
Unemployment in the U.S. Is Falling, So Why Isn’t Pay Rising? - JSeymourATL
https://www.bloomberg.com/news/articles/2017-05-19/unemployment-in-the-u-s-is-falling-so-why-isn-t-pay-rising
======
abakker
Well, if Labor is a function of supply and demand, then it tells us that
supply of willing labor is happy to work _at all_ , even if wages aren't
rising. Turned around, in a market where people are desperate for work,
corporations have no incentive to raise wages.

Still, this is overly simplistic. The problem in my mind is that unemployment
rate is reflective only of those looking for work, and labor force
participation rate is low.
[https://data.bls.gov/timeseries/LNS11300000](https://data.bls.gov/timeseries/LNS11300000)

The result is that as employers' needs for people rise, they can siphon off
those looking for work at current market rates, and then, (maybe), people from
the non-participating group can gradually replenish the unemployed pool.

 __*

My own experience tells me that there is limited wage stagnation in modern
high-skill jobs and that there is low unemployment there as well. In that
market, wages seem to be rising, and talent seems to be scarce. (Read some
recent earnings transcripts from companies like CDI that do staffing in these
industries.)

On the lower or outdated skill market, though, companies have more people to
choose from, likely lower transaction costs (non-benefits/salary jobs enable
more employee turnover), and also slimmer margins. Why pay any more than they
absolutely have to?

Where this becomes a real problem, though is that low-skill jobs are not even
keeping place with inflation. As a result, real earning potential in many of
these jobs is through the floor.

Personally, I look to the huge run in returns on capital in the equities
market over the last few years as the primary cause. In many cases,
historically low interest rates and fast growing equities prices have diverted
efforts from business growth and innovations in the "core" to financial growth
and innovations for the balance sheet. This _will_ revert, at some point. But,
as we have seen elsewhere in HN over the last few days, there is a large
entrenched "Business Class" that knows far more about financial optimization
and asset allocation than they do about the businesses that they actually run.

~~~
roymurdock
If you are interested in learning how labor markets are taught in macro today,
check out these slides from Acemoglu of MIT:

[http://economics.mit.edu/files/10284](http://economics.mit.edu/files/10284)

Labor market models are much more about flows, and frictions to those flows,
rather than "static" views of labor supply and demand.

When I was studying econ, I found some of these models and equations to be the
most well thought-out and powerful tools presented whereas a lot of the other
things I had to learn were toy models or very, very far removed from reality.

~~~
abakker
Thanks - I appreciate the reference. Mankiw's treatment in the intro to econ
book that I studied is definitely painful.

~~~
TylerH
A lot of Mankiw's work is like that

------
apo
Eight possible explanations and not a single mention of the word "deflation."

The Japanese have a long history of low unemployment and deflation working
together:

[http://www.tradingeconomics.com/japan/unemployment-
rate](http://www.tradingeconomics.com/japan/unemployment-rate)

Maybe the idea that lower unemployment always leads to inflation is just
wrong.

For now, wage decreases have been masked by cuts to employer-funded health
insurance programs. Eventually, there will be nothing left to cut there
leaving the possibility that we'll see across-the-board wage cuts.

~~~
petra
Shouldn't deflation come with decreasing prices all around, not just wages ?
because except for a few relative small sectors, it doesn't seem to be the
case.

~~~
pixl97
No, asset inflation is a different problem

[https://en.wikipedia.org/wiki/Asset_price_inflation](https://en.wikipedia.org/wiki/Asset_price_inflation)

------
jazzyk
The widely published unemployment number only measures the dynamics of layoffs
(how many people became unemployed in the window of the past 6 months).

The actual labor force participation is what counts.

And therein lies the answer to the "why isn't pay rising" question:

[http://www.tradingeconomics.com/united-states/labor-force-
pa...](http://www.tradingeconomics.com/united-states/labor-force-
participation-rate)

(switch to the 10-year time view)

~~~
alistairSH
How does a declining labor force participation explain stagnant wages?

As participation (supply) goes down, wages should start to go up (to entice
people back into the labor force).

