Tag Archives: Wages

The Sources of Rip-Your-Face-Off Inflation Few Dare Discuss, by Charles Hugh Smith

There are many highly skilled jobs for which AI is completely unrealistic. There is shortage of people who know who do such jobs, and their wages are reflecting the shortage. From Charles Hugh Smith at oftwominds.com:

We’re getting a real-world economics lesson in rip-your-face-off increases in prices, and the tuition is about to go up–way up.

Inflation will be transitory, blah-blah-blah–I beg to differ, for these reasons. There are numerous structural sources of inflation, which I define as prices rise while the quality and quantity of goods and services remain the same or diminish. Since the word inflation is so loaded, let’s use the more neutral (and more accurate) term decline in purchasing power: an hour of your labor buys fewer goods and services of lesser quality than it did a decade ago or a generation ago.

While the conventional discussion focuses on monetary inflation, i.e. expansion of money supply, the real rip-your-face-off sources have nothing to do with money supply. The rip-your-face-off sources are scarcities that cannot be filled by substitution or globalization.

Consider skilled hands-on labor as an example. Let’s say some essential parts in essential infrastructure require welding. There is no substitute for skilled welders. But wait, doesn’t economic dogma hold that whenever costs rise, a cheaper substitute will magically manifest out of a swirl of dust? That dogma is false in cases such as skilled labor.

The only substitute for a skilled welder is another skilled welder, and while theory holds that there will be cheaper welders who can be brought in from elsewhere, this is also not true: due to deficiencies in education and a cultural bias against manual labor, there is a shortage of skilled welders virtually everywhere.

Continue reading→

The Only Way to Get Ahead Now Is Crazy-Risky Speculation, by Charles Hugh Smith

Turn financial markets into casinos and investment becomes nothing more than gamling. From Charles Hugh Smith at oftwominds.com:

It’s all so pathetic, isn’t it? The only way left to get ahead in America is to leverage up the riskiest gambles.

It’s painfully obvious that the only way left to get ahead in America is crazy-risky speculation, but nobody seems to even notice this stark and stunning reality. Why are people piling into crazy-risky bets on speculative vehicles like Gamestop and Dogecoin? The obvious answer is because others have reaped a decade or two of wages in a few weeks, and skimming a couple hundred thousand dollars in a few weeks or months is the only way an average wage earner is going to be able to buy a house, fund a retirement account, afford to have a family, etc.

Look at the reality of wage stagnation: I made $12 an hour in 1986, and I wasn’t some highly paid techno-guru or Wall Street shill. $12 an hour was an OK wage in 1986 but it wasn’t fantastic. Now 35 years later, $12 is still an OK wage. A lot of people make less than $12/hour.

But what happened to the cost of healthcare, housing, childcare and everything else required to have a family in those 35 years? These costs have exploded higher. It was already a stretch to buy a house in 1986 making $12/hour, but now–are you joking? Depending on the region, the cost of a modest house has tripled or gone up five-fold or even ten-fold in the past 35 years.

Continue reading→

A China Trade Deal Just Finalizes the Divorce, from Charles Hugh Smith

Commercially, the Chinese and US will be going their separate ways. From Charles Hugh Smith at oftwominds.com:

Each party will continue to extract whatever benefits they can from the other, but the leaving is already well underway.

Beneath the euphoric hoopla of a trade deal with China is the cold reality that the divorce has already happened and any trade deal just signs the decree. The divorce of China and the U.S. was mutual; each had used up whatever benefits the tense marriage had offered, and each is looking forward to no longer being dependent on the other.

Any trade deal is like closing the barn door months after the horses left.Corporate America’s supply chains are already leaving China for lower cost, friendlier countries, and for its part China has already made its intentions to escape the grip of the U.S. dollar abundantly clear.

Indeed, China has clearly stated its plan to move up the value chain globally and rely more on its domestic consumers to fuel growth rather than exports, which have been weakening for some time (see chart below).

Continue reading

As Illegal Immigration Declines, Employers Forced to Raise Wages, by Joe Guzzardi

If you believe that illegal immigration has declined in the US, which can’t be definitively established, then that decline may have something to do with rising wages at the bottom of the income ladder. From Joe Guzzardi at progressivesforimmigration reform.org:

A new Center for Migration Studies (CMS) report showed that between 2010 and 2016, illegal immigration declined 8 percent, down from 11.7 million to 10.8 million, its lowest level in 15 years. The illegal immigrant population is always in flux, and some refer to think tanks’ totals as guesstimates. But after analyzing United States and Mexican government statistics, Pew Research came to the same conclusion as CMS. During the period studied, CMS researched six of the top ten states in which illegal immigrants reside – Illinois, North Carolina, California, New York, Arizona and Georgia – and noted that they had at least 10 percent declines.

A major contributor to the illegal immigrant population drop-off is that, according to CMS senior visiting fellow Robert Warren, migrants are returning home in ever-larger numbers. In 1990, about 200,000 left the United States each year; the most recent data showed that the totals departing are 500,000 to 600,000 annually. Debunking a long-held theory that illegal immigrants never leave the U.S., Warren called that notion “false,” and said that “one out of three immigrants leave” after having “worked for a number of years….”

If employed illegal immigrants leave the U.S., then by extension, the jobs they once held become available, and American workers could fill the vacancies. Evidence that Americans, especially minorities, are in fact re-entering the labor force is abundant, and that the pay scale has increased correspondingly.

The monthly jobs report from the National Federation of Independent Businesses found that employee compensation is at a 30-year high. Twenty-two percent of owners identified locating qualified employees as their biggest problem – a greater headache than taxes or government regulations. Accordingly, a net 24 percent anticipate raising worker compensation, and a net 31 percent reported they’ve increased compensation to attract or retain employees, the highest level since December 2000.

Workers employed in specific industries like clothing manufacturing and food preparation have been among the immediate beneficiaries of reduced job competition. CNN reported that, based on the Bureau of Labor Statistics January data, clothing manufacturing wages increased 14 percent over prior months.

To continue reading: As Illegal Immigration Declines, Employers Forced to Raise Wages

 

Economics 102: WalMart Cuts Worker Hours After Hiking Minimum Wages, by Tyler Durden

At most colleges the laws of supply and demand are taught in beginning microeconomics, which is usually Economics 101. Raise the price of something, and less of it will be demanded. Raise the price (wages) of labor, and something has to give, especially for the world’s low-cost retailer. From Tyler Durden, at zerohedge.com:

This year, some American executives who heeded loud calls for across-the-board wage hikes for America’s lowest-paid workers received a complimentary refresher course in undergrad economics courtesy of the free market.

Take Dan Price for instance, the 31-year old CEO of Seattle-based Gravity Payments Systems who found out the hard way that setting the pay floor at $70K comes with all manner of unintended consequences.

And then there’s Wal-Mart.

Earlier this year, the retail behemoth became one of several corporate heavyweights to raise wages for its meagerly compensated workers, around 500,000 of which are now set to receive at least $9/hour and $10/hour by Q1 2016. The move will cost somewhere around $1 billion this year.

Now one thing that should have been abundantly clear from the start is that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it’s Wal-Mart. After all, they’re the “low price leader”, and you don’t hold on to that title by passing labor costs on to customers.

Predictably, the company moved to extract more “value” from its suppliers and when that didn’t prove sufficient, the folks in Bentonville brought in the “plumbers.”

To continue reading; WalMart Cuts Worker Hours After Hiking Wages