global wage inflation

[jk]

i'd like to start a thread dedicated to spotting global wage inflation. [the issue of whether wage inflation flows from commodity inflation has been long debated on itulip.] i've begun seeing signs:

1. Wall St. Fuels a Rise in Wages in Manhattan
http://cityroom.blogs.nytimes.com/20...20wages&st=cse

2. Google Gives All Employees Surprise $1,000 Cash Bonus And 10% Raise
http://www.businessinsider.com/googl...-raise-2010-11

3. The Spiegel on East German workforce shortages
"For employees, the initial consequences are not unpleasant. On the whole, wages will increase and the income gap between the East and the West will narrow. This is what the Dresden branch of the Ifo Institute for Economic Research expects, and so do others. "Wages will explode, especially for new hires," says industrial sociologist Burkart Lutz, adding that there will be a "substantial increase in average wages."
http://demographymatters.blogspot.co...shortages.html

[we_are_toast]

Re: global wage inflation

From some 2010 news reports:

New York state legislators authorized furloughs for 100,000 state workers in a vote on Monday.

Read more: NY Legislature furloughs 100,000 state workers | The Business Review

http://www.bizjournals.com/albany/st...10/daily4.html

GOP sweep likely means more state furloughs, fewer on BadgerCare

http://host.madison.com/news/local/g...cc4c002e0.html

FRANKFORT — A labor group has dropped its lawsuit challenging state furloughs.
David Warrick, executive director of the American Federation of County State and Municipal Employees Council 62, said in a news release that the union will address furloughs and other issues important to state employees through the Governor's Employee Advisory Council and not a lawsuit.

Read more: http://www.kentucky.com/2010/10/30/1501545/union-drops-lawsuit-challenging.html#ixzz15k3PryK7

Google is considered to have some very good people and they're trying to prevent raids of the employees.

I find it real hard to believe in wage inflation with near 10% unemployment and so many businesses still having a hard time, at least in the U.S. And as far as the rest of the world, I just received a chain email from someone in Peru, bragging about how great the country is doing and how the unemployment level has been reduced to something like 30%.

It will be years before the U.S. is confronted with wage inflation pressures, and it will be decades before many emerging markets have the problem.

[jk]

Re: global wage inflation

It will be years before the U.S. is confronted with wage inflation pressures, and it will be decades before many emerging markets have the problem.

otoh we know about wage increases in china aimed at reducing unrest there.* i think this issue is an open question; that's why i started the thread after coming across that item about east german wage inflation for skilled workers. yes, we can say google is a special case, and we can say that manhattan finance workers are a special case.

why don't we try to keep open minds, and see how many "special cases" we come across in the next 6 months or so?


*Wage increases quiet worker protest - for the time being [jk-another special case]
http://www.clb.org.hk/en/node/100918

[WDCRob]

Re: global wage inflation

Whose wages?

FIRE industry employees? Hourly workers? The median global employee?

Based on previous discussions, I suspect Finster's FDI uses some sort of average global wage figure as an input.

And you mean real wages, right?

[Spartacus]

Re: global wage inflation

This relates to what i was about to write ... I bet wages will rise in certain select groups.

The new tribalism, or the new boys' club, not the same as the old boys' club but with overlapping priorities (keeping the proles & plebes out of the club)

One of the old "ins versus outs" dichotomies could be going away though - as Paul Graham notes, his "college grad led startups" haven't performed much better ... but that runs counter to what I just wrote above, so ignore Paul Graham ; )

Of course this would not lead to GENERAL price inflation ... but isn't that one of the oft cited main problems with inflation - not everything rises by the same rate. In this case, lopsided inflation leading to inequities ...

Whose wages?

FIRE industry employees? Hourly workers? The median global employee?

Based on previous discussions, I suspect Finster's FDI uses some sort of average global wage figure as an input.

And you mean real wages, right?

