The Economy is Growing, Productivity is Exploding, Profits are Up, but wages are not?

tnitsuj

Diamond Member
May 22, 2003
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The GDP is definately growing, productivity is up significantly, and corporate profits are up. My 401k is doing well, and my other investments are alse in pretty fine shape. However, (and I may be wrong) average wages are not going up. This may or may not be a bad thing. Any economics guys want to explain the upside/downside of our current economic pattern.
 

Moonbeam

Elite Member
Nov 24, 1999
72,327
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Who cares, I got mine and am getting even more now. The working class will always be with us.
 
Jan 12, 2003
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..just my $.02 while I finish my steak and cheese sub :)

Though the theory of ?Full Employment? is fundamentally flawed, for the most part, economists consider the natural rate of unemployment to be between 4-5% (rough estimate, as this number changes proportionately with productivity, technological gains, et al.).

When the ?Tech Sector? was booming and people were investing millions and millions on speculation in companies that have never turned a profit, the economy was, for lack of a better word, booming. Clinton, of course, received credit for the red-hot economy. At one point, unemployment dropped to something like 3.8%, which, as any economist would argue, is not sustainable (the basic economics 101 premise of too many dollars chasing too few goods?every one has money?everyone wants goods and services?demand is increasing?prices are increasing?wages are going up?something will eventually give, which is why you saw Greenspan increase interest rates during this time in an effort to bring us closer to the proverbial market equilibrium).

As unemployment drops below the so-called natural rate of unemployment, intuitively, there is an upward pressure on wages (employers must compete in a market with a dwindling supply of labor). Conversely, as the unemployment rate increases above the natural rate of unemployment, there is clearly less of a demand for labor and thus the bargaining power of the laborer is diminished. Moreover, in the absence of inflationary pressure, prices are assumed to be low. Wages are a function of both 'prices and marginal productivity' (W/P whereby W=actual wages;P=Prices; W/P=MPL, or real wages=marginal product of labor.). In addition, there is also a substitution effect in many labor markets where capital and labor are thought to be compliments (as the price of capital decreases relative to the cost of labor, the demand for capital increases and thus the demand for labor decrease, all else constant).

Given the little risk of inflation right now and the low interest rates (and the minimum wage), there is just simply not as much demand for labor as there once was?this, of course, equates to less pressure on employers to increase wages in a lackluster labor market. In short, I would argue that this is just another one of those ?supply and demand thangs.? :)
 

NumbersGuy

Senior member
Sep 16, 2002
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Nice post by Galt.

Look at this piece on the same topic in today's NYT (hope link works):
NYT - Krugman
http://www.nytimes.com/2003/12/30/opinion/30KRUG.html?pagewanted=print&position=

With inflation near zero and job substitution by offshoring and machines, labor demand will remain low (except surely in special situations) for the foreseable future.

Beyond personal services that cannot be substituted, such as lawyers, hookers (same?), surgeons, contruction (until population levels off), gardeners, delivery people, etc., almost all other jobs Americans perform can be done in China, India or by machine, cheaper. Consuming, our passion, is not a productive activity in this scenario.

At some point we may have 30hr/wk full time jobs, half-jobs and generalized welfare, of course at a lower standard of living.

But then, in the long run we are all dead!
:frown: :beer:
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: NumbersGuy
Nice post by Galt.

Look at this piece on the same topic in today's NYT (hope link works):
NYT - Krugman
http://www.nytimes.com/2003/12/30/opinion/30KRUG.html?pagewanted=print&position=

With inflation near zero and job substitution by offshoring and machines, labor demand will remain low (except surely in special situations) for the foreseable future.

Beyond personal services that cannot be substituted, such as lawyers, hookers (same?), surgeons, contruction (until population levels off), gardeners, delivery people, etc., almost all other jobs Americans perform can be done in China, India or by machine, cheaper. Consuming, our passion, is not a productive activity in this scenario.

