4 ms·

The really weird thing about wage stagnation is that there are millions of jobs going unfilled, companies are so desperate for people that they can't find anyon

The really weird thing about wage stagnation is that there are millions of jobs going unfilled, companies are so desperate for people that they can't find anyone and are just dumping cash into stock buybacks instead of raising wages. Something is fundamentally broken in the labor market, it is not responding to supply & demand forces as it has in the past. I am not sure what terminology to use to describe what's going on now, but it's not a free labor market any more, it has been destroyed or transformed into some other construct.

SolaceQuantum 7y ago
IIRC Wages have been growing (modestly). [0] [0]https://www.vox.com/2019/5/3/18528010/april-2019-jobs-report-wages https://www.vox.com/2019/5/3/18528010/april-2019-jobs-report... (I know this isn't the best one, but I can't find the Reuters one that also states similarly)
Ancalagon 7y ago
Actually I would argue companies just don't want to pay the wages that Americans would expect for the labor. Raise the pay, you'll see those positions get more qualified candidates and then they will be filled.
- fma 7y ago
  Anecdote...I had a random chat with a hiring manager and he commented he can't hire the right developers. Developers think too highly of themselves and ask for too much money...I had no sympathy for him.
jjoonathan 7y ago
They don't need people. They always complain about needing people because it's always in their interest to do so, but the fact that they don't just raise wages strongly suggests that they don't know how to profitably employ additional people and that "we need people" is just a bunch of hot air. This dilemma, and many like it, vanish entirely if you stop paying attention to what people say and start paying attention to what they do.
- opportune 7y ago
  Yes, if you need people, raise prices until you can afford the people that are available. The actual industries that do need people (like tech) have done that.
  - oldjokes 7y ago
    Right, in theory that's what we've always been told about how it works, but that is not what is actually happening. There has been almost zero correlation between unemployment and wage pressure for 20+ years now. In all industries, yes even tech. It's just not working. Unless you're a director or exec, then your wages are skyrocketing. Everyone else is flat or declining.
    - opportune 7y ago
      Personally I think the issue is that there is still a lot of unemployment (see U6) that prevents classical wage inflation from happening. That, and people outside of highly skilled industries have basically no bargaining power these days + intense global competition in almost all industries
  - Balgair 7y ago
    Semi-related: Many SV companies have been involved in illegal wage-suppression-fixing recently. https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_Litigation https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L... > The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay.
robbrit 7y ago
Could be a signal of a strong disconnect between the people who are making the spending decisions and the people doing the hiring and managing. Departments are given a fixed budget or headcount based on historical precedent rather than current need. It also could be perverse incentives. The people with their hands on the cash tap have more to gain from stock buybacks than they do by wage increases.
eli_gottlieb 7y ago
Well, that could be because they're giving even the sandwich-making staff at fast-food joints noncompete agreements that stop them from switching to a better-paying employer, and union busting remains at historic levels.
rgbrenner 7y ago
I suspect the federal reserve plays a part in this too. They started targeting 2% inflation about the same time wages started to stagnate. When the labor market starts to tighten, they consider it full employment.. and if it starts to increase wages, it counts against their inflation target... and to counter both points, they start taking actions to cool the market. And the "full employment" isn't even really full employment.. since it doesn't include people who have excluded themselves from the labor market. A lot of those people have difficulty for one reason or another entering the market, but they will if employers are willing to train, pay more, etc... and employers will only do that in a tight labor market. So it seems like when the labor market enters a period where it may address some real problems (wage stagnation, structural issues in the labor market, etc)... the fed jumps in to cool the market off. To be clear, I think the inflation target is a good thing... but I think it's perhaps too broad of an indicator.. and maybe we need a more nuanced target.
derekp7 7y ago
Let's say you have a company that makes smashed widgets. So you need to hire widget smashers, but all the good ones want to be paid $20 per widget that they smash. But consumers won't pay more than $5 per smashed widget, so there is no way you can charge enough to pay for that labor. So yes, you can get the labor you need if you pay enough. But then you won't have a business, because business need to turn a profit (or at least break even). Now I wonder if the current labor shortage actually resembles this scenario, or if the complaining that corporate execs do is more of an act in order to get cheaper labor when they can still turn a profit with more expensive labor?
- imtringued 7y ago
  >But consumers won't pay more than $5 per smashed widget, so there is no way you can charge enough to pay for that labor. Yeah except the worker already gets paid $18 at his current company. Producing $5 worth of goods with $20 worth of labor is economically impossible. Someone has to eat that loss. Either it's the company, the customer or the worker and as far as we know the customer always picks the cheapest stuff regardless of how sustainable it is and the company will always yield to the customer. The worker will always receive the short end of the stick. Ok lets assume the worker accepts the $5 job. Previously he could afford buying lunch for $18 but now he desperately needs super cheap $5 lunch because his job doesn't pay as well anymore. The restaurant cook can't be paid $18 per lunch anymore because the worker switched to fast food. The cook now has to work at a fast food place and only gets $5 too. This scenario is called deflation. Prices go down and with them worker compensation starts shrinking and through lower compensation prices must go down too. It's a vicious cycle with awful consequences for workers. Meanwhile investors benefit because their investments appreciate without doing anything at all. What if the opposite scenario happens? What if the worker wins and get his pay increase? Well exactly the opposite happens. The worker will spend the extra $2 per widget on better lunch. The cook will now receive $20 for his lunch and use it to buy more expensive widgets. Obviously this is inflation. Some inflation is good. Excessive inflation is just as harmful as deflation. So what we need is a healthy balance between inflation and deflation.
mikem170 7y ago
Maybe the price of the product cannot be raised enough to cover the higher cost of an employee? Maybe those products don't get made, and nobody misses them.
noobermin 7y ago
>[...]companies are so desperate for people that they can't find anyone and are just dumping cash into stock buybacks instead of raising wages. Said companies are so spoiled by high profits that they dare dip into them to pay employees more. Also, this isn't for your run of the mill small-business or start-up, these are companies that afford to pay employees much more and simply don't.
imtringued 7y ago
When you're in the stock market for the capital gains then you only need to hope for a quantitative easing windfall. The idea behind QE is to drive yields of the most popular investments down and therefore make other investments like small businesses more profitable which didn't really work out and is actually backfiring.