[jk]

Re: global wage inflation

Whose wages?

anyone's wages

FIRE industry employees?

yes

Hourly workers?

yes

The median global employee?

yes

Based on previous discussions, I suspect Finster's FDI uses some sort of average global wage figure as an input.

i have the same suspicion

And you mean real wages, right?

no, not necessarily. i don't want to get into debates about measuring inflation. also, we might get rises in nominal wages that trail some arbitrary inflation measure, but those wage increases are nonetheless still inflationary in their own effect, and will tend to feed into price increases in the relevant products or services.

[we_are_toast]

Re: global wage inflation

otoh we know about wage increases in china aimed at reducing unrest there.* i think this issue is an open question; that's why i started the thread after coming across that item about east german wage inflation for skilled workers. yes, we can say google is a special case, and we can say that manhattan finance workers are a special case.

why don't we try to keep open minds, and see how many "special cases" we come across in the next 6 months or so?


*Wage increases quiet worker protest - for the time being [jk-another special case]
http://www.clb.org.hk/en/node/100918

Sorry, didn't mean to sound so definitive, I was just expressing my opinion. I agree there's plenty of room for debate, and I can be persuaded to change my opinion if presented with the right amount of evidence.

I think there's a big difference between Chinese wage inflation, and wage inflation in the developed economies. Wage inflation in the developing economies will not translate to much price inflation in products. But wage inflation in economies like the U.S. could very well lead to price inflation and an inflationary spiral. IMHO.

[jk]

Re: global wage inflation

Sorry, didn't mean to sound so definitive, I was just expressing my opinion. I agree there's plenty of room for debate, and I can be persuaded to change my opinion if presented with the right amount of evidence.

I think there's a big difference between Chinese wage inflation, and wage inflation in the developed economies. Wage inflation in the developing economies will not translate to much price inflation in products. But wage inflation in economies like the U.S. could very well lead to price inflation and an inflationary spiral. IMHO.

i wonder how wage inflation in em's, e.g. china, will affect u.s. prices. i would think it will depend on the specific goods. e.g. an iphone contains a very small labor component, so you could double labor costs without much of a difference. otoh, the cheap consumer goods filling walmart's shelves doubtless have a much higher proportion of labor input. clothing, for example, will reflect higher cotton prices, but also has a significant labor input.

[WDCRob]

Re: global wage inflation

Not trying to be argumentative - just not following how wage inflation happens outside a few industries/countries. i.e. why are we on the lookout for it?

In addition to the labor input of imported goods, wouldn't wage inflation outside the US (and the rest of the West where wages are unlikely to rise anytime soon) still provide another big hit to standards of living as oil and other commodities become more expensive in dollars (Euros, etc)?

Which in turn seems like it would actually be a counterweight to wage inflation in net exporting countries as consumption of and demand for finished goods falls.

I'm sure I've missed an earlier discussion here somewhere, but how exactly do we get wage inflation outside a few exporting nations (granted, one of which has a billion+ people) and how do wages sustain an increase there if no one else in the ROW can afford to buy what they produce?

[jk]

Re: global wage inflation

Not trying to be argumentative - just not following how wage inflation happens outside a few industries/countries. i.e. why are we on the lookout for it?

In addition to the labor input of imported goods, wouldn't wage inflation outside the US (and the rest of the West where wages are unlikely to rise anytime soon) still provide another big hit to standards of living as oil and other commodities become more expensive in dollars (Euros, etc)?

Which in turn seems like it would actually be a counterweight to wage inflation in net exporting countries as consumption of and demand for finished goods falls.

