(What’s Left of) Our Economy: America’s Long-Time Productivity Slump Looks Like it’s Deepening

Tags

CCP Virus, coronavirus, COVID 19, inflation, Labor Department, labor productivity, productivity, total factor productivity, wages, {What's Left of) Our Economy

Since strong productivity increases are America’s best hope for improving living standards, sustainable prosperity and robust non-inflationary economic growth, it’s clearly bad news that the nation may be on the edge of a productivity growth cliff – and staring into a canyon. That’s the clear message being sent by the new official U.S. preliminary data on labor productivity for the second quarter of this year released by the Labor Department this morning.

At least as bad: The lousy labor productivity figures strengthen the case that even though U.S. wages aren’t rising nearly as fast as living cost, they still could be fueling some of the torrid inflation of the last year and a half or so.

There’s a possibility that this dreadful performance is just another hangover from the CCP Virus pandemic and related lockdowns and curbs on individuals’ voluntary activity (along with the massive covid relief measures provided by Washington), which has played havoc with the entire economy and the data used to monitor its health. But it’s crucial to remember that the nation is also suffering a long-term productivity growth slump, so any virus distortions aren’t reflected in the numbers may not be game-changing.

As known by RealityChek regulars, labor productivity is the narrower of the two measures of efficiency tracked by Labor, and measures the output of each worker per each hour on the job. The Department itself made clear how awful the second quarter results were for the non-farm business sector – the numbers that are followed most closely:

“The 2.5-percent decline in labor productivity from the same quarter a year ago [actually, it was 2.55 percent] is the largest decline in this series, which begins in the first quarter of 1948.” (Actually, the Department’s own raw data tables go back to the first quarter of 1947.) Let’s all agree that a 75-year all-time worst is really alarming.

The quarterly figures were stomach-turning, too. Labor productivity sank at an annual rate of 4.71 percent sequentially – the fifth biggest such drop ever. Further, this followed on the heels of the first quarter’s sequential 7.64 percent nosedive – the second worst since the 12.26 percent crash of the third quarter of 1947.

And here’s some thoroughly depressing context: Such back-to-back quarterly declines are rare. Before that latest stretch, they – or longer labor productivity losing streaks – had only happened eleven times over the last three quarters of a century.

Two consecutive declines in labor productivity aren’t the longest such stretch on record. That dubious honor belongs to the five-quarter period between the second quarter of 1973 and the third quarter of 1974. But the latest cumulative quarterly deterioration of 12.26 percent at annual rates is the worst of all time. True, it’s just slightly greater than the 12.24 percent cumulative drop suffered during that 1973-74 productivity depression. But don’t forget – the current streak may not be over yet!

As for that 2.51 percent annual decline in labor productivity, the context here is completely gloomy, too. As with the sequential results, it represented the second straight worsening – following the 0.58 percent drop in the first quarter. And two or more straight annual labor productivity decreases have only happened six times before this morning’s release.

Also as with the quarter-to-quarter figures, a stretch of two straight decreases isn’t the longest ever. Between 1973 and 1974, annual productivity fell four consecutive times. But the current annual slump is the deepest since that which lasted between the first and third quarters of 1982. And of course, today’s slump isn’t over yet, either.

As I’ve written previously, productivity is the measure of economic performance in which most economists are least confident (especially in service industries that make up the vast bulk of the U.S. economy). Further, labor productivity is a narrower measure of efficiency than total factor productivity, which measures output as a function of a wide range of inputs used by business (not only workers but capital, technology, materials, etc.) And today’s second quarter results will be revised next month (which recently I mistakenly reported as the date for these preliminary numbers), with the latest set of (annual) revisions coming this fall.

But most legitimate doubts about the productivity data mainly concern their precision, not the direction they show. And all-time worsts and near-worsts surely can’t be mainly attributed to measurement flaws. And as for the total factor results, for decades, they’ve been no great shakes, either, as made clear in the above linked RealityChek post. Maybe the revisions will substantially brighten the picture?