At some point we may have 30hr/wk full time jobs, half-jobs and generalized welfare, of course at a lower standard of living.

But then, in the long run we are all dead!
:frown: :beer:


This sounds like excellent news and a HIGHER standard of living.

Work sucks.. that's sorta why they have to pay you for it.

I can't wait for the machines.
 

Moonbeam

Elite Member
Nov 24, 1999
72,327
6,040
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Originally posted by: xxxxxJohnGaltxxxxx
..just my $.02 while I finish my steak and cheese sub :)

Though the theory of ?Full Employment? is fundamentally flawed, for the most part, economists consider the natural rate of unemployment to be between 4-5% (rough estimate, as this number changes proportionately with productivity, technological gains, et al.).

When the ?Tech Sector? was booming and people were investing millions and millions on speculation in companies that have never turned a profit, the economy was, for lack of a better word, booming. Clinton, of course, received credit for the red-hot economy. At one point, unemployment dropped to something like 3.8%, which, as any economist would argue, is not sustainable (the basic economics 101 premise of too many dollars chasing too few goods?every one has money?everyone wants goods and services?demand is increasing?prices are increasing?wages are going up?something will eventually give, which is why you saw Greenspan increase interest rates during this time in an effort to bring us closer to the proverbial market equilibrium).

As unemployment drops below the so-called natural rate of unemployment, intuitively, there is an upward pressure on wages (employers must compete in a market with a dwindling supply of labor). Conversely, as the unemployment rate increases above the natural rate of unemployment, there is clearly less of a demand for labor and thus the bargaining power of the laborer is diminished. Moreover, in the absence of inflationary pressure, prices are assumed to be low. Wages are a function of both 'prices and marginal productivity' (W/P whereby W=actual wages;P=Prices; W/P=MPL, or real wages=marginal product of labor.). In addition, there is also a substitution effect in many labor markets where capital and labor are thought to be compliments (as the price of capital decreases relative to the cost of labor, the demand for capital increases and thus the demand for labor decrease, all else constant).

Given the little risk of inflation right now and the low interest rates (and the minimum wage), there is just simply not as much demand for labor as there once was?this, of course, equates to less pressure on employers to increase wages in a lackluster labor market. In short, I would argue that this is just another one of those ?supply and demand thangs.? :)

All that needs doing obviously then, is to work 6% less so the 6% can pick up the slack, since taxing the worker the 6% seems to rile lots of selfish folk up. Cut the work week by 2 hours and 24 minutes and people will have more time to shop and 6% more people will be buying stuff. If it's all supply and demand then that's the sensible thing to demand. No more welfare and a shorter work day. Wow!
 

DamnDirtyApe

Senior member
Apr 30, 2001
688
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Originally posted by: Moonbeam

All that needs doing obviously then, is to work 6% less so the 6% can pick up the slack, since taxing the worker the 6% seems to rile lots of selfish folk up. Cut the work week by 2 hours and 24 minutes and people will have more time to shop and 6% more people will be buying stuff. If it's all supply and demand then that's the sensible thing to demand. No more welfare and a shorter work day. Wow!

That would be great, but payroll taxes and benefits cause trouble with this. It is much cheaper for employers to have fewer employees work longer hours than to pay health insurance for another person.

Also, most of the long-term unemployed/underemployed have either no skills, or skills which are not in demand. Its not as if somebody laid off from a factory job can start work the next week as say, a doctor or tradesman.

IMHO, the solution is to eliminate payroll taxes and nationalize healthcare, and raise income taxes to compensate. That way employers will not suffer discincentives to hire new employees...
 

Moonbeam

Elite Member
Nov 24, 1999
72,327
6,040
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Originally posted by: DamnDirtyApe
Originally posted by: Moonbeam

All that needs doing obviously then, is to work 6% less so the 6% can pick up the slack, since taxing the worker the 6% seems to rile lots of selfish folk up. Cut the work week by 2 hours and 24 minutes and people will have more time to shop and 6% more people will be buying stuff. If it's all supply and demand then that's the sensible thing to demand. No more welfare and a shorter work day. Wow!

