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The thing is, it seems like there are multiple factors at play here. What you're talking about is the distribution of funds within an organization. I.e. if co
by skohan 5y ago
The thing is, it seems like there are multiple factors at play here.
What you're talking about is the distribution of funds within an organization. I.e. if company X has a certain total revenue, can they afford to re-distribute a greater percentage of that number & towards employee compensation vs. stock buybacks. From that standpoint, for many successful firms the answer is probably yes.
But another factor at play here is market forces, and scarcity in particular. So for instance, amidst the chip shortage, the price of new and used cars increases because it's not possible to produce enough cars to meet demand. So firms that can afford to pay more do so to afford top talent, because working at company X will mean you can afford to have the lifestyle you want. This incentivizes company Y, which can not simply redistribute profits toward wages, to increase prices so they can afford to compete in the labour market, which farther contributes to the increase in demand for higher-wage jobs, contributing to the cycle of inflation.
So I don't think it's as simple as having super profitable companies take a haircut to increase wages. In an environment of greater-than-average scarcity, the market should perform its role in price discovery of scarce goods. But in an environment where capital itself is not scarce, you risk that price discovery mechanism being broken, and prices just increasing indefinitely.
Disclaimer: I'm not an economist, I'm just someone who's been thinking about inflation a lot lately, so I am happy to be corrected.
- rjtavares 5y agoAll costs boil down to: Natural Resources, Labour, and Capital. If Capital is not scarce, Labour is scarce, and there isn't a change in natural resources (there may be in some cases, but I don't think that changed a lot), then capital should become cheaper and labour should become more expensive. That's how a well functioning market economy should work. Inflation is largely irrelevant in the discussion, since the real output of the economy doesn't change with inflation (of course, hyperinflation and deflation can destabilize an economy, but we're definitely not there).
- skohan 5y agoI don't really understand this: why should capital availability increase in the face of a labor shortage? Making capital doesn't actually create more labor, so wouldn't this just re-allocate labour towards those with more access to cheap capital?
- rjtavares 5y agoI'm not suggesting capital availability increased because of labor shortage. I'm saying capital availability has been high for a while (one of the reasons for the low interest costs). EDIT: just noticed I missed an "and" in the original comment. It should be "If Capital is not scarce, and Labour is scarce"
- diordiderot 5y ago> greater-than-average scarcity Isn't scarcity infinite? Every argument against increasing labor share of income boils down to "oooooooioooh, inflaaaaaaaaation, spoooooooky!"
- indigochill 5y ago> Every argument against increasing labor share of income boils down to "oooooooioooh, inflaaaaaaaaation, spoooooooky!" This doesn't seem to make any sense, considering increasing labor share is not creation of money (inflation) but merely a different method of allocating the existing money. But maybe that's your point or maybe inflation is defined differently than what I learned in high school.
- diordiderot 5y agoI believe that most Americans believe that it's an economic law that if wages increase it _will_ result in wage price inflation. Inflation just means you get less stuff per dollar in the store Wage price inflation means the excess labor cost(wages) is added to the price of goods, resulting in increased wages, resulting in increased prices over and over until bread costs 1 billion dollars. This is an absurd proposition when you could just reduce profit margins. The problem is that capitalists don't want to. Why should they! What should happen is that we should allow wage price inflation forcing companies to lower profit margins after a very short recession, then quality of life would increase for the working majority.
- skohan 5y agoSee this would hold if the money supply is held relatively constant. We are not in that environment.
- skohan 5y agoI am in favor of increasing labor's share of income. My point is, in order to increase labour's share of income, the money supply has to be held relatively constant in order to avoid inflation. In an environment like we have, where capital is basically free, when labor becomes scarce, firms with access to the infinite money supply can just raise wages ad infinitum and this is what creates the problem. The capital supply is not properly controlled by market forces currently. If it were, increasing labor's share of profits would be resolved without inflation. So my overall point is that we are seeing issues with inflation because of the intersection of Quantitative Easing and real-world scarcity. QE hasn't led to inflation before, because most of the new capital created just ended up in paper assets like securities. So if the fed prints 10 trillion dollars, and most of it just ends up on the balance sheet of some investment banks, it's not going to affect the price of a loaf of bread. But if the money supply is increased indiscriminately and it also gets into the hands of people who are competing for the same used car, this is what causes issues with the value of the currency.
- mbrodersen 5y agoEconomists gets it wrong all the time so no need for disclaimers.