US economy adds only 142,000 jobs, raising doubts about interest rate rise

mmi · Oct 4, 2015

cpwill said:
Technology hasn't had that much of a generational leap in the last 4 years.

I agree. But as I said, this trend goes back a lot longer than just the last four years. Since 1980, despite steady growth in labor productivity, wages have remained stagnant as the expansion in national income has been accumulated by upper-income households.

productivity_top_one_percent_and_average_wage_1979_2009.jpg

What little growth there has been in recent years has gone to high-wage earners.

>>If unemployment were truly that low and labor truly that much in demand, there would be upward price pressure. There isn't.

Well, that's the traditional model, I agree. It doesn't seem to as predictive as it used to be. I've offered my thoughts as to why that's the case.

I should say that I'm sure those who argue the labor market is not as tight as a 5.1% unemployment rate would seem to indicate are onto something. There is an historically wide gap between U-3 and U-6, around five points instead of three. Employers may reasonably assume that they can wait for the two million marginally attached workers and the 600K discouraged workers to accept jobs at current wages rather than offer higher wages to workers employed by other businesses. And there are those six million part-timers that want to work full-time whose hours could simply be increased, avoiding recruitment and training costs. Finally, it's possible that the lag associated with a tighter labor market leading to higher wages just hasn't yet run its course.

I figure people are still a bit traumatized by the severe recession we went through, and the relatively slow recovery hasn't done much to renew their confidence. Many had much of their savings wiped out. Those conditions don't make for a collection of employees likely to push for a wage increase and be willing to walk if they don't get it.

Until recently, health insurance costs were increasing fairly rapidly. Social Security and Medicare taxes went up a couple of years ago, and so employer contributions did as well. Perhaps this is where some of the money that might have been directed to increased wages has been going.

Labor productivity has been pretty much flat for a few years. That could play a role.

2011 — 0.2
2012 — 0.9
2013 — 0.0
2014 — 0.7

Another factor might be the growing corporate emphasis on stock buybacks and dividend payouts, according to University of Massachusetts Lowell economics professor William Lazonick. Between 2003 and 2012, S&P500 companies used 54 percent of earnings to buy back their own stock and 37 percent for dividends. That left just 9 percent for everything else, from investing in the business to employee raises. In other words, the real beneficiaries of corporate capital allocation of late have been stockholders, not low-level employees. — "Where Did Wage Growth Go?," The Financialist, Dec 8, 2014

It's nevertheless my view that long-term trends related to automation, technological advances, international competition, and the collapse of labor union power are the dominant factors in wage stagnation over recent decades. Corporations have been very effective at exploiting those developments. They're sharp businesspeople, I will certainly give them credit for that.

cpwill said:
I have indeed noticed how we've all gotten poorer since then.

I'm not saying we're poorer. I'm saying middle and working class incomes have been flat despite a very large increase in labor productivity. I don't think it was necessary for the top income households to collect all the increased national wealth for our society to develop technologically.

Absentglare · Oct 4, 2015

Stock buybacks and dividends accomplish little to none on the economy and overwhelming serve large shareholders. That's money that's diverted from the growth of the business purely into incentivizing stock ownership, making current shareholders wealthier.

The fact that dividends are taxes at 15% adds insult to injury.

cpwill · Oct 5, 2015

mmi said:
I agree. But as I said, this trend goes back a lot longer than just the last four years. Since 1980, despite steady growth in labor productivity, wages have remained stagnant as the expansion in national income has been accumulated by upper-income households.

View attachment 67191042

What little growth there has been in recent years has gone to high-wage earners.

What you are identifying is a long-term trend of higher returns to certain kinds of labor (in particular, information technology and the forms of capital it produces). But take a look at the blue line on the bottom of your chart. You'll notice it dips during the slump of 92-93, but then starts to climb again.

Were we coming out of the slump we just went through in such a way as to have high demand for labor, we'd be seeing the same reversal and climb. We aren't.