That would be great, but payroll taxes and benefits cause trouble with this. It is much cheaper for employers to have fewer employees work longer hours than to pay health insurance for another person.

Also, most of the long-term unemployed/underemployed have either no skills, or skills which are not in demand. Its not as if somebody laid off from a factory job can start work the next week as say, a doctor or tradesman.

IMHO, the solution is to eliminate payroll taxes and nationalize healthcare, and raise income taxes to compensate. That way employers will not suffer discincentives to hire new employees...

You're just trying to be intelligent and say something that makes sense. I was trying to explain to Galt that supply and demand is irrational.

 

DamnDirtyApe

Senior member
Apr 30, 2001
688
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71
Originally posted by: Moonbeam


You're just trying to be intelligent and say something that makes sense. I was trying to explain to Galt that supply and demand is irrational.

Well, I wouldn't say that the forces of supply and demand are irrational... the actions of employees and employers are quite rational given that there are serious distortions in the market. Given the conditions that exist, I would find it perfectional rational that an employer would not consider 5 workers @ 40 hours/week to be equal to 4 workers @ 50 hours/week. :D

So to conclude, it's the governments fault! Down with government! :D
 
Jan 12, 2003
3,498
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Originally posted by: Moonbeam

I was trying to explain to Galt that supply and demand is irrational.

Thanks. Perhaps a quote from John Maynard Keynes on 'Animal Spirits'? Google that, hotrod, when you are done looking into your mirror and trying to see a reflection of me.

 

Moonbeam

Elite Member
Nov 24, 1999
72,327
6,040
126
Originally posted by: DamnDirtyApe
Originally posted by: Moonbeam


You're just trying to be intelligent and say something that makes sense. I was trying to explain to Galt that supply and demand is irrational.

Well, I wouldn't say that the forces of supply and demand are irrational... the actions of employees and employers are quite rational given that there are serious distortions in the market. Given the conditions that exist, I would find it perfectional rational that an employer would not consider 5 workers @ 40 hours/week to be equal to 4 workers @ 50 hours/week. :D

So to conclude, it's the governments fault! Down with government! :D

Yes, but you see, when rational is self destructive in other dimensions than the immediate and obvious it's not rational at all. And sorry, galt, but Google just doesn't have that inner eye. Out comes what went in.

 

dirtboy

Diamond Member
Oct 9, 1999
6,745
1
81
Originally posted by: Moonbeam
Originally posted by: DamnDirtyApe
Originally posted by: Moonbeam

All that needs doing obviously then, is to work 6% less so the 6% can pick up the slack, since taxing the worker the 6% seems to rile lots of selfish folk up. Cut the work week by 2 hours and 24 minutes and people will have more time to shop and 6% more people will be buying stuff. If it's all supply and demand then that's the sensible thing to demand. No more welfare and a shorter work day. Wow!

That would be great, but payroll taxes and benefits cause trouble with this. It is much cheaper for employers to have fewer employees work longer hours than to pay health insurance for another person.

Also, most of the long-term unemployed/underemployed have either no skills, or skills which are not in demand. Its not as if somebody laid off from a factory job can start work the next week as say, a doctor or tradesman.

IMHO, the solution is to eliminate payroll taxes and nationalize healthcare, and raise income taxes to compensate. That way employers will not suffer discincentives to hire new employees...

You're just trying to be intelligent and say something that makes sense. I was trying to explain to Galt that supply and demand is irrational.