SolaceQuantum 7y ago

IIRC Wages have been growing (modestly). [0] [0]https://www.vox.com/2019/5/3/18528010/april-2019-jobs-report-wages https://www.vox.com/2019/5/3/18528010/april-2019-jobs-report... (I know this isn't the best one, but I can't find the Reuters one that also states similarly)

Ancalagon 7y ago

Actually I would argue companies just don't want to pay the wages that Americans would expect for the labor. Raise the pay, you'll see those positions get more qualified candidates and then they will be filled.

fma 7y ago
Anecdote...I had a random chat with a hiring manager and he commented he can't hire the right developers. Developers think too highly of themselves and ask for too much money...I had no sympathy for him.

jjoonathan 7y ago

They don't need people. They always complain about needing people because it's always in their interest to do so, but the fact that they don't just raise wages strongly suggests that they don't know how to profitably employ additional people and that "we need people" is just a bunch of hot air. This dilemma, and many like it, vanish entirely if you stop paying attention to what people say and start paying attention to what they do.

opportune 7y ago
Yes, if you need people, raise prices until you can afford the people that are available. The actual industries that do need people (like tech) have done that.
- oldjokes 7y ago
  Right, in theory that's what we've always been told about how it works, but that is not what is actually happening. There has been almost zero correlation between unemployment and wage pressure for 20+ years now. In all industries, yes even tech. It's just not working. Unless you're a director or exec, then your wages are skyrocketing. Everyone else is flat or declining.
  - opportune 7y ago
    Personally I think the issue is that there is still a lot of unemployment (see U6) that prevents classical wage inflation from happening. That, and people outside of highly skilled industries have basically no bargaining power these days + intense global competition in almost all industries
- Balgair 7y ago
  Semi-related: Many SV companies have been involved in illegal wage-suppression-fixing recently. https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_Litigation https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L... > The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay.