>>If unemployment were truly that low and labor truly that much in demand, there would be upward price pressure. There isn't.

Well, that's the traditional model, I agree. It doesn't seem to as predictive as it used to be. I've offered my thoughts as to why that's the case.

You identified the fact that intellectual labor can now bring a lot more return than it used to. That's not a reason for why average wages should fall and not recover over the last 6 years.

I should say that I'm sure those who argue the labor market is not as tight as a 5.1% unemployment rate would seem to indicate are onto something. There is an historically wide gap between U-3 and U-6, around five points instead of three.

It has been interesting to see Bernie Sanders pick up Republican talking points on the matter.

Employers may reasonably assume that they can wait for the two million marginally attached workers and the 600K discouraged workers to accept jobs at current wages rather than offer higher wages to workers employed by other businesses

It seems if that were so we wouldn't see the relative difficulty for those who are out of working finding jobs v those who are currently working.

And there are those six million part-timers that want to work full-time whose hours could simply be increased, avoiding recruitment and training costs.

I think that's indicative of the more likely ticket - the jobs that are being created are just overwhelmingly lower-pay and/or part time jobs.

Which can be maintained, because the length of the recession meant that our UI numbers dropped at least in part because significant numbers of people stopped looking.

Finally, it's possible that the lag associated with a tighter labor market leading to higher wages just hasn't yet run its course.

UI has been reduced from the Recession levels for over a year.

I'm not saying we're poorer. I'm saying middle and working class incomes have been flat despite a very large increase in labor productivity

:shrug: your own chart above belies that. Wages haven't been flat over the last few decades, the top wages have merely grown much, much faster than the others. And that is because generally they are the ones behind that huge increase in labor productivity.

Absentglare · Oct 5, 2015

cpwill said:
What you are identifying is a long-term trend of higher returns to certain kinds of labor (in particular, information technology and the forms of capital it produces). But take a look at the blue line on the bottom of your chart. You'll notice it dips during the slump of 92-93, but then starts to climb again.

Were we coming out of the slump we just went through in such a way as to have high demand for labor, we'd be seeing the same reversal and climb. We aren't.

You identified the fact that intellectual labor can now bring a lot more return than it used to. That's not a reason for why average wages should fall and not recover over the last 6 years.

It has been interesting to see Bernie Sanders pick up Republican talking points on the matter.

It seems if that were so we wouldn't see the relative difficulty for those who are out of working finding jobs v those who are currently working.

I think that's indicative of the more likely ticket - the jobs that are being created are just overwhelmingly lower-pay and/or part time jobs.

Which can be maintained, because the length of the recession meant that our UI numbers dropped at least in part because significant numbers of people stopped looking.

UI has been reduced from the Recession levels for over a year.

:shrug: your own chart above belies that. Wages haven't been flat over the last few decades, the top wages have merely grown much, much faster than the others. And that is because generally they are the ones behind that huge increase in labor productivity.

Ah, finally at the end you cop up.

You're using circular logic: "the wealthy people must rightly deserve all the wealth for all the gains in productivity because they got all the wealth from all the gains in productivity"

Republican logic at its finest.

mmi · Oct 5, 2015

cpwill said:
What you are identifying is a long-term trend of higher returns to certain kinds of labor (in particular, information technology and the forms of capital it produces).

I can't see what yer talking about. I'm looking at wages. I am explicitly stating that automation and other technological advances have played a role in allowing for national income expansion without wage growth. I just don't understand what yer getting at.

>>the blue line on the bottom of your chart … it dips during the slump of 92-93, but then starts to climb again.

Yer eyesight must be better than mine.

First, what is "the slump of 92-93"? Real GDP expanded by 3.6% in 1992 and 2.7% in 1993. Secondly, while wage growth was not strong in those years (26 cents and 28 cents, respectively,) it was better than, say, 1986-87, when the economy was expanding at about 3.5% and we added five million jobs in two years. The stronger wage growth came 1988-91, reflecting the lag you'd expect. Perhaps that will appear over the next couple of years.

