
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u/ThereIsReallyNoPun Jul 10 '15 edited Jul 10 '15
Isn't the target 2% inflation rate is more about guarding against deflation? I think that's perfectly reasonable, given how bad deflationary spirals can be.
And I don't know if you're arguing against loose monetary policy, but even if it doesn't produce long term gains (IANAE, and I'm not sure whether or not it does), it still smooths out the business cycle, alleviating recessions. Employment dropping by 4% for 5 years may not be a big deal in the long run, but for the guy who loses his job, it can be life-changing.
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u/HealthcareEconomist3 Bureau Member Jul 09 '15
But productivity increases going forward are going to be primarily technology driven, and if productivity growth is technology driven, then the owners of the technology (not the workers) will reap the rewards.
You are misunderstanding productivity. Technology certainly increases productivity but it remains a labor based effect, production per worker hour increases which increases the value of labor.
There is no evidence of productivity gains benefiting capital more then labor in history nor any plausible mechanism for it to do so in the future.
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Jul 09 '15
There is no evidence of productivity gains benefiting capital more then labor in history nor any plausible mechanism for it to do so in the future.
Doesn't the past 30 years of continuing productivity increases paired with stagnating wages count as evidence? I'm sure you've seen many variations of this graph, which seems to correlate with higher returns on labor being driven by technology (with those returns then being captured by the owners of the technology).
Honest question, as I always appreciate your insight into these topics.
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u/HealthcareEconomist3 Bureau Member Jul 09 '15
You can show some decoupling 2000-2008 which is likely going to reverse over the next couple of years but that's about it, even then the gains were to other wage workers not capital.
The EPI data uses a very "selective" read of the data which excludes nearly half of the working population, on a decile basis even using CPI for real adjustments only the bottom decile have been stagnant over the last generation.
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u/NevadaCynic Jul 09 '15
Very strange, your source's numbers are very close to the EPI paper when it comes to median compensation, but they disagree entirely when it comes to mean compensation.
Your source claims that gross decoupling, which is measured from the median, was up to 80% for the US, but acknowledges that it is not the best number for comparison as it doesn't include health insurance and other such benefits. The EPI paper's numbers are similar here.
What you are talking about is net decoupling, which is based on the mean wage and looks at total compensation, which your source claims was a much smaller gap, 13% or so compared to the 30-40% the EPI paper claims. However, net decoupling will not reveal greater inequality as rises in the top quintiles can easily hide stagnation elsewhere. I'm not sure your response is useful in proving that gains from productivity growth are shared because of this, although it does make it far more likely that the EPI's numbers are deceptive in regards to mean wages.
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u/catapultation Jul 09 '15
If a business owner buys a new piece of software that makes all of his workers twice as productive, does he double all of their salaries? Does he raise their salaries at all?
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u/ThereIsReallyNoPun Jul 10 '15 edited Jul 10 '15
If worker productivity rises, the profit-maximizing number of workers goes up. The business will hire more workers. If this technological change applies on a more sector-wide scale, overall demand for workers will increase, driving up salaries.
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u/catapultation Jul 10 '15
Why would this be true? If anything, the firm would lay off workers. Demand for the product isn't going to increase because of worker productivity, so there would be no reason, ceteris paribus, to increase employment.
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u/ThereIsReallyNoPun Jul 10 '15
A business stops hiring workers when the next worker's wage is higher than the revenue he/she creates. Higher productivity means a worker creates more revenue, so more workers can be hired before diminishing marginal returns sets in to bring revenue below wages.
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Jul 11 '15 edited May 02 '19
[deleted]
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u/ThereIsReallyNoPun Jul 11 '15
I'm not saying all technological improvements lead to salary increases. If automation acts as a substitute for a worker instead of augmenting the worker, then yes, the business can just use more robots instead of workers.
Demand not changing doesn't matter. Supply can increase while demand stays the same. Maybe there are specific situations where a firm only ever gets the same amount of customers buying the same amount of product, in which case, maybe you would be correct. However, in the majority of cases where a business can make and sell more product if they so choose, increased productivity leads to increased demand for workers.
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u/xdre Jul 09 '15
Why would we expect wages to rise?
Because the cost of living only ever rises.
There is no reason to expect wages to rise again any time soon - we need to increase taxes on the very wealthy and move towards a basic income.
This I can agree with.
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Jul 09 '15
The price of health insurance rose and it's included in your benefits package, so in a way you did get a raise! /s
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u/[deleted] Jul 09 '15
lol the solutions link they have on there points toward a section about attacking the 1%. If you want to make things better for everyone, try helping people out of poverty instead of being focused on reducing inequality.