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The empirical evidence for wage rises causing inflation is so weak, few economists take it seriously as an argument against wage rises. The evidence for supply

The empirical evidence for wage rises causing inflation is so weak, few economists take it seriously as an argument against wage rises. The evidence for supply chain issues - as you mention - and price gouging being contributory causes is much more convincing. If you are not convinced that price gouging is going on, consider profit levels in energy companies in recent months. Please don't blame this on workers who if anything need to be paid more, and paying them more will not impact inflation, only make it easier to cope with. It may even bring inflation down if jobs in supply chains become more attractive and force profiteers to become more competitive.

nradov 4y ago
Blaming inflation on price gouging seems way too facile and subjective. What is price gouging anyway? In the years that energy companies lost money were they doing the reverse of gouging?
- mustacheemperor 4y ago
  Why is it more facile and subjective to blame the real visible increases in consumer product and material supply prices than to blame "extreme raises in wages starting a spiral of inflation that started at the bottom of the economic tiers and has worked its way up?" I just don't see there being any more reasonable objective cause and effect to that claim than the claim made by the commenter you are replying to. On the other hand in my own industry, prices for materials like lumber and steel have shot up massively causing major follow-on effects, and nobody at the steel mills are blaming worker salary for it. They're blaming the costs of the raw materials. And the people on the job site aren't blaming the tradespeople wages for the project going over budget, they're blaming the high cost of the steel showing up on site, late. When workers are an issue for project delivery or budget it's usually not what they're charging, it's just availability. There are simply not enough field workers out there who can drive steel rivets or manage a punchlist. In fact, I hear rising wages brought up as a potential way to attract more people to the those field roles, because right now there are not enough people entering those roles.
  - nradov 4y ago
    None of that explains what price gouging is or how to distinguish it from normal market price variations.
    - eyegouging 4y ago
      Usually when people say “price gouging” they are making a moral claim — the price being charged is Wrong — not a technical claim. So you can’t distinguish it without sharing the same morals as the speaker, and you therefore should “know it when you see it”.
      - buck4roo 4y ago
        No moral claim required. When price increases exceed the increases in costs/raw-goods... then it's "greedflation", not "price gouging". Increasing profit margins are also a good signal of it. Inflation and Price Gouging - https://www.nytimes.com/2022/06/14/briefing/inflation-supply-chain-greedflation.html https://www.nytimes.com/2022/06/14/briefing/inflation-supply... Are Large Corporate Profit Margins Causing Inflation? - https://www.nytimes.com/2022/06/22/opinion/inflation-corporate-profits.html https://www.nytimes.com/2022/06/22/opinion/inflation-corpora... I Listened In on Big Business. It’s Profiting From Inflation, and You’re Paying for It. - https://www.nytimes.com/2022/05/05/opinion/us-companies-inflation.html https://www.nytimes.com/2022/05/05/opinion/us-companies-infl...
        nradov 4y ago
        Are you suggesting that profit margins should be fixed at current levels and never change?
        eyegouging 4y ago
        I think they are suggesting that profit margins should be zero (if not negative)… and in my experience most people taking these kinds of positions would prefer if your takehome pay was just a little bit less than theirs. So pretty much doubling down on the point: it’s gouging when I say it is.
mustacheemperor 4y ago
You made the reply I was thinking of. It seems a bit too on the nose for the literati on HN to have determined the definitive cause of inflation today is in-demand workers requesting fair compensation, as of the last 2 years. Software engineer salaries have skyrocketed unbelievably over the last 20 years. What crisis is that responsible for?
- pas 4y ago
  housing affordability crises around IT hubs? (sure, the ultimate cause is fear of density, but the proximate cause was a lot of income concentrating in so relatively few people's hands in relatively small areas.) notice that the real problem is the supply-demand inequality, not that real wages went up for a sector. (and to have a crisis it's almost always necessary for some other conditions to be present to make this one particular imbalance a very significant one that then drives other markets, eg. in case of housing that condition is the artificially very limited supply.) the COVID stimulus checks were big, but not that big individually compared to the US economy, sectors, regions. people who needed it spent it, who did not put it into meme stocks, or bought something, inflating the price of luxury stuff like high end GPUs. that's most of it. (around 2020 July) what put the whole economy into a freefall was ~1M excess dead and the rising energy prices giving a big speedup to the already falling supply-side dominos.
- liketochill 4y ago
  Revenues from products with near zero marginal cost.
abakker 4y ago
Agree. It’s important to look at retirement rates and numbers, too. It’s the end of the boomer generations workforce participation (except in the senate?). The following generations really are smaller. Couple that with actual crackdowns on immigrations, and you get actual labor supply problems for some roles and industries. This has knock on effects that raise wages. Couple this with inflation in CPI, and you get workers in a good place to negotiate raises to cancel out inflation and then actually increase real salaries commensurate with contribution. Net, labor price increases are a symptom of labor supply and cpi. Labor is not driving inflation.
RickJWagner 4y ago
This is all moot for the people who suffer most-- those on fixed incomes and those without incomes that can be increased. That's why it's important to stop inflation immediately. It puts the cost of living farther and farther away from those who can't keep up today.