So far, though, that’s just a “maybe.” The best information available indicates that America’s long-time productivity woes are taking a big turn for the worse, and that in combination with recent wage increases could be embedding unacceptably high inflation – and stagnating living standards – into the U.S. economy’s foreseeable future.

(What’s Left of) Our Economy: The Worst of All Possible Inflation Worlds for U.S. Workers?

Tags

ECI, Employment Cost Index, Federal Reserve, inflation, Jerome Powell, Labor Department, labor productivity, PCE, personal consumption expenditures index, productivity, recession, stagflation, wages, workers, {What's Left of) Our Economy

The newest report on a key official measure of worker compensation has just shown that, during today’s high inflation era, American workers could be both significantly fueling the soaring prices that are dominating the U.S. economy and getting shafted by them.

This measure – called the Employment Cost Index – is tracked by the Department of Labor, and is watched closely by the Federal Reserve (the government’s chief inflation-fighting agency) for two major reasons. First, it includes not just wages, but salaries and non-cash benefits. Second, unlike the Labor Department’s average wage figures, it takes into account what economists call compositional effects.

In other words, the those wage figures report hourly and weekly pay for specific sectors of the economy, but they don’t say anything about labor costs for businesses for the same jobs over time. The ECI tries to achieve this aim by factoring in the way that the makeup of employment between industries can change, and the way that the makeup of jobs within industries can change (e.g., from a majority of lower wage occupations to one of higher wage occupations).

In his press conference last Wednesday following the Federal Reserve’s announcement of a second straight big increase in the interest rate it controls directly, Chair Jerome Powell mentioned that the ECI report coming out on Friday would greatly influence the central banks’ decision on how much more tightening of credit conditions would be needed to slow the economy enough to cool inflation acceptably.

That’s because, as he has explained previously, the supposedly superior insights on worker pay provided by the ECI enable the Fed to figure out whether a major inflation engine has started to rev up – employee compensation rising faster than worker productivity. Industries (or entire economies) in this situation are denied the option of absorbing wage increases by achieving greater efficiencies in their operations Therefore, they face more pressure to maintain earnings and profits by passing pay increases onto their customers, their customers face more pressure to keep up with living costs by pushing for pay hikes themselves, and what economists term a classic and hard-to-break wage-price spiral takes off.

The new ECI results per se looked alarming enough from this perspective. They showed that between the second quarter of 2021 and the second quarter of 2022, total employee compensation for the private sector ose by 5.5 percent. That’s the fastest pace since this data series began in 2001. Moreover, this record represented the third straight all-time high. (RealityChek regulars know that private sector numbers are the most important gauge, since its pay and other indicators are mainly driven by market forces, unlike the statistics for government workers, where the indicators largely reflect politicians’ decisions.)

Sadly, though, according to the Fed’s favorite measure of consumer inflation (the Commerce Department’s Personal Consumption Expenditures price index), living costs increased by 6.45 percent. So workers fell further behind the eight ball.

Perhaps worst of all, however, productivity growth is in the toilet. We won’t get the initial second quarter figures until September 1, but during the first quarter, for non-farm businesses (the most closely followed measure for the private sector), it fell year-on-year by 0.6 percent – the worst such performance since the fourth quarter of 1993.

Nor was this figure a one-off for the current high inflation period. From the time consumer prices began their recent speed up (April, 2021) through the first quarter of this year, labor productivity is off by 1.36 percent, the ECI is up 3.95 percent, and PCE inflation has risen by 4.65 percent. So a strong case can be made that workers, businesses, and the economy as a whole are in the worst of all possible worlds.

