For Labor Day Prof. Brad DeLong posted a talk on the implications (or not) of the US being near “full employment.”
The arguments on a few of the pages will be familiar to readers of this blog:
My only significant quibble here is that “Job Openings” rates from both the JOLTS reports and the NFIB (Small Business) survey have been soaring for over 2 years. If employers knew that they had to pay higher wages to attract workers, but didn’t want to be locked in, why would they bother posting the job openings at all? That, to the contrary, they are posting job openings at record rates strongly suggests they *haven’t* learned yet that they must pay higher wages.
If you think it is bad now, what happens when the numbers of people 65+ really start to retire and quit working? The percentage of males working who are 55 and older is up to a percentage not seen since 1975. Their experience and knowledge is filling a gap which could be taken up by others and they are being paid more. https://www.ebri.org/pdf/briefspdf/EBRI_IB_449.pdf I suggest employers are lazy and do not want to train their work force. People out of college do not come readily equipped to handle a position. In about a year or so the experience evolves and then the employer must have a career path lined out for them along with reasonable salary increases.
HR is lazy
I’m not ready to reject the standard thinking yet, but I am starting to develop a different analysis for why firms are not willing to raise wages.
We are still in a very low inflation environment and in many economic sectors prices are still falling. Firms do not think they have the pricing power to offset rising labor costs with higher prices. So until firms inflation expectation change they will not raise wages because they fear they will not be able to pass the higher cost on to consumers. So higher wages will not emerge until firms’ inflation expectation change .
I”m not completely ready to buy into this line of thought, but it seems to be a better theory than the standard explanation.
Nope, your both wrong. Quits/openings are Boomer inflated, both by leaving the labor force and searching for their replacement. The BLS once again, is struggling to keep up with the withdrawal as they have had for a decade now. Their mid-level career quit rate is clearly below the last 2 expansions. Right there is your cue to understand.
Spencer, sorry, but this is not a low inflation environment. Period. Stop mumbling that junk when you know it is a lie. Consumer prices have been falling in general since 1983.
Wait till Medicare for all appears. They won’t raise wages then either despite the money they’ll save on health insurance. Why? They’re greedy.
Lets also note, the BLS had the same problem in the 70’s and 80’s on the opposite side where unemployment struggled to fall despite trend growth.
NAIRU has basically plummeted down to 3%ish. Even the Fed basically admitted it during their last meeting.
There is no taboo against raising wages, they simply don’t need to raise wages.
“They simply don’t need to raise wages.” Like I said. . .
Why? I gave a reason. What is yours?
Why? They’re greedy and won’t do anything until forced to. Maybe you weren’t talking to me. Couldn’t tell.
Bert, the change in the CPI for commodities less food and energy has been negative for each of the last five years. If that is not low inflation tell me what is.
Why do employers hire? They hire because they figure that if they hire someone they can make enough additional money to pay that new person and then some. They run the numbers based on existing salaries. If they can’t find someone to work at that wage, it doesn’t matter all that much. They are doing well or they wouldn’t have considered hiring. If they have to pay more, they might do slightly better, but if other employees get wind of one employee getting a higher wage, they might start shopping around and raise all their labor costs. There’s a reason employers want anti-compete clauses and laws against hiring away workers at a higher wage.
You get a lot of this. In NYC, the retail vacancy rate has been pushing 20%. Whole blocks of hot commercial streets, like Bleecker Street, are full of empty storefronts. Why aren’t rents falling? Well, they are, but it has taken years. No one wants to be the first landlord to cut the rent and get left out when others start doing better. The old Alexander’s block sized department store in Manhattan stayed empty for over a decade. It was across the street from Bloomingdale’s, but the owner had FOMO on a better deal.
Markets are full of time delays and phase changes. Modeling them as continuous and lacking hysteresis is simplistic. It’s easy to draw a supply or demand curve, but those curves are limits, approximations and idealizations.
A good article to read is this one about smoker’s stall:
If you’ve ever smoked meat, you may have run into this. The internal temperature of the meat starts rising nicely, then it just sits there for hours and hours while you pump in smoke and heat. Eventually, the internal temperature starts rising again, but they then you will have ordered pizza. Obviously, it’s a phase change. The temperature stops rising while the meat dries out, and that can take a long time.
Right now, employers will avoid raising wages. They don’t perceive it as worth it. If the economy were a lot stronger, they’d figure it is worth it. We’ve seen this in local hot spots like North Dakota during its energy boom and in software engineering. Most employers just don’t see it in their own business at the present. Still, it’s worth running a line out of the back of the boat, just in case something is biting.
Sometimes they hire to meet demand they can’t currently satisfy with the existing staff or to get people skilled in services they need to compete with others in their field. It isn’t always to increase profits; sometimes it’s to maintain profits or to avoid losses.