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Unemployment in the U.S. Is Falling, So Why Isn’t Pay Rising?
- 18RDThNx 9y agoDoes this factor in total compensation? Labor has been getting more expensive over time due to mandates and regulations. Additional benefits must be paid regardless of the employee's wishes, and some would probably prefer extra cash to that additional mandated perk.
- abritinthebay 9y agoOf course, what people prefer in the short term and what is actually good for society as a whole are sometimes different things.
- 18RDThNx 9y agoPerhaps. But who is better equipped to decide: the individual or "society?"
- bencollier49 9y agoSame thing is happening in the UK. Wonder if that rules out any of the explanations..
- badosu 9y agoWithout a breakdown of these new jobs by sector we can't really be sure, if the premise is correct one explanation could be low qualification. Also, there are many ways to account for 'employment' so this statistic can be misleading as well.
- ab5tract 9y agoThe rules regarding unemployment statistics are entirely designed to be favorable. Citizens who are unemployed for greater than X months (where X is a figure I don't currently recall) stop being considered unemployed for the sake of this stat. Likewise, homeless populations are not counted. Not everyone who is homeless is necessarily unemployed, I guess, but it's patently ridiculous not to include any homeless in unemployment statistics.
- sofaofthedamned 9y agoI remember hearing something on the radio years ago here in the UK that really caught my eye. There was a government project to count the number of homeless on a particular day. When the stats came out, the number had fallen despite anybody who ever walked around a town centre knowing the numbers had gone up. So the radio station interviewed a local outreach worker who had been tasked to get the stats in her town. She was told to only count people on public property - so, somebody sleeping on the Library steps was counted, somebody sleeping outside a supermarket was not.
- angersock 9y agoI've seen a similar game played where the criteria was "have you been without housing for over a year?". Magically the number of homeless fell by half overnight!
- graphitezepp 9y agoFrom the article, "Only 78.6 percent of people age 25-54 are employed" yet we say unemployment is at 4.4. It very much smells like unemployment, as we count it, is a bad metric and that explains what looks like a paradox in economic principles.
- abritinthebay 9y agoWell the issue is that there isn't one metric. There's unemployed and seeking work, unemployed and not seeking work, under-employed, and so on Not to mention the composite figures derived from these. Employment Reports list all of these, it's just people want to consume short sound bites, not complex social and statistical topics.
- wernercd 9y agoNot everyone outside that 78.6 is employable... disabled, students, retired (some are that lucky), stay at home moms, etc. The question is: Who is employable (outside of disability, student, etc) and not for legitimate reasons. The U3 (4.4), as I understand it, is more a "moving target" of recent numbers... it's the number of recently unemployed and still looking the U6 (8.6%) should be closer to "real" unemployment since it includes discouraged, marginal and part time workers (those under utilized). https://www.bls.gov/news.release/empsit.t15.htm https://www.bls.gov/news.release/empsit.t15.htm
- ThomPete 9y agoBecause its not real employment its 95% temp jobs meaning not healthcare. Since 2009 this has been the case. On top of that since bush they have widened the definition of what constitutes a job.
- apo 9y agoEight possible explanations and not a single mention of the word "deflation." The Japanese have a long history of low unemployment and deflation working together: http://www.tradingeconomics.com/japan/unemployment-rate http://www.tradingeconomics.com/japan/unemployment-rate Maybe the idea that lower unemployment always leads to inflation is just wrong. For now, wage decreases have been masked by cuts to employer-funded health insurance programs. Eventually, there will be nothing left to cut there leaving the possibility that we'll see across-the-board wage cuts.
- IanDrake 9y agoExactly. The demand for labor and the demand for the US dollar could be balancing labor costs.
- petra 9y agoShouldn't deflation come with decreasing prices all around, not just wages ? because except for a few relative small sectors, it doesn't seem to be the case.
- pixl97 9y agoNo, asset inflation is a different problem https://en.wikipedia.org/wiki/Asset_price_inflation https://en.wikipedia.org/wiki/Asset_price_inflation
- ChuckMcM 9y agoI was wondering why they didn't mention deflation as well.
- cjlars 9y agoUsing the Personal Consumption Expenditures (PCE) index instead of the CPI, as is more common, would strengthen this argument, as it shows inflation 0.3-0.5% points lower per year than the CPI [1]. In my view (and the Federal Reserve's) the PCE is a better measure of standard of living, since it adjusts more aggressively for changes in the quality of goods and changes in the basket of goods people purchase -- i.e. it better adjusts for the emergence of things like iPhones. So growth, both in wages, and in general would look a bit better under the PCE deflator. Regardless, you're still at a low rate of growth, not deflation. If labor force participation was the issue, we'd see that trending up, which we do a bit, but not much. One other theory somewhat consistent with the data is that we're seeing downward pressure from automation, yet if that was true productivity should be rising faster. [1] https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx https://www.clevelandfed.org/newsroom-and-events/publication...
