• S
    6.3k
    Low unemployment has not pushed up incomes as much as theory would predict. :angry:

    THE world is still in recovery mode fully ten years after the financial crisis of 2008-09. Inflation-adjusted wages grew by an average of 27% in the decade before the crisis in the OECD, a club of mostly rich countries. In the ten years since, real wages have increased by just 8.4%, on average. Ten OECD countries experienced real-wage growth of 30% or more in the ten years to 2007. And in the ten years since, just one OECD member, Lithuania has enjoyed such heady growth. By contrast, real wages have fallen by a fifth in Greece, a country that is still saddled with enormous government debt.

    Surprisingly, Britain is one the OECD’s worst performers over the past decade. At 4%, its unemployment rate is at its lowest level since 1975. A relationship first sketched out by William Phillips 60 years ago reckons that when unemployment falls, wages should rise. Yet Britain appears to be increasingly divorced from the “Phillips curve”: a 4% unemployment rate in 1980s Britain would have been associated with a 5% rise in wages. Today wage growth is a weaker 2.9%. Britain is not the exception. Policymakers in America and Germany alike have noted that their low unemployment rates are not yielding significant wage rises for workers.
    — The Economist

    Source - contains a chart.
  • Bitter Crank
    6.8k
    There are some reasons for this damnable situation.

    One reason is that the real unemployment rate is probably considerably higher than 4%, or any other officially stated number. In order to be counted as unemployed, you need to be registered as unemployed and looking for work. If you are ineligible to receive more benefits, there isn't much reason to register.

    Further, in order to be unemployed (at least in the US) you have to be able to work. If your health is poor, or if you are recovering from an injury and you can't work (even though you very much need to work) then you are not unemployed. You can't be in school full time and be officially unemployed. ETC.

    So actually, it is even worse than it looks: Maybe twice as many people as are officially counted could work if there were appropriate work at appropriate wages offered.

    Where did all the unfilled jobs go to? Asia, for one. To the robot, for two. Three, automation. Four: speed up of existing workers, and use of contingent workers (who can not be officially unemployed when their temporary job comes to an end -- at least in the US). Five: There are jobs that are not worth doing at low wages. Immigrants (illegal and otherwise) are usually willing to work for very low wages, because low wages here are still higher than in the countries they come from.

    Meat packing used to be a good job -- greasy grimy, gutsy, cutsy, choppy, bloody; somewhat dangerous, but reasonably well paid union work. When wages were slashed (like disemboweling a hog) and with the unions busted (like killing a cow) the only people who found the wage acceptable were basically illegal immigrants and very recent legal immigrants.

    The various factors I mentioned mean that there is actually a larger reserve labor pool than it appears, and is "available" to come out of the woodwork whenever jobs become easier to access. When a lot of people pop out of the woodwork, wages are held down.

    Where there are real shortages of labor (like in the North Dakota oil fields) wages really do go up--a lot.
  • ssu
    774
    So actually, it is even worse than it looks: Maybe twice as many people as are officially counted could work if there were appropriate work at appropriate wages offered.Bitter Crank
    Usually what is officially reported is the U3 unemployment figure (in the US). If you want to know what the actual unemployment rate is, better look what the U6 unemployment figure is. That tells the unemployment rate that includes 'discouraged' workers who have quit looking for a job and part-time workers who are seeking full-time employment. Even if the U6 has part-time workers, I assume it's better than U5 as government allways tends to make the statistics better than they are.

    Latest U6 figure is now 7,4% (August 2018) in the US and it reached 17% during the financial crisis and in recession in 2010.
  • Allen S
    4
    Anemic real wage growth has been the biggest weakness of the economic recovery. Not a good sign for (most of) those employed as wage and salary workers. Whether they be full-time, part-time, between jobs, seeking jobs...that's most of the population, isn't it?

    This isn't even counting those adults who aren't in the labor force, of course.
  • fdrake
    1.5k


    A lot of the unemployment measures the government uses were redefined when the current Tories took office, a process which began under Blair. I'll try and find you a citation at a later date.
  • ssu
    774
    Although I'm not a leftist, one obvious reason for slow wage growth in the US is the small and shrinking role trade unions have had in the country. There it's a small minority that belong to trade unions.

