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>so if most of the increase in prices is accruing to labor, real wages will be positive, while if most accrues to capital, real wages will be negative. I am no

>so if most of the increase in prices is accruing to labor, real wages will be positive, while if most accrues to capital, real wages will be negative. I am not asking this to be snarky, but do you recall any time in our lives where increase in prices mostly accrued to labor?

nostrademons 3y ago
It's happening right now - that's what the 1.8% increase in real wages over 2023 is.
- NominalNews 3y ago
  Hi! Author here! You are correct - that we have real wage growth. However, it is worth nothing that productivity has gone up 3-4% over the last several quarters (see FRED data). Wages should grow by this amount in real terms at least. That's where the standard assumption of 3.5% nominal wage growth comes from (2% inflation + 1.5% productivity growth). So the 1.8% real wage growth is, in my opinion, very low given the economy.
  - nostrademons 3y ago
    Labor productivity data can be hard to interpret over the short term because of its definition as real output / hours worked. If, for example, the government sends all non-essential workers home while continuing to pay them through PPP, productivity will rise because hours worked has gone down (as it did in 2020), even though no layperson would say that people were more productive during COVID. Similarly, if companies are laying off people without significant declines in output (as in the 2023 tech industry), this also shows up as increased productivity. If CPI is dropping but nominal output and hours worked remain constant, this also shows up as increased productivity (real output goes up, because of lower inflation), though this scenario should be pretty rare since actual prices are a major component of nominal output. I'm reminded of a coworker who produced absolutely nothing of value for 18 months (his project was canceled at the end without ever launching), collected ~$1.5M in total comp, and worked 3-4 hour days. His productivity was sky-high: $1.5M in economic transactions for ~1000 hours worked. It's just that the economic transactions were basically lighting money on fire. For that matter, his department of ~3000 burned around $6B over ~5 years and is currently in the business of bricking otherwise-useful devices. It just had massive layoffs, but he transferred to another department, made his bosses look very good there, and survived the layoffs. You really need a long enough time period to know whether the shitty quality products you put out will result in fewer transactions before you can interpret productivity data. Long-term (multi-year) productivity growth usually presages real wage gains. But short-term (couple quarters) productivity growth could just be an indicator of layoffs coming, which usually means real wage cuts.
- mhuffman 3y ago
  ... and what is the increase in real profit growth to capital? The point of my post wasn't that wages never go up, but I do not remember when price increase MOSTLY went to labor.
  - medvezhenok 3y ago
    The bubonic plague would probably be the classical historical example - cutting the labor supply in ~half increased wages/prices across the board with no increase in profit to capital. In a less somber example, unions in the 20th century had some notable successes at labor-driven inflation dynamics (i.e. at least classically until Reagan broke the back of labor by firing all the striking ATCs in the early 80s). While everyone's purchasing power shrunk because of the oil shocks in the 70s, labor unions were better at fighting back for their share of the pie than the rest - so perhaps not growth, but they were certainly winning the redistributive battle in the 70s.
  - nostrademons 3y ago
    They're flat-to-down since 2022: https://fred.stlouisfed.org/series/CP https://fred.stlouisfed.org/series/CP The situation since 2023 really has been price inflation largely accruing to labor.

nostrademons 3y ago

It's happening right now - that's what the 1.8% increase in real wages over 2023 is.

NominalNews 3y ago
Hi! Author here! You are correct - that we have real wage growth. However, it is worth nothing that productivity has gone up 3-4% over the last several quarters (see FRED data). Wages should grow by this amount in real terms at least. That's where the standard assumption of 3.5% nominal wage growth comes from (2% inflation + 1.5% productivity growth). So the 1.8% real wage growth is, in my opinion, very low given the economy.
- nostrademons 3y ago
  Labor productivity data can be hard to interpret over the short term because of its definition as real output / hours worked. If, for example, the government sends all non-essential workers home while continuing to pay them through PPP, productivity will rise because hours worked has gone down (as it did in 2020), even though no layperson would say that people were more productive during COVID. Similarly, if companies are laying off people without significant declines in output (as in the 2023 tech industry), this also shows up as increased productivity. If CPI is dropping but nominal output and hours worked remain constant, this also shows up as increased productivity (real output goes up, because of lower inflation), though this scenario should be pretty rare since actual prices are a major component of nominal output. I'm reminded of a coworker who produced absolutely nothing of value for 18 months (his project was canceled at the end without ever launching), collected ~$1.5M in total comp, and worked 3-4 hour days. His productivity was sky-high: $1.5M in economic transactions for ~1000 hours worked. It's just that the economic transactions were basically lighting money on fire. For that matter, his department of ~3000 burned around $6B over ~5 years and is currently in the business of bricking otherwise-useful devices. It just had massive layoffs, but he transferred to another department, made his bosses look very good there, and survived the layoffs. You really need a long enough time period to know whether the shitty quality products you put out will result in fewer transactions before you can interpret productivity data. Long-term (multi-year) productivity growth usually presages real wage gains. But short-term (couple quarters) productivity growth could just be an indicator of layoffs coming, which usually means real wage cuts.
mhuffman 3y ago
... and what is the increase in real profit growth to capital? The point of my post wasn't that wages never go up, but I do not remember when price increase MOSTLY went to labor.
- medvezhenok 3y ago
  The bubonic plague would probably be the classical historical example - cutting the labor supply in ~half increased wages/prices across the board with no increase in profit to capital. In a less somber example, unions in the 20th century had some notable successes at labor-driven inflation dynamics (i.e. at least classically until Reagan broke the back of labor by firing all the striking ATCs in the early 80s). While everyone's purchasing power shrunk because of the oil shocks in the 70s, labor unions were better at fighting back for their share of the pie than the rest - so perhaps not growth, but they were certainly winning the redistributive battle in the 70s.
- nostrademons 3y ago
  They're flat-to-down since 2022: https://fred.stlouisfed.org/series/CP https://fred.stlouisfed.org/series/CP The situation since 2023 really has been price inflation largely accruing to labor.