That is nominal rates of change, and that is from Pedro Nicolaci da Costa.
Is non-supervisory wage growth slowing?
Previous post: What is the strongest argument for the existence of God?
Next post: Migration sentences to ponder
Our Books
Buy at B&N: The Complacent Class: The Self-Defeating Quest for the American Dream
Buy at Amazon: The Complacent Class: The Self-Defeating Quest for the American Dream
Average Is Over: Powering America Beyond the Age of the Great Stagnation
Modern Principles of Economics
Launching The Innovation Renaissance
The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will(Eventually) Feel Better
Create Your Own Economy: The Path to Prosperity in a Disordered World
Discover Your Inner Economist
Good and Plenty: The Creative Successes of American Arts Funding
Judge and Jury: American Tort Law on Trial
Markets and Cultural Voices: Liberty vs. Power in the Lives of Mexican Amate Painters (Economics, Cognition, and Society)
The Voluntary City: Choice, Community, and Civil Society (Economics, Cognition, and Society)
Creative Destruction: How Globalization Is Changing the World's Cultures
Changing the Guard: Private Prisons and the Control of Crime
What Price Fame?
In Praise of Commercial Culture
Entrepreneurial Economics: Bright Ideas from the Dismal Science
Contact Us
The words “immigrant” and “immigration” are missing from that article.
Wages like all prices are set at the margin (yes, subject to some coercion like minimum wage laws, though those specifically are often unenforced versus immigrant labor). So as long as the marginal wage demand comes from an immigrant, it doesn’t matter what the proportion of citizens in the workforce is, wages are depressed by competition from immigrants. Anti-citizen measures like H1-b indentured servitude for immigrants and the immunity of non-citizens to local regulations like mandatory auto liability insurance drive immigrants’ all-inclusive wage demands even lower compared to citizens’ wage requests.
What data is motivating your claims? One thing that makes me skeptical is that the various minimum wage increases should have shown more labor market impact on these very low ask workers. Instead, we see mixed data with weak effects, in some states with the coefficient sign flipped, while unemployment drops, and 25 to 54 year old employment-population rises.
“minimum wage laws … are often unenforced versus immigrant labor”: really? That would constitute a machine for driving unskilled citizens out of jobs.
Or coercion based on restrictive covenants like non-compete agreements
https://www.nytimes.com/2017/05/13/business/noncompete-clauses.html
But I suppose government force upholding some sort of private contract is somehow more moral than government force upholding a public contract.
“Standard economic theory tells us that wage growth and unemployment are intimately linked. Wage growth slows when the unemployment rate rises and increases when the unemployment rate falls”.
No, this is wrong. Falling unemployment can happen with falling wages. This occurs when people price themselves into jobs, by perhaps lowering their reservation wage. Consider that in most countries wages are lower than in the US, but they may have similar employment levels.
Could be that more and more industries are adopting up-or-out HR policies.
#endTenure
First, I believe that this is a graph of wage *growth* as the article mentions wage growth leveling off at 2.5%. So, no, nominal wages have not been falling throughout this entire period and real wages are not falling now.
Second, the bottom in non-supervisory wage growth occured in about 2012 so it’s not even the case that wage growth is slowing unless one squints really hard, as the author does, and looks only at a short period from 2016. Even in that short period, the fall in wage growth is from 2.50% to 2.25%.
The other graph on the page, the average of for wage numbers, also shows in continued improvement since the Great Recession.
Agreed. We are looking at changes in wage growth, a.k.a second derivative of wages. The obvious inference of the chart is that there is nominal job growth for non-bosses of 2.25%, slightly higher than inflation.
The arrows on the right of that chart are doing an awful lot of work. Are they there for statistical, or just purely narrative, reasons?
The explanation given in the article is that higher-wage baby boomers are retiring and being replaced by lower-wage younger or unemployed-during-the-great-recession workers. “This slow wage growth likely reflects recent cyclical and secular shifts in the composition rather than a weak labor market.” Not mentioned is automation: average wages are up but wages paid to production and non-supervisory workers are down, down because there is less need for them as their jobs are replaced by robots. And then there is Paul Samuelson’s explanation (the Stolper-Samuelson Theorem): unskilled workers in a high-skill country are worse off with trade liberalization. In the economy as in life there are winners and there are losers. Aren’t we better off if the high-skilled are the winners rather than the unskilled?
