Sluggishness in core inflation in advanced economies—a surprise in view of stronger than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). As shown in Chapter 2, muted growth in nominal wages in recent years partly reflects sluggishness in labor productivity.1 However, the analysis also reveals continued spare capacity in labor markets as a key drag: wage growth has been particularly soft where unemployment and the share of workers involuntarily working part-time remain high. The corollary of this finding is that, once firms and workers become more confident in the outlook, and labor markets tighten, wages should accelerate. In the short term, higher wages should feed into higher unit labor costs (unless productivity picks up), and higher Sluggishness in core inflation in advanced economies—a surprise in view of stronger-than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6).
Consider the following chart from the Atlanta Fed:
For the longest time, I’ve been staring at the lower left-hand corner of that chart and thinking, “weak wages are really about low utilization.” Let’s place that data into context:
The above chart shows the absolute number of employees working part-time for economic reasons. The total number — after 8 years of economic growth — is only now returning to the heights of the previous expansion.
Here’s another chart of the data:
This chart (better known as the U-6 unemployment rate) presents the information in a percentage format. This statistic was 10% at the beginning of 2016, which was the highest level of the previous recession. But during this expansion, we hit this level a full seven years after the recession ended. That’s quite a delay.
The excerpt from the IMF report adds two key pieces to this puzzle: First, the US is not the only country experiencing weak labor utilization and a corresponding weak wage growth. In fact, The IMF strongly implies this also seems to go hand-in-hand with the weak pace of global inflation. Second, the IMF has research that links these two concepts.
COMMENT CROSS-POSTED (at the great risk of being repetitive here) FROM ARNOLD KING BLOG:
Usual lack — total lack — of overall perspective. What’s the difference between US and German lower 80%? LABOR UNIONS!!!
6% union density in private economy equates to 20/10 blood pressure — it starves every economic AND! political process. Why is this happening? Federal labor law, NLRA(a), protection of organizing a union — sanctions of union busting — has gone insipid since it was written in 1935. Repubs in (temporary?) command of Congress wont help.
A “Chinese Wall” of federal preemption of any state labor protection at all (except for categories like farm workers completely left out of NLRA(a) coverage) has been cobbled together by courts (usually trying to help labor) over generations now. I only became aware recently. This is long — but it undoes the preemption barrier:
The restocking of American labor union density in 39 words:
If a state or local legislature passes a law that makes exercising freedom of association (e.g., organizing a labor union) possible where it would otherwise not be possible, then, Congressional preemption of labor law falls to the First Amendment.
Federal interference (preemption) with state legislation can pop up in the least likely places (and least practical).
Florida wanted 140 mph resistant cranes — Congress thought 93 mph okay, years ago — judiciary thought no lives endangered (off street; none lost to previous storms); probable property damage to cranes and structures not enough to let Florida do its own thinking. No competing value somewhere else in the Constitution could save Florida from judges judging federal preemption.
Not so in every area.
A doctor on KevinMD blog griped that anti-trust laws bar doctors from combining to bargain fees with hospitals (unless employed there). I opined (no expert on the specifics) that if doctors combined to bargain with a giant like Blue Cross, then, overall market power would be sufficiently balanced — for the First Amendment to assert itself and protect doctors’ combination — disallowing not a matter of legislative choice. (I got the general idea right anyway.)
For decades now, judicial interpretation has walled out state labor legislation under federal preemption until it precludes anything the NLRA(a) even so much as arguably protects or prohibits (Garmon); all arguments resolved solely by the NLRB(b) — also almost anything that fits under the definition of the free play of economic forces affecting collective bargaining (Machinists), IOW almost anything not fitting under the definition of protected or prohibited.
Ironically, as decades of judicially discovered barriers to state intervention piled up, the number of union workers left under federal rules slid endlessly down.
Decades during which the initial intent of Congress to “encourage the practice and procedure of collective bargaining” — was been lost to growing federal ineffectiveness and state law freeze out.
6% labor union density in private business (the 6% able to hang on by their own natural advantages; no help from Congress) equates to 20/10 blood pressure — no difficulty diagnostically. And it starves every other healthy democratic process.
For an all day read on uninvited judicial construction activity click below (97 page PDF, very readable, half is notes and if you only want to check out Garmon and Machinists you can do pp. 70-90).