Whenever productivity is the subject, it’s important to note that it’s the economic performance measure in which economists probably have the least confidence. And even if it’s accurate, don’t jump to blame workers for sloughing off. Maybe management is doing a lousy job of improving their productivity. Alternatively, maybe managers simply haven’t figured out how to do so in the midst of so many unusual challenges posed by the pandemic and its aftermath – chiefly the stop-go nature of the economy’s early aftermath, and the resulting turbulence that, along with the Ukraine war and China’s Zero Covid policy, is still roiling and stressing supply chains.

Whatever’s wrong, though, unless a course correction comes soon, it looks like the odds of the economy sinking into prolonged stagflation – roaring inflation and weak economic growth – are going up. And ultimately, that matters more to the American future than whether some form of recession is already here, or around the corner.

Making News: Back on National Radio Tonight on China Tariffs and Inflation…& More!

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agriculture, Biden, Breitbart.com, CBS Eye on the World with John Batchelor, China, food, Gordon G. Chang, Immigration, inflation, Making News, Neil Munro, Newsweek, productivity, tariffs, Trade, Ukraine-Russia war, wages

I’m pleased to announce that I’m scheduled to return tonight to the nationally syndicated “CBS Eye on the World with John Batchelor.” I don’t know yet exactly when the taped segment will be broadcast, but John’s show airs week night’s between 10 PM and midnight EST, he’s always worth tuning in, and tonight’s segment will cover President Biden’s ongoing flirtation with the (ignorant) idea that cutting tariffs on imports from China will help cool torrid U.S. inflation.

You can listen live at website like this, and as always, if you can’t, I’ll post a link to the podcast as soon as it’s available.

In addition, it was great to be quoted by John’s frequent co-host Gordon G. Chang on the weaponization and balkanization of world food trade that’s resulted from the Ukraine-Russia war. You can read his June 21 Newsweek column on this subject at this link.

Moreover, it was just as gratifying to be cited by Breitbart.com‘s Neil Munro in this piece the same day on the often misunderstood relationship between immigration, wages, and productivity growth. Click here to read.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: You Bet that Mass Immigration Makes America Less Productive

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amnesty, Bureau of Labor Statistics, construction, demand, Donald Trump, economics, Forward.us, hotels, illegal aliens, immigrants, Immigration, labor productivity, productivity, restaurants, supply, total factor productivity, wages, {What's Left of) Our Economy

An archetypical Washington, D.C. swamp denizen thought he caught me with my accuracy pants down the other day. Last Sunday’s post restated a point I’ve made repeatedly – that when countries let in too many immigrants, their economies tend to suffer lasting damage because businesses lose their incentives to improve their productivity – the best recipe for raising living standards on a sustainable, and not bubble-ized basis, as well as for boosting employment on net by fostering more business for most existing industries and enabling the creation of entirely new industries.

The reason mass immigration kneecaps productivity growth? Employers never need to respond to rising wages caused by labor shortages by buying labor-saving machinery and technology or otherwise boost their efficiency. Instead, they continue the much easier and cheaper approach of hiring workers whose pay remains meager because immigrants keep swelling the workforce.

It’s a point, as I’ve noted, strongly supported by economic theory and, more important, by evidence. But Todd Schulte, who heads a Washington, D.C.-based lobby group called Forward.us, wasn’t buying it. According to Schulte, whose organization was founded by tech companies like Facebook with strong vested interests in keeping U.S. wages low, “the decade of actual [U.S.] productivity increases came directly after the 1986 legalization AND 1990 legal immigration expansion!”

He continued on Twitter, “giving people legal status and… expanding legal immigration absolutely has not harmed productivity in the last few decades in the US.”

So I decided to dive deeper into the official U.S. data, and what I found was that although there are bigger gaps in the productivity numbers than I’d like to see, there’s (1) no evidence that high immigration levels following the 1986 amnesty granted by Washington to illegal immigrants and the resulting immigration increase mentioned by Schulte improved the national productivity picture over the pre-amnesty period; and (2) there’s lots of evidence that subsequent strong inflows of illegal immigrants (who Schulte and his bosses would like to see amnestied) have dragged big-time on productivity growth.