The years of strong wage growth were 1980-81, reflecting a high level of inflation, 1998-2001 with the Clinton economy, and 2006-08 with the housing bubble.

Here's wages in real dollars 1965-2015.

Earnings_real_hourly_production_nonsupervisory_1965_2015.jpg

There's a steady decline 1978-1995, strong growth until 2002, a relatively flat period, a jump in 2009 reflecting the -.4% CPO that year, and now another flat period.

Actually, that graph ends in mid-2014, just before we had a good spurt.

"From August 2014 to August 2015, real average hourly earnings increased 2.1 percent, seasonally adjusted." — last month's BLS report

>>Were we coming out of the slump we just went through in such a way as to have high demand for labor, we'd be seeing the same reversal and climb. We aren't.

It may be that the wage growth we're hoping for is in fact taking place. Two percent real growth per year is pretty darn good.

>>You identified the fact that intellectual labor can now bring a lot more return than it used to. That's not a reason for why average wages should fall and not recover over the last 6 years.

Again, I have trouble following that reasoning.

>>It has been interesting to see Bernie Sanders pick up Republican talking points on the matter.

Respectfully, that sounds like partisan nonsense. (Not too "respectful," was I?) Liberal economists deal with facts. They don't draw up economic theories on the back of cocktail napkins just for Laffs.

>>It seems if that were so we wouldn't see the relative difficulty for those who are out of working finding jobs v those who are currently working.

On the contrary, it would seem to explain it, wouldn't it?

>>the jobs that are being created are just overwhelmingly lower-pay and/or part time jobs.

That's simply incorrect. As I have been noting over and over in this community, part-time employment has dropped over the past three years and even over the past six years.

More importantly, part-time for economic reasons has dropped by 35% over the past five years.

>>the length of the recession meant that our UI numbers dropped at least in part because significant numbers of people stopped looking.

Well, the recession was over before the unemployment rate spiked. I agree that its effects on the labor market dragged on for some time. Can you provide data on "significant numbers of people stopped looking"? There were several thousand "discouraged workers" for a few years, but how much impact would they have on wages?

>>UI has been reduced from the Recession levels for over a year.

Yes, and real wages are up two percent over that period.

>>your own chart above belies that. Wages haven't been flat over the last few decades, the top wages have merely grown much, much faster than the others.

No, that's household income for the top one percent that has grown rapidly. They don't earn wages.

>>And that is because generally they are the ones behind that huge increase in labor productivity.

No, they're the ones with all the market power. They can just keep the money. How are they so much more productive? Who's generating the very large increases in output, the wage earner who is using technology to crank out a much larger volume of products and services, or the wealthy investor who may not even be employed?

I'd say Absentglare nailed it. Mr. Whitney's "engine" greatly increased productivity for cotton farmers. The plantation owners kept ALL of that money because they had ALL of the market power. What blessing did they bestow upon society that made them so deserving of all that wealth?

cpwill · Oct 5, 2015

Absentglare said:
Ah, finally at the end you cop up.

You're using circular logic: "the wealthy people must rightly deserve all the wealth for all the gains in productivity because they got all the wealth from all the gains in productivity"

in an economy dominated by mutually beneficial trade, that is generally how it works - those who get the wealth are those who have served the most people.

But hey, if you want to pretend that computers haven't revolutionized business, go ahead and rationalize away.

Absentglare · Oct 5, 2015

cpwill said:
in an economy dominated by mutually beneficial trade, that is generally how it works - those who get the wealth are those who have served the most people.

But hey, if you want to pretend that computers haven't revolutionized business, go ahead and rationalize away.

I know, you have faith that the invisible hand will perfect the market.

I think that the mounting evidence is far more than sufficient to question the wisdom of that assumption.