A Few Remarks About Wage Pressure
Jul. 31st, 2015 12:57 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
walkitoutI've been thinking, on and off, about posting about wage pressure and a couple things happened today to cause me to do so. (1) There are a _lot_ of misconceptions floating around about the minimum wage increases that have been in the news lately. (2) We got an economic report that was specifically about wage increases.
I'm going to start with the second of those. All year (and, hey, for several years now that we've been sitting at the zero lower bound) there has been rampant speculation about when will the Fed raise interest rates. Let's briefly review why one might raise interest rates: because inflation. Do we have inflation? Not really. In fact, with the price of oil plummeting for some time now, and supply taking a long time to adjust downward, the states in our country which _were_ growing the fastest and had the fastest increases in cost of living are now in actual recession (that would be you, North Dakota, as an example). As the lower cost of oil percolates outward, it reduces the prices of all commodities, because mines and crops and everything else require tons (literally) of oil to do what they do. We really don't like deflation (okay, those of us sitting on piles of money think it's the shit personally, but most of us are smart enough to recognize that outright deflation is a terrible, terrible thing that we never ever want to see again, because The Great Depression led to war and because those months in the Great Recession where we thought we might be headed that way were absolutely terrifying), and policy options are greater when there is slow but steady growth. Intelligent, educated people can disagree legitimately on what slow but steady growth might be (or whether it is even possible) but the Fed has a 2% inflation target and we are below it (the EU has a similar target and they are also chronically below it). We won't raise rates until we believe we are about to rise about that target, and since all our metrics are Rear View Mirrors, the goal is to slowly raise rates as the information rolls in that inflation is about to occur. With commodities dropping like ... things that fall rapidly, about the only possible remaining source of inflation is wage increases.
So, since Everyone (not me, everyone else. Okay, not Krugman, either) is committed to the inflation theory, and since the only possible source of inflation is wage increases, everyone has been waiting for indications that wages are rising. Do you know anyone getting a pay raise? No? Neither do I. And I know people with some pretty high tone jobs. You'd think they'd be the ones with the power to get a pay hike. And they aren't getting ones (okay, that's not totally true, but they are COLA and they are very low and they are the first in years and years).
Here is today's data about US Worker Pay:
http://www.bloomberg.com/news/articles/2015-07-31/worker-pay-in-u-s-rises-0-2-smallest-gain-in-records-to-1982
"The 0.2 percent advance was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, also rose 0.2 percent in the second quarter from the prior three months."
There is no wage pressure here.
So you might be legitimately wondering, well, what about all those minimum wage increases?
WHAT minimum wage increases? I know, I know. Something about Seattle. Something about New York. Something about California or Minnesota or something or other. Yes, the Mayor of Seattle did sign a thing that the Council passed, but it is going to be phased in over the next 4-7 years. (ETA: Want the gory details? Enjoy! http://murray.seattle.gov/minimumwage/#sthash.LlZ2LfGF.dpbs) Nothing has taken effect yet. (ETA: I got that slightly wrong. Seattle went to $11 this year.) The New York thing was a _governor's commission_ making recommendation. Nothing has passed there. There is no minimum wage increase. So if you're reading a bunch of stuff about how automation is going to lead to a lot of layoffs or if you're reading about how restaurants in Seattle are already closing because they cannot afford the labor, well, IT IS NOT BECAUSE OF MINIMUM WAGE LAWS. (ETA: Don't believe me? Here, I'll let this guy mock you, rather than put any additional effort into this: http://www.seattletimes.com/seattle-news/local-facts-no-match-for-national-fiction-on-15-minimum-wage-issue/)
Have some restaurants closed? Restaurants close all the time. I remember with vast sadness when the Scotch bar (I know, right?) on Cap Hill (there was one) called Hopscotch _which was walking distance to where I lived_ shut down. Why did they shut down? Because all their waiters were going to write HTML at various companies and they couldn't hire replacements. Not a minimum wage issue. Similarly now. By the time that Seattle Council passed minimum wage takes effect, everyone will already be making more than that anyway, or the people who wouldn't pay the freight will have closed down.
When the stock market is rising -- a bull market -- insiders call it "climbing the wall of worry". Every possible negative thing is chewed over and swallowed and regurgitated and shared around the community. And the market rises anyway. The crash happens when people _quit_ worrying and become collectively convinced that there is nothing bad that can possibly stop this Avalanche of Awesomeness (probably a direct effect of sharing all those germs with the chewing and the cud and the regurgitation). Part of that process has always played out in speculation about the Fed (where "always" is defined as "as long as the Fed has engaged in active monetary policy", for our purposes, since roughly the end of WW2, and feel free to argue about that. Should be entertaining).