What we have is declining participation AND stagnant wages.

~~~
jazzyk
Hint: they are forced to "not participate", because there are no jobs for
them, not because they don't want to work.

------
ab5tract
The rules regarding unemployment statistics are entirely designed to be
favorable. Citizens who are unemployed for greater than X months (where X is a
figure I don't currently recall) stop being considered unemployed for the sake
of this stat.

Likewise, homeless populations are not counted. Not everyone who is homeless
is necessarily unemployed, I guess, but it's patently ridiculous not to
include any homeless in unemployment statistics.

~~~
AngrySkillzz
Sorry but that's not true at all. You are counted as unemployed if you do not
have a job and are actively looking for work. There is no "cut-off." Look up
the definition at the BLS, there is no excuse for spreading this crap through
laziness.

If you stop looking for jobs you are not considered unemployed as someone not
actively seeking work is not considered to be in the labor force. That is a
different issue entirely and you will have to look at a different statistic.
There are different types of "unemployment rate" and maybe what you want is
U-4 or U-5 which include discouraged workers. Either way you can not expect a
single number to encapsulate something as large and complex as the US labor
market.

~~~
ska

        Either way you can not expect a single number to encapsulate something as large and complex as the US labor market.
    

This is true, but part of the problem is with the media and government
communications often failing to engage with this fact properly, and instead
focusing on a single metric which is often misinterpreted.

~~~
okreallywtf
It depends on your media. On NPR whenever I hear unemployment discussed they
almost always immediately follow it with changes in wage and the number of
people who are not seeking employment. This doesn't give any particular number
a "things are getting worse or better" black and white consequence but that is
why I like getting my news there.

------
thetwentyone
Real wages are rising (in fact one of the better periods since the 1980's):
[https://fred.stlouisfed.org/series/LES1252881600Q](https://fred.stlouisfed.org/series/LES1252881600Q)

It's a complex topic but a click-bait-y title. It's basically looking at
nominal wage growth and comparing it to periods where we had higher inflation.
It's poor journalism (potentially intentionally misleading?) to not focus on
real wages.

~~~
ptr_void
I'm a complete layman, but I've heard an economist say something different
about real wage rising. Doing some searches, I think making that conclusion
might also be misleading. Here's some of the stuff I found out:

\- There was a recession in 1980s , so it's shouldn't be used as comparison
point

\- If you look at inflation adjusted historic data:
[http://web.stanford.edu/class/polisci120a/immigration/Median...](http://web.stanford.edu/class/polisci120a/immigration/Median%20Household%20Income.pdf)
\- in 2000 adjusted, there hasn't been any increase since 1970s. Since 1970s
it's been ~40k in 2000's dollar. Using this:
[http://www.usinflationcalculator.com/](http://www.usinflationcalculator.com/)
shows - ~40k in 2000 is 56.8k in today's money. Looking at real wages for in
recent times
[https://fred.stlouisfed.org/series/MEHOINUSA672N](https://fred.stlouisfed.org/series/MEHOINUSA672N)
\- the last (2015) data shows: 56.5k So, it looks like real wages hasn't grown
at all in recent history.

Note that I went looking for info to match what I've heard an economist say on
youtube video: [https://www.youtube.com/playlist?list=PL-uRhZ_p-
BM4Pei6Xlr_A...](https://www.youtube.com/playlist?list=PL-uRhZ_p-
BM4Pei6Xlr_AiV0pJcb9Mz1k) (episode 4 is most relevant to current topic)

------
relaxatorium
This reminds me of the recent American Airlines story where they raised
employee wages and institutional investors hammered them for it

[http://www.latimes.com/business/la-fi-american-airlines-
rais...](http://www.latimes.com/business/la-fi-american-airlines-
raises-20170427-story.html)

~~~
minikites
It's almost as if an economic system encouraging everyone to act in their own
selfish interest produces harmful results without checks or balances.

~~~
eli_gottlieb
It's almost as if shareholders have zero desire to operate in a labor _market_
where labor can sometimes grow _scarce_ , but would instead prefer to a
subsidized or conscripted labor-force.

------
18RDThNx
Does this factor in total compensation?

Labor has been getting more expensive over time due to mandates and
regulations. Additional benefits must be paid regardless of the employee's
wishes, and some would probably prefer extra cash to that additional mandated
perk.

