4 ms·

> Lower rates means lower unemployment, which should eventually lead to higher wages > And, it is important to notice, in today's world, even an unemployment r

by cbanek 7y ago

> Lower rates means lower unemployment, which should eventually lead to higher wages > And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. You're talking about the Phillips curve (https://en.wikipedia.org/wiki/Phillips_curve https://en.wikipedia.org/wiki/Phillips_curve). I wonder if it's not dead. We've got the lowest unemployment rate in decades but no very little increase in AHE (average hourly earnings). It seems like while a lot of people are competing for jobs, companies still aren't willing to pay more. It's really flummoxed some economists, for example https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-fed-to-say-goodbye-to-the-phillips-curve-theory https://www.npr.org/2018/10/29/661879814/is-it-time-for-the-... Just search for "is the Phillips curve dead" just to find bunch of them. It is a head scratcher for me, but of course, I'm not sure who's right (and I don't think anyone does) I think part of it is that there are large swaths of the labor force that are basically replaceable (retail, food service are examples), so there's no real need to pay someone more. Just get someone new.

ethbro 7y ago
My ignorant gut would be that greater portions of the workforce are replaceable with capital nowadays than in previous times. You want to hand manufacture more widgets, you need to hire more people. I'd be curious if there's also a de facto inflection point, whereby decreasing requirements for broadly available labor limit wage gains, which stunts demand, which stunts additional labor and hiring. Essentially: in a bifurcated economy demand and unemployment become less tightly coupled.
- cbanek 7y ago
  > greater portions of the workforce are replaceable with capital nowadays I totally agree. I think this is even something they intended. And the workforce parts that aren't capital are more serving the capital (running expensive machines) rather than the machines helping workers be more productive. People's jobs have been tailored around becoming replaceable widgets, where you want to be able to replace someone as fast as possible (with minimal training). But all this is basically saying the Phillips curve is dead. In that, lower unemployment doesn't lead to higher wages.
lkrubner 7y ago
You are mistaken. The Phillips Curve suggests that low unemployment leads to higher inflation, whereas I wrote that low unemployment leads to higher wages. What I wrote is a simple assertion of supply and demand: if labor is in more demand, then the price of labor should go up. The Phillips Curve suggests a different relationship, and is unrelated to what I wrote.
- cbanek 7y ago
  I don't believe I'm mistaken. From the first few sentences of the page I linked to, it says exactly what you said: Wikipedia: > Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of wage rises.[1] Phillips did not himself state there was any relationship between employment and inflation; this notion was a trivial deduction from his statistical findings. You: > whereas I wrote that low unemployment leads to higher wages I made the "trivial deduction": If low unemployment leads to higher wages, it means that the prices for the things those people are producing (with higher wages), are going up, or inflating. That, or profit margins for the company are decreasing, if prices are kept stable.

by cbanek 7y ago

ethbro 7y ago

My ignorant gut would be that greater portions of the workforce are replaceable with capital nowadays than in previous times. You want to hand manufacture more widgets, you need to hire more people. I'd be curious if there's also a de facto inflection point, whereby decreasing requirements for broadly available labor limit wage gains, which stunts demand, which stunts additional labor and hiring. Essentially: in a bifurcated economy demand and unemployment become less tightly coupled.

cbanek 7y ago
> greater portions of the workforce are replaceable with capital nowadays I totally agree. I think this is even something they intended. And the workforce parts that aren't capital are more serving the capital (running expensive machines) rather than the machines helping workers be more productive. People's jobs have been tailored around becoming replaceable widgets, where you want to be able to replace someone as fast as possible (with minimal training). But all this is basically saying the Phillips curve is dead. In that, lower unemployment doesn't lead to higher wages.

lkrubner 7y ago

You are mistaken. The Phillips Curve suggests that low unemployment leads to higher inflation, whereas I wrote that low unemployment leads to higher wages. What I wrote is a simple assertion of supply and demand: if labor is in more demand, then the price of labor should go up. The Phillips Curve suggests a different relationship, and is unrelated to what I wrote.

cbanek 7y ago
I don't believe I'm mistaken. From the first few sentences of the page I linked to, it says exactly what you said: Wikipedia: > Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of wage rises.[1] Phillips did not himself state there was any relationship between employment and inflation; this notion was a trivial deduction from his statistical findings. You: > whereas I wrote that low unemployment leads to higher wages I made the "trivial deduction": If low unemployment leads to higher wages, it means that the prices for the things those people are producing (with higher wages), are going up, or inflating. That, or profit margins for the company are decreasing, if prices are kept stable.