The hurdle of "but wage pressure!" has just been cleared. Wonder what the next one will be?
I'm going to start with the second of those. All year (and, hey, for several years now that we've been sitting at the zero lower bound) there has been rampant speculation about when will the Fed raise interest rates. Let's briefly review why one might raise interest rates: because inflation. Do we have inflation? Not really. In fact, with the price of oil plummeting for some time now, and supply taking a long time to adjust downward, the states in our country which _were_ growing the fastest and had the fastest increases in cost of living are now in actual recession (that would be you, North Dakota, as an example). As the lower cost of oil percolates outward, it reduces the prices of all commodities, because mines and crops and everything else require tons (literally) of oil to do what they do. We really don't like deflation (okay, those of us sitting on piles of money think it's the shit personally, but most of us are smart enough to recognize that outright deflation is a terrible, terrible thing that we never ever want to see again, because The Great Depression led to war and because those months in the Great Recession where we thought we might be headed that way were absolutely terrifying), and policy options are greater when there is slow but steady growth. Intelligent, educated people can disagree legitimately on what slow but steady growth might be (or whether it is even possible) but the Fed has a 2% inflation target and we are below it (the EU has a similar target and they are also chronically below it). We won't raise rates until we believe we are about to rise about that target, and since all our metrics are Rear View Mirrors, the goal is to slowly raise rates as the information rolls in that inflation is about to occur. With commodities dropping like ... things that fall rapidly, about the only possible remaining source of inflation is wage increases.
So, since Everyone (not me, everyone else. Okay, not Krugman, either) is committed to the inflation theory, and since the only possible source of inflation is wage increases, everyone has been waiting for indications that wages are rising. Do you know anyone getting a pay raise? No? Neither do I. And I know people with some pretty high tone jobs. You'd think they'd be the ones with the power to get a pay hike. And they aren't getting ones (okay, that's not totally true, but they are COLA and they are very low and they are the first in years and years).
Here is today's data about US Worker Pay:
http://www.bloomberg.com/news/articles/2015-07-31/worker-pay-in-u-s-rises-0-2-smallest-gain-in-records-to-1982
"The 0.2 percent advance was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, also rose 0.2 percent in the second quarter from the prior three months."
There is no wage pressure here.
So you might be legitimately wondering, well, what about all those minimum wage increases?
WHAT minimum wage increases? I know, I know. Something about Seattle. Something about New York. Something about California or Minnesota or something or other. Yes, the Mayor of Seattle did sign a thing that the Council passed, but it is going to be phased in over the next 4-7 years. (ETA: Want the gory details? Enjoy! http://murray.seattle.gov/minimumwage/#sthash.LlZ2LfGF.dpbs) Nothing has taken effect yet. (ETA: I got that slightly wrong. Seattle went to $11 this year.) The New York thing was a _governor's commission_ making recommendation. Nothing has passed there. There is no minimum wage increase. So if you're reading a bunch of stuff about how automation is going to lead to a lot of layoffs or if you're reading about how restaurants in Seattle are already closing because they cannot afford the labor, well, IT IS NOT BECAUSE OF MINIMUM WAGE LAWS. (ETA: Don't believe me? Here, I'll let this guy mock you, rather than put any additional effort into this: http://www.seattletimes.com/seattle-news/local-facts-no-match-for-national-fiction-on-15-minimum-wage-issue/)
Have some restaurants closed? Restaurants close all the time. I remember with vast sadness when the Scotch bar (I know, right?) on Cap Hill (there was one) called Hopscotch _which was walking distance to where I lived_ shut down. Why did they shut down? Because all their waiters were going to write HTML at various companies and they couldn't hire replacements. Not a minimum wage issue. Similarly now. By the time that Seattle Council passed minimum wage takes effect, everyone will already be making more than that anyway, or the people who wouldn't pay the freight will have closed down.
When the stock market is rising -- a bull market -- insiders call it "climbing the wall of worry". Every possible negative thing is chewed over and swallowed and regurgitated and shared around the community. And the market rises anyway. The crash happens when people _quit_ worrying and become collectively convinced that there is nothing bad that can possibly stop this Avalanche of Awesomeness (probably a direct effect of sharing all those germs with the chewing and the cud and the regurgitation). Part of that process has always played out in speculation about the Fed (where "always" is defined as "as long as the Fed has engaged in active monetary policy", for our purposes, since roughly the end of WW2, and feel free to argue about that. Should be entertaining).
The hurdle of "but wage pressure!" has just been cleared. Wonder what the next one will be?