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The Fed's model is broken. Employment might be up, but wages (except for executives) have been stagnant for well over a decade. Retailers have been squeezing

The Fed's model is broken. Employment might be up, but wages (except for executives) have been stagnant for well over a decade. Retailers have been squeezing suppliers in order to maintain low prices (hello Costco, Walmart!). Discretionary spending is low due to under-employment in many sectors. BTW: the "unemployment" figures fail to take into account people who are no longer looking for work and even worse, the masses of underemployed, people who can barely make ends meet.

intopieces 11y ago
It sounds like we've been fudging the numbers to paint a rosier picture of the economy in hopes that would encourage spending by consumers and, in turn, investors. But it seems the public has not been fooled, probably because that rosy picture doesn't match their bank statements. My question is: how do we encourage wage growth when it doesn't appear to respond to the cost of living? Has free trade undermined the American worker's ability to negotiate a more favorable salary? Are we living in 'take what you can get' economy?
- sokoloff 11y ago
  You encourage wage growth by increasing employee productivity. The more customer value a worker creates, the more an employer can pay them. Trying to increase wages without increasing the value created leads to unstable employment conditions and eventually unemployment if the situation is not profitable for the business on a risk-adjusted basis. "It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages." - Henry Ford
  - zardo 11y ago
    Productivity is not directly linked to wages. The cash register didn't raise wages for cashiers, it increased productivity, but it also lowered skill requirements which increased the supply of potential cashiers and put a downward pressure on their wages.
    - sokoloff 11y ago
      For the person who is now able to be a cashier and previously unable to be a cashier, the cash register likely put upward pressure on that individual's wage earning ability.
      - ZoeZoeBee 11y ago
        Or and more likely, the cash register allowed more people who could not previously be cashiers due to poor math skills or whatever else, become cashiers. This in-turn increases the supply of cashiers, while making the job easier, ultimately leading to downward pressure on cashiers' wages. Which brings us to where we are today, the lack of need for any cashier, please tell me you've used a You-Scan before. What do the wages look like for the cashiers who have been replaced by robot and self-service?
        sokoloff 11y ago
        Of course I have, and in many cases, I prefer the You-Scan. This is just an application of the general principal that if the most valuable skills you can bring to a job are trivially replaced by an inexpensive self-service kiosk, you have terrible wage prospects. I don't see any reasonable way around that. Raise the minimum wage and you'll see a lot more robots and kiosks.
        intopieces 11y ago
        >Raise the minimum wage and you'll see a lot more robots and kiosks. Good. Humans have no business doing what robots can do anyway. The question remains: How do we adapt the humans who lost their jobs? And before you write them off as 'unskilled,' remember that your job could just as easily be next.
        sokoloff 11y ago
        With a minimum wage high enough that there is nothing they can do that's worth that amount in the employment market, their options are to be unemployed or to work as an entrepreneur, independent contractor, or some other arrangement (possible quasi or not legal) that works around the minimum wage law. In that way, they can use the skills and effort they have to a productive end, even if no one will bid the minimum wage rate for those services. If the job I'm doing now is "next" (I don't think the job is "mine" in any possessive sense), I would have to step back and figure out what my next best option is. I'm quite sure that absent the utter collapse of civilization, that I'll figure something out and be fine.
jjoonathan 11y ago
The BLS publishes six unemployment indexes [1] that each include and exclude different groups for which employment status is debatable. However, each index has a largely consistent definition over time. They all follow essentially the same trend [2]. Could you be more specific as to the type of definition manipulation you believe is afoot? [1] https://en.wikipedia.org/wiki/Unemployment#United_States_Bureau_of_Labor_statistics https://en.wikipedia.org/wiki/Unemployment#United_States_Bur... [2] https://en.wikipedia.org/wiki/Unemployment#/media/File:US_Unemployment_measures.svg https://en.wikipedia.org/wiki/Unemployment#/media/File:US_Un...
- asmithmd1 11y ago