Reforming Labor Law by Reforming Labor Law Preemption Doctrine to Allow the States to Make More Labor Relations Policy by Henry H. Drummonds
Late dean of the Washington press corps, David Broder, told a novice reporter that when he came to D.C. fifty years earlier, all the lobbyists were labor. I tell doctors that no matter what health system we originate or borrow it won’t halt the financialization and crapification of US medicine — unless we build a countervailing force, unless we restore healthy union density (for the whole country, not just doctors).
How to get (back) there in 30 words:
Constitutionally guaranteed freedom of association precludes Congress from disallowing state legislative protection of labor organizing for collective bargaining which legislation is a necessary condition for the exercise of that freedom.
Congressional intent in 1935 was not to make the NLRA(a) the sole barrier to protecting labor organizing — which it has become ever since the law’s generations out-dated (non) protections of organizing have been coupled with judicial construction of preemptive Chinese Wall against state protection of same (mostly judicial-erected trying to help labor at the time), states being the only place protection is able to come from these days. The Chinese Wall of federal preemption is a legal illusion that should be no more.
“However, the analysis also reveals continued spare capacity in labor markets as a key drag: wage growth has been particularly soft where unemployment and the share of workers involuntarily working part-time remain high. The corollary of this finding is that, once firms and workers become more confident in the outlook, and labor markets tighten, wages should accelerate.”
I am trying to understand how firms and workers are to become more confident in the outlook? The economy is stuck in low and yet some firms and workers are to become so confident that they will spend what they do not have and produce what they can not sell. And continue that until labor markets tightened.
The IMF is hopelessly lost. They immediately continue with this:
“In the short term, higher wages should feed into higher unit labor costs (unless productivity picks up), and higher prices should, in turn, spur nominal wage growth in a self-reinforcing dynamic.”
I am trying to understand who is to pay these higher prices until wages are almost magically increased?
“This chart (better known as the U-6 unemployment rate) presents the information in a percentage format. This statistic was 10% at the beginning of 2016, which was the highest level of the previous recession. But during this expansion, we hit this level a full seven years after the recession ended. That’s quite a delay.”
Yes that would be quite a delay, assuming that the Great Recession had actually ended. But we are not out of it yet. We are just pretending that we are out of the Great Recession.
In the same way that in 1936 the US government pretended that the economy was no longer in the Great Depression. And that pretension in hand, they reduced the stimulus to the economy by decreasing spending and increasing taxes. And in 1937 the US economy plummeted.
The lesson of 1936 and 1937 is that pretending something is true is not quite the same as something being true.
If we were really out of the Great Recession then the Fed would take interest rates back to what they were in December 2007 and they would have eliminated QE. Actions always speak louder than words.
If we were really out of the Great Recession then the economists would have their wish and we would have the long awaited INFLATION.
If the Great Recession had really ended then the labor participation rate should be what it was in 2007 too. Or at least the economists would be asking why the labor participation rate was so low. They would want to know why we no longer needed so many workers?
Forgot to post a link to the IMF report
To see the quote in this post go to the Chapter 1 pdf and look at page 5. Last paragraph in the left column which carries over into the right column.
Except there seems to be some error in the post. Part of the beginning of the paragraph has been inserted at the end of the paragraph. (In the post.)
In the report I see this at the end of that paragraph: “In the short term, higher wages should feed into higher unit labor costs (unless productivity picks up), and higher prices should, in turn, spur nominal wage growth in a self-reinforcing dynamic.”
Sorry Jim, but higher wages over 3% like in the last 2 expansions, don’t mean “inflation” right away, in the consumer price sense but inflation is rising. 8% on the U-6 pretty much when adjusted for cohort is the same as it was in the spring of 1997 when wage growth had just broken out in previous months. Consumer Price Inflation is being drug lower by technology since 1984. But when you look at the inflations in the 20 years, we had a little one in 99-00 and a “yuge” one in 04-08 as seen by commodity prices. Commodity prices going up is the classic inflation signal, that there is excess liquidity and it is traveling. That is far different than the 2010-14 shit when markets over estimated Chindia oil absorbing potential and created a investment bubble in oil exploration.
You sound confused Jim. Let government revisions sound the way. aka, on a very simple level, the government has likely underestimated non-residential investment and NFP., which is hardly new. It looks like the economy began rebounding in the 3rd quarter of 2016 and they simply didn’t get the level. A 1%+ of the U-6 is pretty damning.
HEY BERT…..use just one identity…Anglo Saxon and others discreddit your brand
It is fair to question what recovery means to communities.