~~~
abritinthebay
Of course, what people prefer in the short term and what is actually good for
society as a whole are sometimes different things.

~~~
18RDThNx
Perhaps. But who is better equipped to decide: the individual or "society?"

------
s_kilk
Uh, because we are all collectively being fleeced by a ruling class extracting
obscene amounts of wealth from our work without doing anything useful
themselves.

Never fool yourself into thinking you'll get anything back from these
vampires.

~~~
hyperpape
We had a ruling class in the 90s as well, but wages increased. So the question
is what is different about today?

~~~
jazzyk
Globalization is a _wet dream_ for the ruling class:

\- global demand markets to sell to

\- global labor markets to pick from

I guess saying that makes me a xenophobe or some such, but I guess I will have
to live with it :-)

~~~
openasocket
I am of the opinion that globalization is unfairly maligned.

Globalization increases competition and consumer choice, which drives down
prices and spurs innovation to compete. Tariffs do nothing but put up barriers
to entry into certain marketplaces and favoring certain companies.
Globalization seeks simply to level the playing field. Companies may benefit
from increased access to new markets and cheaper sources of goods and labor,
but the consumer benefits as well with better products at cheaper prices.
Developing nations have benefited by being able to open their doors to foreign
investment. Companies pay these workers a pittance relative to workers in the
developed nation, but more than those workers would be able to make otherwise.
Companies also invest money into infrastructure and education in these
nations. The standard of living in developing nations that have entered the
global marketplace has improved dramatically. And increased international
trade binds nations together, reducing international conflict. Globalization
can stop wars!

Globalization is not perfect, it has problems. It has hurt certain groups in
the developed world, and things must be done to balance the situation. But it
is still an impressive force for good that benefits a wide array of groups,
and I don't like it when people just write it off.

------
hkmurakami
Just a data point. Unemployment in Japan is 2.3%. Pay has been stagnant during
Abenomics and years before that.

Underemployment is also very widespread there. I'd expect parallels in the
states in this regard.

------
jandrewrogers
What it costs a business to pay a wage and what an employee receives as a wage
are not that tightly coupled. An important analysis is how these two numbers
vary relative to each other. Business costs track economic productivity and
employee output pretty closely in competitive markets. The wage is what is
left over after all non-wage employment overhead costs have been accounted
for.

If the business cost of employment is growing faster than wages, which I
believe has been the case for some time (and anecdotally matches reality in my
experience), then the culprit is a non-wage cost that is growing even faster
than the business cost that will keep a company solvent. Employee wages are
net of healthcare, new regulatory costs, etc. Healthcare cost growth rates the
last several years are probably by themselves sufficient to explain depressed
wage growth relative to business cost; the growth rate of overhead for wages
has been high enough to eat up quite a bit of potential wage growth.

To make wages go up faster, you need to reduce the growth rate of employment
overhead so that wages make up a larger percentage of the business cost of
employment.

------
tommynicholas
Why does anyone use the raw wage growth numbers (which look bad) not the
inflation adjusted numbers (which are healthy) when comparing historical wage
growth to modern wage growth? Wage growth only matters in relation to
inflation. It seems extremely disingenuous but maybe I'm missing something.

------
arkis22
It's also important to mention that a rising share of compensation doesn't
come from cash. It comes from stuff like health insurance and 401k matching.
Sad, considering that those non cash benefits just make you more dependent on
your employer.

------
exabrial
Basic economics? Pay and labor supply are part of a demand equation. If we
leave it alone, pay will increase substatially in the next few years as labor
runs short. Worse thing we could do is apply an external force to the system
making it take longer to stabilize.

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badosu
Without a breakdown of these new jobs by sector we can't really be sure, if
the premise is correct one explanation could be low qualification.

Also, there are many ways to account for 'employment' so this statistic can be
misleading as well.

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bencollier49
Same thing is happening in the UK. Wonder if that rules out any of the
explanations..

------
ThomPete
Because its not real employment its 95% temp jobs meaning not healthcare.
Since 2009 this has been the case.

On top of that since bush they have widened the definition of what constitutes
a job.

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MikeTLive
pick the statistic that fits your personal narrative and political party
leanings. then proclaim all the rest as bogus. change stats as required when
required to suit your narrative.

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hans
its fake employment!

------
timwaagh
cause shareholders need money too. and they need it more than you.