Question for Cowen: Samuelson developed his theorem back when the pattern for international trade was essentially the same as the pattern during the colonial era (i.e., developing countries produced the raw materials and developed countries produced finished goods). Samuelson used the terms skilled workers and unskilled workers in a much different way than we use them today; indeed, Samuelson’s “skilled workers” are today’s “unskilled workers”. The shift of production of finished goods to developing countries has altered international trade in a profound way. Does Samuelson’s theorem still hold, or does it actually magnify the effect Samuelson observed when trade was much different? And is that magnification a leading cause of the rise of inequality (i.e., the category of Samuelson’s “skilled workers” is much smaller but much more highly compensated)?
Besides BC’s comments that this reflects wage GROWTH, not wage LEVEL, I am not sure if these are nominal or real figures. I am playing with some Fred graphs, and wages significantly outpace CPI starting in Jan 2015, when unemployment still was around 5.7%. Better than prior recoveries, where that did not happen until unemployment hit 5%. Should also add that, during prior recoveries, wages did not grow exponentially faster throughout the entire cycle. Year over year rates plateaued at 4% in both recoveries. It looks like wages are actually sticky in an upward direction!
https://fred.stlouisfed.org/graph/fredgraph.png?g=dNYX
The graph presented shows an overall trend downwards with the ac and AHE oscillating between greater gains/losses. The inclination to attribute the decline to “cyclical and secular shifts” is not convincing. When PhD students are working in service jobs, something is terribly wrong. Kevin Drum posted an interesting take on income stagnation. (Disclaimer: I apologize for the low brow content.) When wealth is diminished to this extent we must ask ourselves how this impacts future generations. Uncertainty caused by a lethargic Congress and greed are the most likely suspects.
http://www.motherjones.com/kevin-drum/2017/05/income-stagnation-has-hit-young-harder-old
https://www.theatlantic.com/business/archive/2017/03/black-wages-labor/521172/
The sun keeps coming up in the east. Management/supervisory personnel have a longer tenure than their subordinates. Certainly their wages will increase more than new hires that have more turnover, many of whom aren’t around long enough to get a raise.
Inflation expectations play a major role in the wage setting process and inflation expectations continue to moderate. As the Fed would say, inflation expectations are well anchored.
I’m not sure this is a meaningful comparison because the group of people that make up “production and nonsupervisory workers” may be changing in this time period. If, for example, the workplace was changing such that the number of supervisory jobs was increasing, the number of production and nonsupervisory workers were decreasing (correspondingly), and the best of the production and nonsupervisory workers were moving into higher paid supervisory jobs, then you could see data like this even though overall wages are going up. Isn’t this what we’ve seen with the growth of the knowledge economy – more and more people are classified as exempt?
From another perspective, this graph could be explained by the median production and nonsupervisory worker being less skilled today than in the past (whether for the reason above or for other reasons). And I think that is the point of persons above mentioning illegal (i.e. largely unskilled) immigration. We could have an overall positive growth in our economy, but because our definition of “poor person” becomes more and more unskilled and uneducated, the “poor person” seems to be doing worse, whereas, for immigrants at least, the revealed preference is that they are doing far better in the US than in their place of birth.
A major reason that non-supervisory wage growth has slowed in the last few decades is that taxes have been reduced on income to high-paid employees and shareholders. (Yes, I know this might sound a bit off at first.) Consider: When taxes were at 90%, then to provide even a small increment of income required a massive (e.g. 10x) increase in one’s share of the business’s income. However, as taxes on the wealthy fell, it became easier for management and shareholders to ask for increased income. Essentially, it became “cheaper to be greedy.” So, folk started taking bigger and bigger pieces of the pie rather than distributing it to wage earners as they might have done in the past.
One result of this is that we’ve built up a culture of management and shareholders in which it is considered normal to consume much larger portions of a business’ income than in the past. This growth in inequity was the inevitable result of tax cuts for the wealthy. Unfortunately, now that expectations have been set, it will be exceptionally difficult to reverse the trend and get back to more traditional splits between labor, management and capital.
Comments on this entry are closed.