Saturday, January 10, 2015

Where have all the wages gone?

Thus, after a week of reflecting on the life as it evolved on the way to and from India, and when in India, I return to my regular programming--how much I missed it! ;)

I went to fill gas (petrol, for you readers outside the US! haha) in the car and thought I had traveled back in time when I saw that a gallon was $2.27.  (and 9/10 after the 27, of course)

So, low gas prices are good, right?  Ahem, "it could prove a headache for Federal Reserve Board Chairwoman Janet Yellen."
The Fed is thus facing a bizarre economic dilemma: It has runaway growth and collapsing prices at the same time. The weapons available to Yellen to fight deflation are flimsy. Normally, the Fed would want to lower interest rates. But they are already at zero—there is nowhere left to go. And, of course, house-on-fire economic growth usually calls for higher interest rates, which would only exacerbate the deflation side of the problem.
Economists do not like inflation, yes.  But, deflation is way more worrisome--panic provoking--than inflation is.  And the Fed will not tinker with interest rates for a while:
This would imply that labor-market indicators would become critical to the FOMC’s analysis of when to raise rates—and in particular wage growth. As Yellen put it in August last year, “since wage movements have historically been sensitive to tightness in the labor market, the recent behavior of both nominal and real wages point to weaker labor market conditions than would be indicated by the current unemployment rate.”
That is, rate hikes may be put on hold until people start seeing the benefits of growth in their take-home pay.
Growth in the take-home pay?  Oh, yeah, haven't I been blogging for a long time that middle-class jobs are incomes might never come back?  What does Paul Krugman have to say?
wages are still going nowhere, up only 1.7 percent over the past year.
That's it?  Maybe he will have more on this over the next few days.

This blogger is convinced that the wage stagnation is here for the long haul.  And is even more convinced when he reads pieces like this:
A declining labor share of income also makes it possible for labor productivity to rise without average wages rising in turn. That is, it means that workers can get more productive without seeing the fruits of their labor. That's a big deal, both for workers and for economics as a discipline. For decades, most economists have treated the existence of a stable labor share of income as something like a law of nature. It was one of six "stylized facts" the famous economist Nicholas Kaldor proposed in 1957. Those facts serve as foundations for a staggering number of influential macroeconomic models, including the ones that the Federal Reserve and federal budget officials rely upon. If the labor share is falling, things that most economists would have treated as impossible ten years ago start to look very troubling.
For those of us who have jobs with a decent enough pay, well, this ain't a bad time, with low interest rates, low inflation, low gas prices.  But, if you are like me who believes that it is the responsibility of middle-aged folks to watch out for the long-term welfare of the young, then you, too, will be worried.  Even if you live in India and not in the US--especially because many of the economic dynamics are similar!

Of course, you can forget all these, and utter your own version of "let them eat cake" and watch the "college" football national championship game, then "the superb owl," and then the "March Madness," and go international with sports all over the world.  The youth be damned!

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