- s_kilk 9y agoUh, because we are all collectively being fleeced by a ruling class extracting obscene amounts of wealth from our work without doing anything useful themselves. Never fool yourself into thinking you'll get anything back from these vampires.
- IanDrake 9y agoSo if you were given 25 million dollars you would automagically make obscene amounts of money with no effort? History shows otherwise with a very high rate of bankruptcies from lottery winners.
- maxerickson 9y agoYou could make $300,000-$400,000 per year putting that in CDs. In the top 1 or 2% of households by income for pretty much doing nothing. Maybe not a literally obscene income though.
- IanDrake 9y agoI must not have made my point well. Sure, you could do that and maybe you would. However, most people who didn't earn their money don't. Most of those same people think the rich "do nothing" and make money. It's this kind of ignorance that causes bullshit class warfare where it doesn't exist.
- maxerickson 9y agoAre lottery winners the majority among people that don't earn their money?
- IanDrake 9y agoNo, but they are a good example because they are usually not accustom to wealth and thus more likely to believe (like the OP) that wealthy people just sit on a pile of cash and buy exotic sports cars while doing hookers and blow 24/7. You don't often hear wealthy people complain about other wealthy people because they know how hard it is to stay wealthy. It is a skill to make money with money.
- relaxatorium 9y agoThis reminds me of the recent American Airlines story where they raised employee wages and institutional investors hammered them for it http://www.latimes.com/business/la-fi-american-airlines-raises-20170427-story.html http://www.latimes.com/business/la-fi-american-airlines-rais...
- minikites 9y agoIt's almost as if an economic system encouraging everyone to act in their own selfish interest produces harmful results without checks or balances.
- eli_gottlieb 9y agoIt's almost as if shareholders have zero desire to operate in a labor market where labor can sometimes grow scarce, but would instead prefer to a subsidized or conscripted labor-force.
- jazzyk 9y agoThe widely published unemployment number only measures the dynamics of layoffs (how many people became unemployed in the window of the past 6 months). The actual labor force participation is what counts. And therein lies the answer to the "why isn't pay rising" question: http://www.tradingeconomics.com/united-states/labor-force-participation-rate http://www.tradingeconomics.com/united-states/labor-force-pa... (switch to the 10-year time view)
- AngrySkillzz 9y agoU-3 is the commonly published "unemployment rate," aka the thing that is currently 4.4%. I don't think many people actually looks at U-1. You can get a better picture by looking at U-5 or U-6 together with the participation rate (LFPR).
- jazzyk 9y agoEdited my comment to remove the U1, U3 reference, not to confuse everyone. The point still stands, though.
- alistairSH 9y agoHow does a declining labor force participation explain stagnant wages? As participation (supply) goes down, wages should start to go up (to entice people back into the labor force). What we have is declining participation AND stagnant wages.
- jazzyk 9y agoHint: they are forced to "not participate", because there are no jobs for them, not because they don't want to work.
- candiodari 9y agoSo you are saying you actually agree with the FED's assessment ? It essentially states that anyone who doesn't find a job in 6 months therefore isn't looking for a job. If you don't agree with that, then there aren't any good stats, hence the use of the labor participation number, as the "default" goto for unemployment. If you want alternatives, may I recommend: https://www.bls.gov/news.release/empsit.t15.htm https://www.bls.gov/news.release/empsit.t15.htm This does suggest that U-5 at least is a more realistic figure, or perhaps the average of U-5 + U-6. That would make real unemployment somewhere between 6 and 7.8, and indicates plenty of slack in the labor force.
- MikeTLive 9y agopick the statistic that fits your personal narrative and political party leanings. then proclaim all the rest as bogus. change stats as required when required to suit your narrative.
