I don't know this author, but the arguments that increasing wages will cause inflation, independent of their economic accuracy, are also perfectly tuned messaging for a specific group, the owners of businesses (and the high-level managers). That could be coincidence, but if the beneficiaries are paying attention - and that group is very sophisticated politically - it's probably not.
Openly opposing wage increases for workers is political suicide, especially given the context of decades of flat wages and income inequality, and of the pandemic and essential workers, and given that it displays brazen greed and self-interest at the expense of the rest of the country.
But if they convince enough people - not everyone - that wage increases cause inflation, while they also stoke fear of it (remember during the Great Recession, fear of inflation was a tactic against Obama's policies), they can reduce the wages paid and keep more profit. It takes convincing people not directly affected by the issue, such as white collar workers who are already highly paid (ironically) and retirees, which IMHO is easy and often done. It also takes convincing people directly affected that their own wage increase somehow harms them, or that they should sacrifice for the country; that's harder, but as we've seen, many people vote against their economic self-interest and even risk theirs and their family's lives for political movements. Remember, they don't need to convince everyone, just enough people.
If inflation risks significant harm, and if wage increases are a significant factor (which I don't believe), I think suppressing wages is the last thing we should consider, if we consider it at all.
Imagine if they said, 'SV company pricing is causing inflation' or 'wages in SV are causing inflation'.
> I don't know this author, but the arguments that increasing wages will cause inflation, independent of their economic accuracy, are also perfectly tuned messaging for a specific group, the owners of businesses (and the high-level managers). That could be coincidence, but if the beneficiaries are paying attention - and that group is very sophisticated politically - it's probably not.
The narrative slants aren't even subtle.
Asset prices skyrocket: "Look, the economy's booming! Hooray!"
Wages go up somewhat: "Oh no, inflation! Watch out!"
[EDIT] I mean for general coverage of these topics in the media, not picking on this particular author.
I am the author and I appreciate your feedback. I actually wrote this piece to push back against the popular opinion that there’s a labor shortage due to “lazy people on unemployment benefits”. I don’t view asset prices skyrocketing as a healthy sign of the economy booming, instead I view it as all the rich people shielding themselves before inflation sets hold. And my argument hinges on working class people being unfairly priced out of their communities due to the skyrocketing asset prices. I also make an argument against the Airbnbification of real estate and how it is hurting the majority. I apologize if it seems that I am supporting the capital-owning class but it is actually the opposite. Let me know if you have any suggestions to clear this up on my article.
(Edit) thanks for the edit that clears it up. I was worried you thought I was pushing a narrative when I’m actually pushing back against the narrative. Cheers!
People like to hand wave airbnb as a boogeyman for real estate demand increases, but when you dive into actual numbers you find out it's less than %1 of units in the vast majority of cases. And buying houses to rent them out as 'revenue properties' has been around for a very long time, similar with airbnb style services in the 1800s.
If a %1 demand increase causes big price distortions in a RE market, you have much bigger problems in your city than airbnb, which is usually linked to supply control via restrictive and often corrupt planning boards putting up large barriers that you have to 'pay to win' to get past under the table, as has been shown recently in SF.
Fair point. This housing boom is largely caused by wealthy investors bidding up the price of single family homes, with AirBnb completely unrelated. There are also some urban-suburban migration dynamics at play. I mentioned AirBnb to point out that this isn't just a new issue. And while vacation rentals have always been a thing, they were formerly centered around vacation destinations. Now, they can be anywhere, and the internet makes it possible to browse and compare prices anywhere in the world. It is now economically feasible to own several vacation rental properties in small cities, which creates a pressure on supply for housing locals. And if you can earn a month's worth of rent in two weeks of AirBnb renting, the price of rent for long-term tenants is either going to go up or you are going to switch to AirBnb.
I'll pushback against this point. I noticed that the popular discourse was all about unemployment benefits being the root cause of the labor shortage, when in reality the statistics said differently (i.e., stats from states which had ended unemployment). So I did research to find the true root causes, while I still fleshed out the counter-argument on unemployment.