  The total labor force participation rate is total number of people who worked last month over total number of civilians over 16 years old. It is at historic lows but somehow "unemployment" is 5% http://data.bls.gov/timeseries/LNS11300000 http://data.bls.gov/timeseries/LNS11300000
  - dragonwriter 11y ago
    Not really surprising, Boomers keep retiring, and retirees not interested in work are part of the denominator for labor force participation rate, but not in any reasonable sense of the word "unemployed". Ever-expanding lifespans and a demographic bulge hitting retirement age naturally combine to make labor force participation historically low.
    - JuanaMango 11y ago
      Except that is the opposite of what is happening, Boomers and others who should be retiring are not and those who should be working are not. The only reason the LFP is not lower than it is is because more people can't afford to retire
- ZoeZoeBee 11y ago
  The issue is and continues to be the LFPR which has been forecast to decline due to demographics, the problem is its been declining much faster than forecast. Which is because those within the peak working age population are not participating at the historical average, while those who are supposed to be retired continue to work to make ends meet. https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate https://www.stlouisfed.org/publications/regional-economist/o...
AngrySkillzz 11y ago
You think economists at the Federal Reserve don't know all of those things?
- gutnor 11y ago
  Isn't that the point of the article ? They had a nice curve that didn't need to include those elements because everything else followed so they ended up with a nice equation with only money supply and interest rate in it that controlled the key to heaven. Now they need a new model, probably one or more extra variable in the existing one. However we are at macro-economic level, that's not obvious how to put parent observation in a number. But the Bank of Japan former director is more or less saying something like that: not all money is equal, money from saving does not trigger the same boost to the economy as money from wage. Or maybe it is just a moral stuff like they suggest too - inflation is a measure of optimism - pessimistic player money just drive inflation down.
  - AngrySkillzz 11y ago
    It's naive to think that the Fed just uses some simple Taylor rule or Philips curve model in their policy decisions. Along with having a full staff of economists and research assistants doing econometrics, they have sophisticated microfoundational computational models like the NY Fed's DSGE model[1] (that they recently open-sourced in Julia[2]). There's a lot more to macroeconomic prediction than just "adding another variable." [1] http://libertystreeteconomics.newyorkfed.org/2014/09/forecasting-with-the-frbny-dsge-model.html http://libertystreeteconomics.newyorkfed.org/2014/09/forecas... [2] https://github.com/FRBNY-DSGE/DSGE.jl https://github.com/FRBNY-DSGE/DSGE.jl
dragonwriter 11y ago
> BTW: the "unemployment" figures fail to take into account people who are no longer looking for work and even worse, the masses of underemployed, people who can barely make ends meet. This is strictly true -- the one measure called "unemployment" does not capture these. However, the official unemployment figure is one of six "alternative measures of labor underutilization" published by BLS [0], which while they have different numbers tend to follow the same overall trend, and those measures do track things like discouraged workers, underemployment (at least, in some forms), etc. [0] see, e.g., http://www.bls.gov/news.release/empsit.t15.htm http://www.bls.gov/news.release/empsit.t15.htm
- p4wnc6 11y ago
  > This is strictly true the best kind of true.
JoBrad 11y ago
Perhaps you're only referring to the headline unemployment figure that typically is reported on? The exclusion of people who are no longer looking for work is intentional: they are no longer part of the workforce, for a variety of reasons (there is no need to include someone who lives in the wilderness on passive income or savings as "unemployed"). But the BLS also provides a detailed breakdown of unemployment[1], including 6 alternate unemployment measures[2]. These alternate measures not only include "discouraged workers"[3][4] but you can also find numbers for people who are "marginally connected to the workforce" and people who have to work more than one full or part-time job[5]. [1] http://www.bls.gov/news.release/empsit.toc.htm http://www.bls.gov/news.release/empsit.toc.htm [2] http://www.bls.gov/webapps/legacy/cpsatab15.htm http://www.bls.gov/webapps/legacy/cpsatab15.htm [3] http://www.bls.gov/news.release/empsit.t15.htm http://www.bls.gov/news.release/empsit.t15.htm [4] https://en.wikipedia.org/wiki/Discouraged_worker https://en.wikipedia.org/wiki/Discouraged_worker [5] http://www.bls.gov/news.release/empsit.t16.htm http://www.bls.gov/news.release/empsit.t16.htm edit: wow - a lot of people posted essentially the same thing.
unclebucknasty 11y ago
Exactly. Not sure what the faux mystery is all about.