    And the larger reason in the West is of course that the one thing that globalization; a global economy. When you have dirt cheap labour in Asia and you can easily produce there cheaper, who could argue for higher salaries?
  • F.C.F.V.
    9
    Although I'm not a leftist, one obvious reason for slow wage growth in the US is the small and shrinking role trade unions have had in the country.ssu

    That is not true. First you should differentiate nominal from real wages in your analysis, and there are reason to believe that this discussion is concerned fundamentally to real wages.
    Nominal wages are the monetary amount that is paid to a worker, while "Real wages are adjusted for inflation, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages"
    It is:
    Real wages = Nominal wages / general price level

    Trade Unions are useful to the extent in which they can be a more practical way to speak by a community of workers and defend their rights. However, assuming you don't consider any theory of exploitation (such as Marxist surplus value), any attempt of rising wages will just rise nominal ones, which ultimately means redistribute and centralize incomes.

    Let me give a very very simple example; in microeconomic theory, assuming a competitive market, real wages equal marginal production of labor factor; in a labor market, we assume a equilibrium level of workers employed given a certain supply and demand for work.
    wages-equilibrium.png

    Once we assume that trade unions convince, by what let be the means, firms to make wages in contract (and so they are actually nominal wages) to be higher, given the amount of output to be the same, there will be unemployment in other place

    nsndeq.gif
  • aporiap
    104

    So I'm not an economist, which may devalue my opinion but I fail to see why unemployment should correlate with wages. I mean, if anything at all, you may risk saturating a job market which could lower wages.
  • ssu
    774
    That is not true. First you should differentiate nominal from real wages in your analysisF.C.F.V.
    What you mean by this? The last time the US experience high inflation was at the start of the 1980's and afterwards inflation has been low. Hence slow wage growth, if you understand it meaning nominal, wages has transformed into non-increasing real wages.

    Trade Unions are useful to the extent in which they can be a more practical way to speak by a community of workers and defend their rights.F.C.F.V.
    And to get higher salaries. And btw those "workers rights" also raise the labour costs...

    However, assuming you don't consider any theory of exploitation (such as Marxist surplus value), any attempt of rising wages will just rise nominal ones, which ultimately means redistribute and centralize incomes.F.C.F.V.

    I surely don't believe that Marxist crap. Yet raising wages, ceteris paribus, exactly means redistribution of income. It doesn't necessarily produce inflation. Perhaps you assume that here, but that's simply false. If the additional income (from technological advances and more efficiency) is also redistributed to workers, they usually spend it and the local economy profits as aggregate demand rises. However, if every increase in profitability goes only to the owners of companies, the additional income is basically saved. Now saving is a good thing on one hand, but only up to a point, because in the end if all profits go basically to increase the stock value (especially with companies buying back their shares), you end up with what is called asset price inflation, which just helps a tiny portion of the people.

    Let me give a very very simple exampleF.C.F.V.
    Oh it's been a while since I took first microeconomics lesson at the university (and shouldn't you talk here about macroeconomics when you talk about aggregates like labour?)

    assuming a competitive market, real wages equal marginal production of labor factor; in a labor market, we assume a equilibrium level of workers employed given a certain supply and demand for work.F.C.F.V.
    And do you think those exist in the real world? Do you think the market, dominated by oligopolic competition and government intervention is as competitive as the premisses of economic theory assume a competitive market to be? Can we assume an equilibrium level of workers employed given a certain supply and demand for work? You see, simple economic models usually just make one certain argument about reality and have to have a lot of dubious premisses in order to make the model mathematically sound.

    Yet perhaps here the actual economic history ought to be adressed.

    That reality has been that in the last few decades there has been an astounding historical reduction in povetry and rise in affluence in Asia. That hasn't transformed into astounding economic growth in the West. The ones who have benefited from this, apart from the Asians, have been the rich. And partly thanks to that, we have populists everywhere dominating the political scene.
  • F.C.F.V.
    9

    Thanks for replying.
    That is nice. I did not know you were familiar with economic theory.

    So,
    What you mean by this?ssu
    I meant that union trades cannot ultimately do much thing to make real wages increase, since they are concerned with wages defined in contract by employees and employers.

    And btw those "workers rights" also raise the labour costs...ssu
    I must differentiate social rights from benefits. What I meant by workers right was negative rights, not positive ones; simply such as the right of not being badly treated, etc.

    Yet raising wages, ceteris paribus, exactly means redistribution of income. It doesn't necessarily produce inflationssu
    I did not say it produces inflation. And that is the reason why I am not concerned to aggregates once I want to understand the process and mechanisms of change that aggregate analysis usually ignore, resulting in precipitated conclusions. The movement of relative prices in relative markets are far more important than a price level for ex.