EDIT - also, i'm not a journalist this is just my personal blog and opinions so it's inherently motivated reasoning.
To be clear, I don't think you have any obligation to the public; it just seems like you were out to make a partisan point (and wanted to 'team-up' with the commenter you originally responded to in this thread).
> To be clear, I don't think you have any obligation to the public
Tangentially: I know that's a norm (or almost one) but I think that they do, and that we all do. We are all responsible for our communities. Their state, good or bad, improving or not, depends completely on our actions.
I am the author, and my argument is in no means against rising wages. In fact, I think it’s about damn time that wages are rising. The $15/hr living wage movement has fought for this so long, that now $15/hour is barely a living wage anymore.
My argument is actually that the economy is built on the backs of underpaid workers, and now that these workers are demanding their fair value we will either see inflation or the failure of many businesses. I don’t believe a business should be allowed to survive if it can’t afford to pay its employees a living wage, so if my argument implies that it is truly not my intention. Let me know what you think and if you have any suggestions to clear this up in my article.
> My argument is actually that the economy is built on the backs of underpaid workers, and now that these workers are demanding their fair value we will either see inflation or the failure of many businesses.
I don't see how it's inflationary from some money to be shifted from the owners to the employees. Also, I don't see how that causes a business to fail, unless it was operating very close the margin. Corporations are doing very well; Bezos has over one hundred billion; paying employees more won't bankrupt these businesses or have any effect on people like Bezos.
> Imagine if they said, 'SV company pricing is causing inflation' or 'wages in SV are causing inflation'.
Not sure I follow where you’re going with this — are you suggesting SV salaries aren’t causing inflation in the local area? They absolutely have kicked off an inflationary feedback loop in SV real estate.
* Pay tech workers more to attract them to SV.
* Housing prices rise.
* Pay tech workers more to compensate for higher real estate prices.
* Repeat.
Suddenly you find yourself in a situation where $400k in total compensation for a single FAANG employee isn’t out of the ordinary. Great for them, terrible for everyone making normal amounts of money — houses cost $1M+.
> Not sure I follow where you’re going with this — are you suggesting SV salaries aren’t causing inflation in the local area?
Sorry I wasn't clear. My point was that people now focused on rising wages causing inflation are typically wealthy professionals (such as in SV). I imagine a different response if someone attributed it to the wealthy people's income.
It's often: 'We need to cut their taxes so they can stimulate the economy more!'
The only problem with the SV real estate market is the segregationist-era zoning policies preventing the market from sorting out the self-inflicted shortage.
I agree with everything you said, but I don't think they just need to stoke fear, and I don't think the . Those white-collar workers and retirees want their maids and caretakers, their kids watched, their groceries bagged. And they want it cheap. Rising wages mean a direct increase in costs for this middle class.
They want to say they don't want to pay their maids more without saying that their maids don't deserve more money.
>> I don't know this author, but the arguments that increasing wages will cause inflation, independent of their economic accuracy, are also perfectly tuned messaging for a specific group
Which do you think is a better approach, evaluating arguments on their merits or evaluating them on the basis of who might benefit if the arguments are valid?
I think both are essential: Evaluating arguments on their merits is obviously important, so I'll focus on the second method.
We live in a world flooded by propaganda; we are committing political and social suicide by not addressing it. One powerful method of addressing propaganda is to identified beneficiaries - the people behind it are necessarily doing it for their own benefit.
And at the same time, evaluating arguments on their merits exposes us to propaganda: First, a well-known reason: it is much easier to make up lies than to determine the truth; the propagandist can easily consume all the resources of the person looking at merits. Second, humans are significantly worse at determining merits than they imagine (says much research).
Looking at merits depends on some good faith: The person submitting the argument is trying to present a valid argument. Propaganda is built on abusing that good faith.
Maybe but most of the ruling class is more scared of deflation than inflation. Most of the last few years we've been fighting to avoid a deflationary spiral like the 30s. Any coming sustained inflation is a good thing.