intopieces 11y ago

It sounds like we've been fudging the numbers to paint a rosier picture of the economy in hopes that would encourage spending by consumers and, in turn, investors. But it seems the public has not been fooled, probably because that rosy picture doesn't match their bank statements. My question is: how do we encourage wage growth when it doesn't appear to respond to the cost of living? Has free trade undermined the American worker's ability to negotiate a more favorable salary? Are we living in 'take what you can get' economy?

sokoloff 11y ago
You encourage wage growth by increasing employee productivity. The more customer value a worker creates, the more an employer can pay them. Trying to increase wages without increasing the value created leads to unstable employment conditions and eventually unemployment if the situation is not profitable for the business on a risk-adjusted basis. "It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages." - Henry Ford
- zardo 11y ago
  Productivity is not directly linked to wages. The cash register didn't raise wages for cashiers, it increased productivity, but it also lowered skill requirements which increased the supply of potential cashiers and put a downward pressure on their wages.
  - sokoloff 11y ago
    For the person who is now able to be a cashier and previously unable to be a cashier, the cash register likely put upward pressure on that individual's wage earning ability.
    - ZoeZoeBee 11y ago
      Or and more likely, the cash register allowed more people who could not previously be cashiers due to poor math skills or whatever else, become cashiers. This in-turn increases the supply of cashiers, while making the job easier, ultimately leading to downward pressure on cashiers' wages. Which brings us to where we are today, the lack of need for any cashier, please tell me you've used a You-Scan before. What do the wages look like for the cashiers who have been replaced by robot and self-service?
      - sokoloff 11y ago
        Of course I have, and in many cases, I prefer the You-Scan. This is just an application of the general principal that if the most valuable skills you can bring to a job are trivially replaced by an inexpensive self-service kiosk, you have terrible wage prospects. I don't see any reasonable way around that. Raise the minimum wage and you'll see a lot more robots and kiosks.
        intopieces 11y ago
        >Raise the minimum wage and you'll see a lot more robots and kiosks. Good. Humans have no business doing what robots can do anyway. The question remains: How do we adapt the humans who lost their jobs? And before you write them off as 'unskilled,' remember that your job could just as easily be next.
        sokoloff 11y ago
        With a minimum wage high enough that there is nothing they can do that's worth that amount in the employment market, their options are to be unemployed or to work as an entrepreneur, independent contractor, or some other arrangement (possible quasi or not legal) that works around the minimum wage law. In that way, they can use the skills and effort they have to a productive end, even if no one will bid the minimum wage rate for those services. If the job I'm doing now is "next" (I don't think the job is "mine" in any possessive sense), I would have to step back and figure out what my next best option is. I'm quite sure that absent the utter collapse of civilization, that I'll figure something out and be fine.

jjoonathan 11y ago

The BLS publishes six unemployment indexes [1] that each include and exclude different groups for which employment status is debatable. However, each index has a largely consistent definition over time. They all follow essentially the same trend [2]. Could you be more specific as to the type of definition manipulation you believe is afoot? [1] https://en.wikipedia.org/wiki/Unemployment#United_States_Bureau_of_Labor_statistics https://en.wikipedia.org/wiki/Unemployment#United_States_Bur... [2] https://en.wikipedia.org/wiki/Unemployment#/media/File:US_Unemployment_measures.svg https://en.wikipedia.org/wiki/Unemployment#/media/File:US_Un...