nradov 4y ago

Blaming inflation on price gouging seems way too facile and subjective. What is price gouging anyway? In the years that energy companies lost money were they doing the reverse of gouging?

mustacheemperor 4y ago
Why is it more facile and subjective to blame the real visible increases in consumer product and material supply prices than to blame "extreme raises in wages starting a spiral of inflation that started at the bottom of the economic tiers and has worked its way up?" I just don't see there being any more reasonable objective cause and effect to that claim than the claim made by the commenter you are replying to. On the other hand in my own industry, prices for materials like lumber and steel have shot up massively causing major follow-on effects, and nobody at the steel mills are blaming worker salary for it. They're blaming the costs of the raw materials. And the people on the job site aren't blaming the tradespeople wages for the project going over budget, they're blaming the high cost of the steel showing up on site, late. When workers are an issue for project delivery or budget it's usually not what they're charging, it's just availability. There are simply not enough field workers out there who can drive steel rivets or manage a punchlist. In fact, I hear rising wages brought up as a potential way to attract more people to the those field roles, because right now there are not enough people entering those roles.
- nradov 4y ago
  None of that explains what price gouging is or how to distinguish it from normal market price variations.
  - eyegouging 4y ago
    Usually when people say “price gouging” they are making a moral claim — the price being charged is Wrong — not a technical claim. So you can’t distinguish it without sharing the same morals as the speaker, and you therefore should “know it when you see it”.
    - buck4roo 4y ago
      No moral claim required. When price increases exceed the increases in costs/raw-goods... then it's "greedflation", not "price gouging". Increasing profit margins are also a good signal of it. Inflation and Price Gouging - https://www.nytimes.com/2022/06/14/briefing/inflation-supply-chain-greedflation.html https://www.nytimes.com/2022/06/14/briefing/inflation-supply... Are Large Corporate Profit Margins Causing Inflation? - https://www.nytimes.com/2022/06/22/opinion/inflation-corporate-profits.html https://www.nytimes.com/2022/06/22/opinion/inflation-corpora... I Listened In on Big Business. It’s Profiting From Inflation, and You’re Paying for It. - https://www.nytimes.com/2022/05/05/opinion/us-companies-inflation.html https://www.nytimes.com/2022/05/05/opinion/us-companies-infl...
      - nradov 4y ago
        Are you suggesting that profit margins should be fixed at current levels and never change?
        eyegouging 4y ago
        I think they are suggesting that profit margins should be zero (if not negative)… and in my experience most people taking these kinds of positions would prefer if your takehome pay was just a little bit less than theirs. So pretty much doubling down on the point: it’s gouging when I say it is.

mustacheemperor 4y ago

You made the reply I was thinking of. It seems a bit too on the nose for the literati on HN to have determined the definitive cause of inflation today is in-demand workers requesting fair compensation, as of the last 2 years. Software engineer salaries have skyrocketed unbelievably over the last 20 years. What crisis is that responsible for?

pas 4y ago
housing affordability crises around IT hubs? (sure, the ultimate cause is fear of density, but the proximate cause was a lot of income concentrating in so relatively few people's hands in relatively small areas.) notice that the real problem is the supply-demand inequality, not that real wages went up for a sector. (and to have a crisis it's almost always necessary for some other conditions to be present to make this one particular imbalance a very significant one that then drives other markets, eg. in case of housing that condition is the artificially very limited supply.) the COVID stimulus checks were big, but not that big individually compared to the US economy, sectors, regions. people who needed it spent it, who did not put it into meme stocks, or bought something, inflating the price of luxury stuff like high end GPUs. that's most of it. (around 2020 July) what put the whole economy into a freefall was ~1M excess dead and the rising energy prices giving a big speedup to the already falling supply-side dominos.
liketochill 4y ago
Revenues from products with near zero marginal cost.

abakker 4y ago

Agree. It’s important to look at retirement rates and numbers, too. It’s the end of the boomer generations workforce participation (except in the senate?). The following generations really are smaller. Couple that with actual crackdowns on immigrations, and you get actual labor supply problems for some roles and industries. This has knock on effects that raise wages. Couple this with inflation in CPI, and you get workers in a good place to negotiate raises to cancel out inflation and then actually increase real salaries commensurate with contribution. Net, labor price increases are a symptom of labor supply and cpi. Labor is not driving inflation.

RickJWagner 4y ago

This is all moot for the people who suffer most-- those on fixed incomes and those without incomes that can be increased. That's why it's important to stop inflation immediately. It puts the cost of living farther and farther away from those who can't keep up today.