Absolutely. In fact, inflation may be the strategy of choice to get the US out of its debt crisis. Ruling class is totally fine with inflation, because it allows them to raise wages to $15, 20, 25, 30 per hour and act like benevolent leaders when in reality wages are just catching up to where they should be after decades of stagnation.
What debt crisis? The national “debt” is not a crisis. The US has a great degree a monetary sovereignty. As long as this is true, it will always be able to pay its “debts”. The US government spends money into existence, which is a direct subsidy to either states, citizens, the private sector, or foreign interests (in the case of USG buying imported goods).
They also are more scared of nuclear war than inflation, but those aren't their choices. Inflation is bad creditors; the value of the debt inflates away. Also, the right wing, which seems to attract more wealthy people, has long used fear of inflation to support their ever-smaller-government campaign; they say government spending will cause inflation (when someone from the left is in office).
I feel like a lot of this is the bottom catching up to the top. It seems high net-worths are exploding, driven by a rise in public stocks. Real estate is also ballooning. The natural minimum wage rising so quickly is the natural finish to an inflation whip.
Owners ( of assets ) have been making a killing. Pretty much any kind of asset - stocks, real estate, collectibles, crypto, etc. Of course the more you own, the better you did. So the 0.01 did much better than the 0.1% who did much better than the 1%...
> With the rise of AirBnB, however, houses became valued based on the income-generating-potential of the house, favoring investors while shunning regular homeowners.
Highly doubt AirBnB is a big contributing factor to housing prices.
Rentals? Sure.
But considering travel (the use case for AirBnB) has been locked down and housing prices continued to soar makes this pretty dubious.
And tons of condo buildings don't even allow you to use the unit for AirBnB anyway.
as always the real elephant in the room is that inflation is not bad per se, except for those whose wages don't grow as much as the inflation. And wages for low earners will rise. Thus, we are not really talking about inflation but more concretely about redistribution of wealth, only this time the low earners are getting more from the pie. Not the ones with the capital or the ones who don't work (anymore).
As for America, this can only be good imo because the inequality has long been way too high. Nonetheless, I don't agree that America will see long and sustained inflation and there are things that will stay too expensive even with rising wages (e.g. healthcare) so these effects will probably be short-lived unless the government policies will change something more substantly (and with the new stimulus packages coming, it could happen).
>as always the real elephant in the room is that inflation is not bad per se, except for those whose wages don't grow as much as the inflation.
...Inflation affects savings too. So it doesn't matter that ones salary may increase at the same rate of inflation when the buying power of your savings in diminished by the rate of inflation. Tired of hearing the myopic view that inflation effectively does nothing if wages rise in step, it's just straight up incorrect.
> Thus, we are not really talking about inflation but more concretely about redistribution of wealth, only this time the low earners are getting more from the pie.
Can you elaborate on how it is redistribution of wealth for low earners? Genuinely curious.
A labor shortage = an increased demand for labor. If that labor can’t be purchased at the current market rate, then they’ll need to spend more on labor (increase wages), which in theory would come out of the salaries and benefits of the higher ups.
We’ll see if that actually happens though. Articles like this are designed to stir up fears of inflation so that they can get people on board with policies to keep wages lower.
EDIT: Saw the author’s reply higher up. It sounds like this isn’t their intent, but when the sound bite is “higher wages means more inflation”, it collectively feeds into the “be afraid of inflation” narrative that’s been building
I think all labor blue/white bordering around the middle class has another thing coming. Okay, so suddenly we’re all too good for the blue collar jobs. Fine, go to school or get training and come to the white collar industry.
I can say without any allusions that white collar work is saturated and competitive, so you are showing up to the wrong port.
We will need those blue collar jobs, and if industry starts filling it with immigrants while you are off trying to study up and failing to get that white collar job, you’ll lose out double (no income for all those years). All while this is happening, the blue collar industry will further depress wages because they have even cheaper immigrant labor now - the new standard.
People will resort back to saving whatever money they have, and living at home with their parents. The economy will stagnate, and inflation won’t be a problem because we were overzealous on the reality of our economy.