asmithmd1 11y ago
The total labor force participation rate is total number of people who worked last month over total number of civilians over 16 years old. It is at historic lows but somehow "unemployment" is 5% http://data.bls.gov/timeseries/LNS11300000 http://data.bls.gov/timeseries/LNS11300000
- dragonwriter 11y ago
  Not really surprising, Boomers keep retiring, and retirees not interested in work are part of the denominator for labor force participation rate, but not in any reasonable sense of the word "unemployed". Ever-expanding lifespans and a demographic bulge hitting retirement age naturally combine to make labor force participation historically low.
  - JuanaMango 11y ago
    Except that is the opposite of what is happening, Boomers and others who should be retiring are not and those who should be working are not. The only reason the LFP is not lower than it is is because more people can't afford to retire
ZoeZoeBee 11y ago
The issue is and continues to be the LFPR which has been forecast to decline due to demographics, the problem is its been declining much faster than forecast. Which is because those within the peak working age population are not participating at the historical average, while those who are supposed to be retired continue to work to make ends meet. https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate https://www.stlouisfed.org/publications/regional-economist/o...

AngrySkillzz 11y ago

You think economists at the Federal Reserve don't know all of those things?

gutnor 11y ago
Isn't that the point of the article ? They had a nice curve that didn't need to include those elements because everything else followed so they ended up with a nice equation with only money supply and interest rate in it that controlled the key to heaven. Now they need a new model, probably one or more extra variable in the existing one. However we are at macro-economic level, that's not obvious how to put parent observation in a number. But the Bank of Japan former director is more or less saying something like that: not all money is equal, money from saving does not trigger the same boost to the economy as money from wage. Or maybe it is just a moral stuff like they suggest too - inflation is a measure of optimism - pessimistic player money just drive inflation down.
- AngrySkillzz 11y ago
  It's naive to think that the Fed just uses some simple Taylor rule or Philips curve model in their policy decisions. Along with having a full staff of economists and research assistants doing econometrics, they have sophisticated microfoundational computational models like the NY Fed's DSGE model[1] (that they recently open-sourced in Julia[2]). There's a lot more to macroeconomic prediction than just "adding another variable." [1] http://libertystreeteconomics.newyorkfed.org/2014/09/forecasting-with-the-frbny-dsge-model.html http://libertystreeteconomics.newyorkfed.org/2014/09/forecas... [2] https://github.com/FRBNY-DSGE/DSGE.jl https://github.com/FRBNY-DSGE/DSGE.jl

dragonwriter 11y ago

> BTW: the "unemployment" figures fail to take into account people who are no longer looking for work and even worse, the masses of underemployed, people who can barely make ends meet. This is strictly true -- the one measure called "unemployment" does not capture these. However, the official unemployment figure is one of six "alternative measures of labor underutilization" published by BLS [0], which while they have different numbers tend to follow the same overall trend, and those measures do track things like discouraged workers, underemployment (at least, in some forms), etc. [0] see, e.g., http://www.bls.gov/news.release/empsit.t15.htm http://www.bls.gov/news.release/empsit.t15.htm

p4wnc6 11y ago
> This is strictly true the best kind of true.

JoBrad 11y ago

Perhaps you're only referring to the headline unemployment figure that typically is reported on? The exclusion of people who are no longer looking for work is intentional: they are no longer part of the workforce, for a variety of reasons (there is no need to include someone who lives in the wilderness on passive income or savings as "unemployed"). But the BLS also provides a detailed breakdown of unemployment[1], including 6 alternate unemployment measures[2]. These alternate measures not only include "discouraged workers"[3][4] but you can also find numbers for people who are "marginally connected to the workforce" and people who have to work more than one full or part-time job[5]. [1] http://www.bls.gov/news.release/empsit.toc.htm http://www.bls.gov/news.release/empsit.toc.htm [2] http://www.bls.gov/webapps/legacy/cpsatab15.htm http://www.bls.gov/webapps/legacy/cpsatab15.htm [3] http://www.bls.gov/news.release/empsit.t15.htm http://www.bls.gov/news.release/empsit.t15.htm [4] https://en.wikipedia.org/wiki/Discouraged_worker https://en.wikipedia.org/wiki/Discouraged_worker [5] http://www.bls.gov/news.release/empsit.t16.htm http://www.bls.gov/news.release/empsit.t16.htm edit: wow - a lot of people posted essentially the same thing.

unclebucknasty 11y ago

Exactly. Not sure what the faux mystery is all about.