Why don't we just nationalize everything. Let the government have complete control of jobs, so they can determine who is rich and poor. They can pick out the clothes you wear, since your life will be nationalized as well.
rolleye.gif
 

Moonbeam

Elite Member
Nov 24, 1999
72,327
6,040
126
Originally posted by: dirtboy
Originally posted by: Moonbeam
Originally posted by: DamnDirtyApe
Originally posted by: Moonbeam

All that needs doing obviously then, is to work 6% less so the 6% can pick up the slack, since taxing the worker the 6% seems to rile lots of selfish folk up. Cut the work week by 2 hours and 24 minutes and people will have more time to shop and 6% more people will be buying stuff. If it's all supply and demand then that's the sensible thing to demand. No more welfare and a shorter work day. Wow!

That would be great, but payroll taxes and benefits cause trouble with this. It is much cheaper for employers to have fewer employees work longer hours than to pay health insurance for another person.

Also, most of the long-term unemployed/underemployed have either no skills, or skills which are not in demand. Its not as if somebody laid off from a factory job can start work the next week as say, a doctor or tradesman.

IMHO, the solution is to eliminate payroll taxes and nationalize healthcare, and raise income taxes to compensate. That way employers will not suffer discincentives to hire new employees...

You're just trying to be intelligent and say something that makes sense. I was trying to explain to Galt that supply and demand is irrational.

Why don't we just nationalize everything. Let the government have complete control of jobs, so they can determine who is rich and poor. They can pick out the clothes you wear, since your life will be nationalized as well.
rolleye.gif

Hey, no left handed attacks on our military, OK!
 

glenn1

Lifer
Sep 6, 2000
25,383
1,013
126
The Economy is Growing, Productivity is Exploding, Profits are Up, but wages are not?

For any group of workers, you'll see that some have increased wages, some have stayed static, and some will have reduced wages. That workers in the aggregate haven't increased wages doesn't mean squat. What additional economic value added have the employees in question contributed to support a boost in wages, or workers in general added? Automatic wage increases aren't a birthright, they either follow troughs in typical available worker supply and demand curves; are enabled by additional capital investments allowing for creation of new, higher paying positions (i.e. a laborer advancing to a machine operator position because of a purchase of capital equipment); or are a function of an individual or group of workers completing education/receving training to be able to perform more profitable value-added tasks.

 

RobCur

Banned
Oct 4, 2002
3,076
0
0
Originally posted by: tnitsuj
The GDP is definately growing, productivity is up significantly, and corporate profits are up. My 401k is doing well, and my other investments are alse in pretty fine shape. However, (and I may be wrong) average wages are not going up. This may or may not be a bad thing. Any economics guys want to explain the upside/downside of our current economic pattern.
haha, i'll believe it when I see it happen myself but is probably another scam used by bush administration to up his rating. btw, most of us who have lost everything will never see a penny back, those that held on to their stock that bottomled out till now recovered but its still just a miniority part of society which really don't really mean quat. sad huh?

 

Gand1

Golden Member
Nov 17, 1999
1,026
0
76
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:
 
Jan 12, 2003
3,498
0
0
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:


That's a question you should be addressing to your state's leaders.
 

CADsortaGUY

Lifer
Oct 19, 2001
25,162
1
76
www.ShawCAD.com
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:

Depends on which state you live:)

CkG
 

dmcowen674

No Lifer
Oct 13, 1999
54,894
47
91
www.alienbabeltech.com
Originally posted by: CADkindaGUY
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:

Depends on which state you live:)

CkG

Apparently the State Caddy lives is doing incredibly Fantastic including the whole new town that has built up around his neighborhood Walmart. Looks like we should all move there.

 

Bowfinger

Lifer
Nov 17, 2002
15,776
392
126
Originally posted by: dmcowen674
Originally posted by: CADkindaGUY
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:

Depends on which state you live:)

CkG
Apparently the State Caddy lives is doing incredibly Fantastic including the whole new town that has built up around his neighborhood Walmart. Looks like we should all move there.
That state is Denial.
 

dmcowen674

No Lifer
Oct 13, 1999
54,894
47
91
www.alienbabeltech.com
Originally posted by: Bowfinger
Originally posted by: dmcowen674
Originally posted by: CADkindaGUY
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:

Depends on which state you live:)

CkG
Apparently the State Caddy lives is doing incredibly Fantastic including the whole new town that has built up around his neighborhood Walmart. Looks like we should all move there.
That state is Denial.