- deleted 9y ago[deleted]
- abakker 9y agoWell, if Labor is a function of supply and demand, then it tells us that supply of willing labor is happy to work at all, even if wages aren't rising. Turned around, in a market where people are desperate for work, corporations have no incentive to raise wages. Still, this is overly simplistic. The problem in my mind is that unemployment rate is reflective only of those looking for work, and labor force participation rate is low. https://data.bls.gov/timeseries/LNS11300000 https://data.bls.gov/timeseries/LNS11300000 The result is that as employers' needs for people rise, they can siphon off those looking for work at current market rates, and then, (maybe), people from the non-participating group can gradually replenish the unemployed pool. * My own experience tells me that there is limited wage stagnation in modern high-skill jobs and that there is low unemployment there as well. In that market, wages seem to be rising, and talent seems to be scarce. (Read some recent earnings transcripts from companies like CDI that do staffing in these industries.) On the lower or outdated skill market, though, companies have more people to choose from, likely lower transaction costs (non-benefits/salary jobs enable more employee turnover), and also slimmer margins. Why pay any more than they absolutely have to? Where this becomes a real problem, though is that low-skill jobs are not even keeping place with inflation. As a result, real earning potential in many of these jobs is through the floor. Personally, I look to the huge run in returns on capital in the equities market over the last few years as the primary cause. In many cases, historically low interest rates and fast growing equities prices have diverted efforts from business growth and innovations in the "core" to financial growth and innovations for the balance sheet. This will revert, at some point. But, as we have seen elsewhere in HN over the last few days, there is a large entrenched "Business Class" that knows far more about financial optimization and asset allocation than they do about the businesses that they actually run.
- usmeteora 9y agoThis is true, high skilled employers have lots of trouble finding high skilled workers, and one of the main economic incentives driving gender and ethnic equality in high tech work places is the disadvantage of not being able to have the maximum amount of resources to pool skilled workforces from. They can't get enough qualified people.
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- thetwentyone 9y agoReal wages are rising (in fact one of the better periods since the 1980's): https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q It's a complex topic but a click-bait-y title. It's basically looking at nominal wage growth and comparing it to periods where we had higher inflation. It's poor journalism (potentially intentionally misleading?) to not focus on real wages.
- ptr_void 9y agoI'm a complete layman, but I've heard an economist say something different about real wage rising. Doing some searches, I think making that conclusion might also be misleading. Here's some of the stuff I found out: - There was a recession in 1980s , so it's shouldn't be used as comparison point - If you look at inflation adjusted historic data: http://web.stanford.edu/class/polisci120a/immigration/Median%20Household%20Income.pdf http://web.stanford.edu/class/polisci120a/immigration/Median... - in 2000 adjusted, there hasn't been any increase since 1970s. Since 1970s it's been ~40k in 2000's dollar. Using this: http://www.usinflationcalculator.com/ http://www.usinflationcalculator.com/ shows - ~40k in 2000 is 56.8k in today's money. Looking at real wages for in recent times https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N - the last (2015) data shows: 56.5k So, it looks like real wages hasn't grown at all in recent history. Note that I went looking for info to match what I've heard an economist say on youtube video: https://www.youtube.com/playlist?list=PL-uRhZ_p-BM4Pei6Xlr_AiV0pJcb9Mz1k https://www.youtube.com/playlist?list=PL-uRhZ_p-BM4Pei6Xlr_A... (episode 4 is most relevant to current topic)
- antisthenes 9y agoIf you adjust that number using the labor force participation rate, you'll get that the real wages have been stagnant since the 1980s, which is to say they haven't risen at all, especially when you consider the gains in output.
- jandrewrogers 9y agoWhat it costs a business to pay a wage and what an employee receives as a wage are not that tightly coupled. An important analysis is how these two numbers vary relative to each other. Business costs track economic productivity and employee output pretty closely in competitive markets. The wage is what is left over after all non-wage employment overhead costs have been accounted for. If the business cost of employment is growing faster than wages, which I believe has been the case for some time (and anecdotally matches reality in my experience), then the culprit is a non-wage cost that is growing even faster than the business cost that will keep a company solvent. Employee wages are net of healthcare, new regulatory costs, etc. Healthcare cost growth rates the last several years are probably by themselves sufficient to explain depressed wage growth relative to business cost; the growth rate of overhead for wages has been high enough to eat up quite a bit of potential wage growth. To make wages go up faster, you need to reduce the growth rate of employment overhead so that wages make up a larger percentage of the business cost of employment.
- hkmurakami 9y agoJust a data point. Unemployment in Japan is 2.3%. Pay has been stagnant during Abenomics and years before that. Underemployment is also very widespread there. I'd expect parallels in the states in this regard.
- tommynicholas 9y agoWhy does anyone use the raw wage growth numbers (which look bad) not the inflation adjusted numbers (which are healthy) when comparing historical wage growth to modern wage growth? Wage growth only matters in relation to inflation. It seems extremely disingenuous but maybe I'm missing something.
- timwaagh 9y agocause shareholders need money too. and they need it more than you.
- arkis22 9y agoIt's also important to mention that a rising share of compensation doesn't come from cash. It comes from stuff like health insurance and 401k matching. Sad, considering that those non cash benefits just make you more dependent on your employer.
- exabrial 9y agoBasic economics? Pay and labor supply are part of a demand equation. If we leave it alone, pay will increase substatially in the next few years as labor runs short. Worse thing we could do is apply an external force to the system making it take longer to stabilize.
- hans 9y agoits fake employment!