Why can't people just get green-pilled on the minimum wage already? I've noticed that when topics like these come up people usually say something about how the minimum wage needs to be higher when the existence of a minimum wage is arguably causing/contributing to these problems.
The market sets the price of labor just like the market sets the price of goods. People think that the minimum wage will force employers to raise wages when in reality it just makes those jobs illegal, even if both parties, employer and employee, have an agreement. E.g. what are you going to pay California's hundreds of thousands of homeless people with little to no skills $15/hour to do? Are they really better off with a $15/hour minimum wage working 0 hours and making no money? They have no path up the economic ladder if we chop off the bottom rungs.
This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value.
It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems.
Businesses buy machines, AI, and other automation systems to improve their standing. They do this regardless of the price of labor (unless labor gets really cheap but this is broadly not true in the US or EU). Investing in such assets give them an advantage.
The problem is when everybody does this. Then its no longer an advantage but a necessity. There's probably something to be said about this also raising the barriers to entry in certain fields (e.g. try opening up your steel foundry).
Therefore, businesses will look to technology to augment and/or replace labor whenever they can. This is regardless of the current labor market (barring extreme circumstances, of course).
> businesses will look to technology to augment and/or replace labor whenever they can
But a big part of "can" is whether or not the solution using technology is cheaper than the solution without it. And a big part of that is the cost of human labor. If human labor is more costly, it is more likely that a technology solution that allow more value to be produced with the same human labor will be cost effective. Conversely, if human labor is cheap, plenty of technology solutions that would allow more value to be produced with that labor simply don't make business sense--you'd be spending more for the same output.
So while it's true that businesses are always looking for uses for technology, regardless of the current labor market, whether or not they actually end up implementing them does depend in large measure on the current labor market.
Yes but it is a supply demand. If putting in the automation infrastructure is going to cost be $500,000 and $100,000 a year to maintain it then as long as I can keep an employee for $30,000 a year that probably doesn't scale. Whereas if the cost of the employee moves to $50,000 or $60,000 a year it becomes more advisable and prudent to do so.
> It would strike me that with massive labor shortages, many businesses will look to technology to replace labor.
Sraffa went over this in his Production of Commodities by Means of Commodities:
> In essence, Sraffa shows that:
> 1. It is not possible to identify a law that simultaneously determines the wage and the rate of profit because: i) the rate of profit can only be determined by setting the wage (or vice versa); ii) it is impossible to measure capital without also determining prices (including the profit), so it is not possible to calculate the profit based on the value of capital (as its remuneration).
> 2. It cannot be assumed that, as wages increase, labour is replaced by capital, as the value of the capital depends on the duration of the initial investment; considering capitals of different duration, it may well happen that we prefer to replace capital with labour even if wages increase (so-called "return of techniques"); consequently unemployment cannot be attributed to the increase in wages.
> This could be via AI, or other automation systems.
All of which require chips that even companies like Toyota can't get enough of to maintain their production goals. When Toyota says, "Yeah, this chip shortage sucks, we're going to be 40% lower in monthly production," you know it's not just a few people suffering gaming GPU shortages.
McDonald's and low-wage employers in general are not automating their entire workforce in the next month. I would wager they are not going to automate 10% of service jobs in the next twenty years. Why do you think it's just around the corner?
Hasn’t this been the trend for a while now, though? My understanding is that self driving trucks are still a decent time ahead of us, and logistics seem like the primary bottleneck causing a lot of these shortages.
Labor systems will definitely be seeking AI replacements, but just because they are needed now doesn’t necessarily mean they are available now. Although you make a very good point, and I think we will certainly see acceleration in this direction.
Workers are cheaper and smarter than machines (even at the vast sum of $15/hr), and expected to maintain themselves.
When a business manages to automate in some small way that allows them to reduce staffing, that's a good thing. It's hard to do. If enough of them do, raise wages again to make up for it. In the year 3021, every 10th person works 10 minutes a day while the robots hum, and with their wages can take care of 9 other people.
Many of the things that haven't been automated are unsolved challenges. I'm sure restaurants would love it if you could fully automate their cleaning, answering the phone, or fixing the broken milkshake machine, but we only have partial solutions to those sorts of activities.