:D
 

alchemize

Lifer
Mar 24, 2000
11,489
0
0
Originally posted by: dmcowen674
Originally posted by: Bowfinger
Originally posted by: dmcowen674
Originally posted by: CADkindaGUY
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:

Depends on which state you live:)

CkG
Apparently the State Caddy lives is doing incredibly Fantastic including the whole new town that has built up around his neighborhood Walmart. Looks like we should all move there.
That state is Denial.

:D
Dave and Bow are so cute together :heart::D
 

CADsortaGUY

Lifer
Oct 19, 2001
25,162
1
76
www.ShawCAD.com
Originally posted by: Bowfinger
Originally posted by: dmcowen674
Originally posted by: CADkindaGUY
Originally posted by: Gand1
IT is nice to see the reports of "everybody" is doing better but.... I still don't see any signs of state problems improving. If the economy is now doing that well why don't we see our states budgets and other money issues starting to improve? :confused:

Depends on which state you live:)

CkG
Apparently the State Caddy lives is doing incredibly Fantastic including the whole new town that has built up around his neighborhood Walmart. Looks like we should all move there.
That state is Denial.

Actually you live here in Iowa too - do you not? Please inform dave of our unemployment rate here. Also please inform him of our financial status. We aren't in dire straights like alot of states because we had things in place to prevent disasters like some states are experiencing(although there are still some things that need addressed;))

Denial? Nah - I'm here in Reality:D

CkG
 
Jan 12, 2003
3,498
0
0
Originally posted by: CADkindaGUY

Actually you live here in Iowa too - do you not? Please inform dave of our unemployment rate here. Also please inform him of our financial status. We aren't in dire straights like alot of states because we had things in place to prevent disasters like some states are experiencing(although there are still some things that need addressed;))

CkG

Thanks for the report, CkG; for a moment, I thought the sky was falling out there in Iowa...thank god you are okay!
 

tcsenter

Lifer
Sep 7, 2001
18,338
253
126
Originally posted by: tnitsuj
The GDP is definately growing, productivity is up significantly, and corporate profits are up. My 401k is doing well, and my other investments are alse in pretty fine shape. However, (and I may be wrong) average wages are not going up. This may or may not be a bad thing. Any economics guys want to explain the upside/downside of our current economic pattern.
The upside/downside is what it is, little can be done to change what it is. The current stagnation on wages and income is a consequence of the disproportionate increase in wages toward the end of the 90s.

Remember when the aircraft mechanics, machinists, and flight attendants staged sick-outs or went on strike because their wages were "only" increasing 4%~5% per year, whereas wages in the tech sector had increased by double digits?

Of course the unions are going to pick the brightest segment of the market where wages are increasing vastly out of step with the rest of the economy to serve as a basis of comparison, then claim their wages are increasing out-of-step.

They all won 20%~30% wage increases to be phased in over three years, that was on top of the 4%~5% annual cost-of-living increases they were already enjoying (I won't mention they already enjoyed some of the most coveted jobs in any industry). Remember the UPS strike? Same thing. Longshoreman? UAW?

So, in effect, they received 15~20 years worth of traditional wage increases over a period of about five years. There is going to be repercussion from that, since these increases had nothing to do with the natural supply and demand for their labor.

And as we are reminded by the union mantra over and over, its collective bargaining for higher wages by the gluttoned few which affects the wages of the many. So even if the nearest unionized labor market is 600 miles away, and your labor market does not compete on any level with unionized labor, you should be thanking the union because your wages aren't 50% lower than they are.
rolleye.gif


Since the union takes all the credit for higher wages, it stands to reason they also should take the credit for any consequences arising from disproportionate and unsustainable increases = stagnation in wages until the economy 're-zeros' again.