    If the additional income (from technological advances and more efficiency) is also redistributed to workers, they usually spend it and the local economy profits as aggregate demand rises. However, if every increase in profitability goes only to the owners of companies, the additional income is basically saved.ssu
    Well, I must ask you to continue. People, whoever they are, ultimately save to invest or consume. Unless you consider the Keynesian paradox of thrift to be true (and that is something we can discuss), an increase in savings must, in the fund market, lower the interests rates, enabling long-run investments that will absorb any occasionally factor unemployed by a relative low consumption.

    Now saving is a good thing on one hand, but only up to a point, because in the end if all profits go basically to increase the stock value (especially with companies buying back their shares), you end up with what is called asset price inflation, which just helps a tiny portion of the people.ssu
    No! This asset price inflation is not caused (though apparently it is) fundamentally by an increase in savings, but I would say an increase in the money supply that is confused with real loanable funds (it is, those backed by savings), lowing the interest rates bellow from what in the Wicksellian theory it could be called "natural interest rate", i. e., the theoretical level of interest rate relative to the quantity of savings in which supply and demand for funds are equal. When interest rates are bellow that, there could happen to be different effects in market depending on where exactly this additional quantity of money first enters the economy by the funds market. This money variation (ΔM) that lowers interest rates is called forced saving. If those new created funds enter the market in the demand for assets, there will be inflation caused by demand and the suddenly rise of prices given a certain sort of agents' expectations can lead us to a bubble; on the other hand, if all funds are backed by savings, the relative consumption will be lower, since what induces inflation in the previous case is that the interest rates were lowered while consumption remains the same.

    and shouldn't you talk here about macroeconomics when you talk about aggregates like labour?ssu
    Labor are not an homogeneous variable; you should not aggregate them and pretend them to be one simple thing. And I'll show you the reason.

    And do you think those exist in the real world? Do you think the market, dominated by oligopolic competition and government intervention is as competitive as the premisses of economic theory assume a competitive market to be? Can we assume an equilibrium level of workers employed given a certain supply and demand for work? You see, simple economic models usually just make one certain argument about reality and have to have a lot of dubious premisses in order to make the model mathematically sound.ssu

    Indeed, I agree with you; I don't believe literally in those static models; but one cannot deny their partial validity at least to the comprehension of complex economic phenomena; they are just useful abstractions.


    Now, my point is that Union Trades can increase transaction costs and thus induce unemployment.
    We cannot consider here labor as an aggregation; we have to consider each market separately, because people have different skills, preferences, knowledge and live in different circumstances.
    Increasing nominal wage in a certain market will prevent some other workers to get a job for one relatively lower; in this market specifically, even more if we consider a monopolistic competition and necessary combinations of complementary factor, a decrease in profits will result in less firms employing. However, as you said, those workers whose wages are now higher will boost consumption and increase aggregate demand, that will induce more investments in such markets where the increasing in demand higher profits, so that people who were unemployed by the increase of nominal wages will be absorbed by those new investments that require and demand labor.
    The problem is with the process. First the process of changing factors means an increase in information costs; people will have to look for available work. Second: what if those people who were unemployed have different abilities from the sort of work that now is demanded? So there is a structural unemployment.

    And I agree with your last point.
  • ssu
    774
    I meant that union trades cannot ultimately do much thing to make real wages increase, since they are concerned with wages defined in contract by employees and employers.F.C.F.V.
    Labour unions can haggle wage increases in whole sectors. Real wages just mean that you take into account inflation, and the crucial part then is not to get inflation going.

    I must differentiate social rights from benefits. What I meant by workers right was negative rights, not positive ones; simply such as the right of not being badly treated, etc.F.C.F.V.
    Call them rights or benefits, basically they all can be looked simply as increased labour costs. Improved work safety? Increased cost. Maternity leave? An increase in costs. Hence when the competing labour market is one with far cheaper salaries and nonexistent labour laws, your labour costs go way down and hence production moves to some fascist country like China.