robbrit 7y ago

Could be a signal of a strong disconnect between the people who are making the spending decisions and the people doing the hiring and managing. Departments are given a fixed budget or headcount based on historical precedent rather than current need. It also could be perverse incentives. The people with their hands on the cash tap have more to gain from stock buybacks than they do by wage increases.

eli_gottlieb 7y ago

Well, that could be because they're giving even the sandwich-making staff at fast-food joints noncompete agreements that stop them from switching to a better-paying employer, and union busting remains at historic levels.

rgbrenner 7y ago

I suspect the federal reserve plays a part in this too. They started targeting 2% inflation about the same time wages started to stagnate. When the labor market starts to tighten, they consider it full employment.. and if it starts to increase wages, it counts against their inflation target... and to counter both points, they start taking actions to cool the market. And the "full employment" isn't even really full employment.. since it doesn't include people who have excluded themselves from the labor market. A lot of those people have difficulty for one reason or another entering the market, but they will if employers are willing to train, pay more, etc... and employers will only do that in a tight labor market. So it seems like when the labor market enters a period where it may address some real problems (wage stagnation, structural issues in the labor market, etc)... the fed jumps in to cool the market off. To be clear, I think the inflation target is a good thing... but I think it's perhaps too broad of an indicator.. and maybe we need a more nuanced target.

derekp7 7y ago

Let's say you have a company that makes smashed widgets. So you need to hire widget smashers, but all the good ones want to be paid $20 per widget that they smash. But consumers won't pay more than $5 per smashed widget, so there is no way you can charge enough to pay for that labor. So yes, you can get the labor you need if you pay enough. But then you won't have a business, because business need to turn a profit (or at least break even). Now I wonder if the current labor shortage actually resembles this scenario, or if the complaining that corporate execs do is more of an act in order to get cheaper labor when they can still turn a profit with more expensive labor?

imtringued 7y ago
>But consumers won't pay more than $5 per smashed widget, so there is no way you can charge enough to pay for that labor. Yeah except the worker already gets paid $18 at his current company. Producing $5 worth of goods with $20 worth of labor is economically impossible. Someone has to eat that loss. Either it's the company, the customer or the worker and as far as we know the customer always picks the cheapest stuff regardless of how sustainable it is and the company will always yield to the customer. The worker will always receive the short end of the stick. Ok lets assume the worker accepts the $5 job. Previously he could afford buying lunch for $18 but now he desperately needs super cheap $5 lunch because his job doesn't pay as well anymore. The restaurant cook can't be paid $18 per lunch anymore because the worker switched to fast food. The cook now has to work at a fast food place and only gets $5 too. This scenario is called deflation. Prices go down and with them worker compensation starts shrinking and through lower compensation prices must go down too. It's a vicious cycle with awful consequences for workers. Meanwhile investors benefit because their investments appreciate without doing anything at all. What if the opposite scenario happens? What if the worker wins and get his pay increase? Well exactly the opposite happens. The worker will spend the extra $2 per widget on better lunch. The cook will now receive $20 for his lunch and use it to buy more expensive widgets. Obviously this is inflation. Some inflation is good. Excessive inflation is just as harmful as deflation. So what we need is a healthy balance between inflation and deflation.

mikem170 7y ago

Maybe the price of the product cannot be raised enough to cover the higher cost of an employee? Maybe those products don't get made, and nobody misses them.

noobermin 7y ago

>[...]companies are so desperate for people that they can't find anyone and are just dumping cash into stock buybacks instead of raising wages. Said companies are so spoiled by high profits that they dare dip into them to pay employees more. Also, this isn't for your run of the mill small-business or start-up, these are companies that afford to pay employees much more and simply don't.

imtringued 7y ago

When you're in the stock market for the capital gains then you only need to hope for a quantitative easing windfall. The idea behind QE is to drive yields of the most popular investments down and therefore make other investments like small businesses more profitable which didn't really work out and is actually backfiring.