Which means that if consumers do get pushed to alternatives, it might be getting a frozen pizza instead of a restaurant pizza.
It’s not just about things that aren’t automated yet. There’s also the stuff that is automated in some places, but not automated everywhere yet. Companies who are dragging their feet on modernizing.
Or labor assisted by machines: if businesses start to repatriate factories, one can expect them to take the opportunity to automate plants like never before. There would be few but highly paid jobs.
There must be a business case for bringing manufacturing jobs home, or I've missed something.
Well the business case as of late is that the global supply chain isn’t as resilient as previously believed, with all of the disruption seen during covid. Primarily with surgical masks and medical equipment at first, but now with nearly every good experiencing disruptions of some sort.
Exactly, we’re already seeing this. Lots of restaurants are cutting back on front of house staff and replacing them with QR codes, cellphones and iPad kiosks.
QR codes and having a phone for menu is a brutal experience.
Personally I go to a restaurant to have face time with people, the phone (or tablet) is a wrench in that, and not worth it. I’ll pay a premium to not use an electronic interface.
Edit: it does make sense for fast food, especially mobile ordering (I salute the McDonald’s UI/UX(though recent updates are making it worse.. typical))
makes sense but automation is hard, it doesn't fall from the sky like manna.
Reality is that automating the easiest jobs is the hardest (old Minsky observation) and most essential services you can't substitute fall into that category. No robot plumber or roof tiler in the near future.
Article is right to point out that the pandemic together with the anti-migration stance and isolationism is going to push the cost of labour as well as goods.
>During his presidency, Trump tightened the enforcement of immigration from Mexico for two reasons: protecting American jobs, and national security. [...] Without immigrants, industries such as agriculture and hospitality fall apart at their seams. This is yet another isolationist policy, and it asserts an extreme pressure on the supply of workers willing to take minimum-wage jobs.
Yes, Trump did that, but he hasn't been President for a while.
>(CNN)The Biden administration is facing a "serious challenge" at the US southern border, Homeland Security Secretary Alejandro Mayorkas said Thursday, saying the US has encountered an "unprecedented" number of migrants illegally crossing the border.
>During a news conference in Brownsville, Texas, Mayorkas stressed the sharp increase of migrants arriving at the US-Mexico border, many of whom are fleeing deteriorating conditions in their home countries.
>In July, US Customs and Border Protection apprehended 212,672 people, up from June and amid some of the hottest summer weeks -- when arrests usually dip -- and of those, 95,788 individuals were expelled. Twenty-seven percent had previously tried to cross the border, Mayorkas said, acknowledging that a Trump-era policy that allows border authorities to turn migrants away has contributed to people trying to cross the border multiple times. July marks the highest monthly number of migrants detained at the US-Mexico border in two decades.
Adding 116,884 immigrants a month will solve a labor shortage pretty fast.
Actually, keeping interest rates at nearly 0% and printing trillions of dollars/pounds/euros over the last 14 years is the catalyst for sustained inflation.
Openly opposing wage increases for workers is political suicide, especially given the context of decades of flat wages and income inequality, and of the pandemic and essential workers, and given that it displays brazen greed and self-interest at the expense of the rest of the country.
But if they convince enough people - not everyone - that wage increases cause inflation, while they also stoke fear of it (remember during the Great Recession, fear of inflation was a tactic against Obama's policies), they can reduce the wages paid and keep more profit. It takes convincing people not directly affected by the issue, such as white collar workers who are already highly paid (ironically) and retirees, which IMHO is easy and often done. It also takes convincing people directly affected that their own wage increase somehow harms them, or that they should sacrifice for the country; that's harder, but as we've seen, many people vote against their economic self-interest and even risk theirs and their family's lives for political movements. Remember, they don't need to convince everyone, just enough people.
If inflation risks significant harm, and if wage increases are a significant factor (which I don't believe), I think suppressing wages is the last thing we should consider, if we consider it at all.
Imagine if they said, 'SV company pricing is causing inflation' or 'wages in SV are causing inflation'.