    Well, I must ask you to continue. People, whoever they are, ultimately save to invest or consume.F.C.F.V.
    There are some basic rules to saving and consumption. First thing is naturally that extremely poor people, and I mean here poor as in the Third World countries, cannot save as basically they use the meager income just to stay alive and feed their families. On the total opposite are the extremely rich. As extreme voluntary parsimony isn't popular, it basically comes down to that once your income meets your necessities, then with getting income over that level one typically becomes a saver. Also worth noting is that younger adults starting their family are the largest consumers there are as they typically buy a home, car and raise children etc. When people get older, they likely will earn more than they consume. And this wealth will then be transferred to the next generation. Now I say the above as this is important in that the whole society becomes more affluent this way and Western economies have grown affluent by this method. If for some reason wealth doesn't add up and the vast majority of people do stay poor, that has a huge impact on the economy. Cheap labour might be a great thing for a plant owner, but dirt cheap labour also means that they are lousy consumers themselves and hence the local economy has small aggregate demand. This means very likely that the government tax income is less (as typically global companies can evade taxes and are given tax incentives) and hence public services are bad and likely the institutions are weak.

    Unless you consider the Keynesian paradox of thrift to be true (and that is something we can discuss), an increase in savings must, in the fund market, lower the interests rates, enabling long-run investments that will absorb any occasionally factor unemployed by a relative low consumption.F.C.F.V.
    It's not so simple. Interest rates, or should we say the price of money, is today basically controlled by the central banks and cannot be said to priced by the market mechanism.

    Furthermore, savings (and debt finance) don't necessarily go into smart long-term investments. Once the smart investments are financed, the rest can go into raising real estate prices and speculation, creating a speculative bubble. Rising real estate prices can indeed create more housing and commercial real estate, which in turn creates more jobs (as houses cannot be built by robots in China). But that stock prices go up doesn't have such direct effect on employment.

    And if that speculative bubble bursts (as it has happened in many countries), the effects on the real economy are dramatic. The reason is that if people lose money by investing in let's say bitcoin, that's not a big thing as people don't invest in things like that really much. But if you are the unfortunate home buyer that comes to the market at the worst time, you will make the biggest investment of your life perhaps at the worst possible time, which will dramatically effect on your life.

    No!F.C.F.V.
    No? You really argue here that the rich don't get the richer if asset values increase while who don't own them are stay the same?
  • ssu
    774
    (I'll continue the response here as the answer was getting too long and the Computer for some reason was getting slow.)

    This asset price inflation is not caused (though apparently it is) fundamentally by an increase in savings, but I would say an increase in the money supply that is confused with real loanable funds (it is, those backed by savings), lowing the interest rates bellow from what in the Wicksellian theory it could be called "natural interest rate", i. e., the theoretical level of interest rate relative to the quantity of savings in which supply and demand for funds are equal. When interest rates are bellow that, there could happen to be different effects in market depending on where exactly this additional quantity of money first enters the economy by the funds market. This money variation (ΔM) that lowers interest rates is called forced saving. If those new created funds enter the market in the demand for assets, there will be inflation caused by demand and the suddenly rise of prices given a certain sort of agents' expectations can lead us to a bubble; on the other hand, if all funds are backed by savings, the relative consumption will be lower, since what induces inflation in the previous case is that the interest rates were lowered while consumption remains the same.F.C.F.V.
    Naturally a lot of investment is done with debt and this brings a nuance to the subject as debt and savings aren't exactly the same thing. (And debt basically gives rise to speculative bubbles: try to come up with a large speculative bubble which wasn't related to increased debt and financial market growth)

    my point is that Union Trades can increase transaction costs and thus induce unemployment.
    We cannot consider here labor as an aggregation; we have to consider each market separately, because people have different skills, preferences, knowledge and live in different circumstances.
    F.C.F.V.
    As I come from a Nordic country, here the trade unions do have a huge role (and hence the employer sector has also formed an organization for itself) and you can speak of labour in the aggregate. The rules that the unions, employers and the government decide do effect those people that don't belong to an union. Hence we are talking about the issue from a different perspective. Once you take into focus the political side of this, it becomes extremely complex.

    Second: what if those people who were unemployed have different abilities from the sort of work that now is demanded? So there is a structural unemployment.F.C.F.V.
    Structural unemployment is a good issue to point out in this discussion, F.C.F.V. It basically comes from things like the advances in technology and it does kill a lot of jobs. But that transformation of the workforce has happened for a long time ever since the steam engine and the Spinning Jenny. In the end of the 19th Century a huge portion of the people in the US worked in agriculture and now it's a very small portion. Yet even if some do get permanently off the workforce, the workforce has still adapted to the new reality.
bold
italic
underline
strike
code
quote
ulist
image
url
mention
reveal
youtube
tweet
Add a Comment

Welcome to The Philosophy Forum!

Get involved in philosophical discussions about knowledge, truth, language, consciousness, science, politics, religion, logic and mathematics, art, history, and lots more. No ads, no clutter, and very little agreement — just fascinating conversations.