I'm sure I've missed an earlier discussion here somewhere, but how exactly do we get wage inflation outside a few exporting nations (granted, one of which has a billion+ people) and how do wages sustain an increase there if no one else in the ROW can afford to buy what they produce?

in earlier discussions of inflation, the issue of whether there would/could be wage inflation arose repeatedly. after all, we have a slack labor market, unions are weak compared the 1970's, there are no cola's [cost of living adjustments] in current labor agreements, etc. some took the position that there could be no systemic inflation in absence of wage inflation, and in fact the fed seems to act like the only kind of inflation they REALLY care about is wage inflation.

ej quoted a fed study [i think a fed study, anyway-a study] that wage inflation followed - did NOT precede - broad price inflation, and thus predicted that there would indeed be wage inflation in our future, although it might well lag broader inflation. [i'm sure that metalman, if prodded, could provide a link.] it was never sorted out whether global wage inflation, especially wage inflation in em's, could take the place of developed-world wage inflation in producing a wage-price spiral. [chinese workers earn more, want to eat more meat, pigs eat grain and convert it inefficiently to pork, grain prices spike, causing more wage pressures in china, lather, rinse, repeat]

when i saw the piece on east german wages the day after hearing about the google raises, i thought it was time to start documenting the process and see if it's for real.

[WDCRob]

Re: global wage inflation

Thanks for the patient catch-up there.

I wonder if EJ's right, but that you'll actually see the mechanisms of wage inflation reintroduced before we see the wage inflation. Especially labor violence and a resurgence of left-wing politics (eg. the reemergence of the "Democratic wing of the Democratic Party") before we see widespread wage inflation in the developed world. Like...

Inflation in emerging markets ---> wage inflation in EMs ---> inflation in commodites ---> decline in SOL developed world workers ---> widespread unrest ---> recreation of mechanisms to increase wages ---> wage inflation in the developed world

Thinking out loud here, but I think maybe that's what Toast was getting at as well?

[FRED]

Re: global wage inflation

Thanks for the patient catch-up there.

I wonder if EJ's right, but that you'll actually see the mechanisms of wage inflation reintroduced before we see the wage inflation. Especially labor violence and a resurgence of left-wing politics (eg. the reemergence of the "Democratic wing of the Democratic Party") before we see widespread wage inflation in the developed world. Like...

Inflation in emerging markets ---> wage inflation in EMs ---> inflation in commodites ---> decline in SOL developed world workers ---> widespread unrest ---> recreation of mechanisms to increase wages ---> wage inflation in the developed world

Thinking out loud here, but I think maybe that's what Toast was getting at as well?

Another way to ask the question is this: How long can this go on for?

Charts above from an upcoming analysis.

[jk]

Re: global wage inflation

otoh

Unions Yield on Wage Scales to Preserve Jobs
http://www.nytimes.com/2010/11/20/bu...XD4wy9pQtFphng

[jk]

Re: global wage inflation

came on this in john mauldin's latest:

{re china}
Official inflation is in the high single digits. Unofficial inflation may be running closer to 20%. Simon Hunt wrote last year:
“Our friends in Beijing talk about the daily cost of living rising at an annual rate of around 20%. In Shanghai gas prices to the home have risen by some 600% in two years and electricity by over 300%.”
More recently he wrote:
“The large increase in minimum wages announced after Christmas have two powerful implications. First, de facto, they suggest that actual inflation is higher than is being shown in the official CPI data; and, second, that China’s pool of surplus labor is drying up. The latter has important implications for wage inflation and the structure of manufacturing.
“Beijing announced an increase in minimum wages of 21%, after raising them by 20% in June this year. Across China every municipal authority has already raised its minimum wage with most only six months ago. Further hikes are possible early this year. Wage increases of this size are more than can be warranted by normal living adjustments. They reflect an abnormal rise in inflation and a tightening labor market.”

we're talking a 45% rise in china's minimum wage over a period of 6 months.

we are IN a wage-price spiral. the wage rises are in subgroups in the oecd [google employees and their peers, e. german manufacturing workers, and so on] and in broad populations in em's. the rise in incomes in the em's, in particular, feed commodity demand, adding a demand-pull component to the cost-push aspect of pco and its knock-on effects on, e.g., agricultural commodities.

[nero3]

Re: global wage inflation

I really don't think this commodity bull will give any wage-price spiral for developed economies. I see it coming after the next secular bull-market for stocks is over. That could be far, far into the future, maybe after 2030. When there is rather few workers, and those from the baby boomer generation having retired, and rather high inflation, some pressures could surface.