First, let’s examine the productivity of the pre-1986 amnesty decades, which provides the crucial context that Schulte’s claim overlooks.

According to U.S. Bureau of Labor Statistics figures, during the 1950s, a very low immigration decade (as shown by the chart below), labor productivity grew by an average of 2.63 percent annually. Significantly, this timespan includes two recessions, when productivity normally falls or grows unusually slowly.

Figure 1. Size and Share of the Foreign-Born Population in the United States, 1850-2019

During the 1960s expansion (i.e., a period with no recessions), when immigration levels were also low, the rate of labor productivity growth sped up to an annual average of 3.26 percent.

The 1970s were another low immigration decade, and average labor productivity growth sank to 1.87 percent. But as I and many other readers are old enough to remember, the 1970s were a terrible economic decade, plagued overall by stagflation. So it’s tough to connect its poor productivity performance with its immigration levels.

Now we come to the 1980s. Its expansion (and as known by RealityChek regulars, comparing economic performance during like periods in a business cycle produces the most valid results), lasted from December, 1982 to July, 1990, and saw average annual labor productivity growth bounce back to 2.24 percent.

As noted by Schulte, immigration policy changed dramatically in 1986, and as the above chart makes clear, the actual immigant population took off.

But did labor productivity growth take off, too? As that used car commercial would put it, “Not exactly.” From the expansion’s start in the first quarter of 1982 to the fourth quarter of 1986 (the amnesty bill became law in November), labor productivity growth totalled 10.96 percent. But from the first quarter of 1987 to the third quarter of 1990 (the expansion’s end), the total labor productivity increase had slowed – to 5.76 percent.

The 1980s are important for two other reasons as well. Nineteen eighty-seven is when the Bureau of Labor Statistics began collecting labor productivity data for many U.S. industries, and when it began tracking productivity according to a broader measure – total factor productivity, which tries to measure efficiency gains resulting from a wide range of inputs other than hours put in by workers.

There’s no labor productivity data kept for construction (an illegal immigrant-heavy sector whose poor productivity performance is admitted by the sector itself). But these figures do exist for another broad sector heavily reliant on illegals: accommodation and food services. And from 1987 to 1990 (only annual results are available), labor productivity in these businesses increased by a total of 3.45 percent – worse than the increase for the economy as a whole.

On the total factor productivity front, between 1987 and 1990 (again, quarterly numbers aren’t available), it rose by 1.23 percent for the entire economy, for the construction industry it fell by 1.37 percent, for the accommodation sector, it fell by 2.30 percent, and for food and drinking places, it increased by 2.26 percent. So only limited evidence here that amnesty and a bigger immigrant labor pool did much for U.S. productivity.

As Schulte pointed out, the 1990s, dominated by a long expansion, were a good productivity decade for the United States, with labor productivity reaching 2.58 percent average annual growth and total factor productivity rising by 10.87 percent overall. But when it comes to labor productivity, the nineties still fell short of the 1950s (even with its two recessions) and by a wider margin of the 1960s.

But did robust immigration help? Certainly not in terms of labor productivity. In accommodation and food services, it advanced by just 0.84 percent per year on average.

Nor as measured by total factor productivity. For construction, it actually dropped overall by 4.94 percent. And although it climbed in two other big illegal immigrant-using industries, the growth was slower than for the economy as a whole (7.17 percent for accommodation and 5.17 percent for restaurants and bars).

Following an eight month recession, the economy engineered another recovery at the end of 2001 that lasted until the end of 2007. This period was marked by such high legal and illegal immigration levels that the latter felt confident enough to stage large protests (which included their supporters in the legal immigrant and immigration activist communities) demanding a series of new rights and a reduction in U.S. immigration deportation and other control policies.

Average annual labor productivity during this expansion grew somewhat faster than during its 1990s predecessor – 2.69 percent. But annual average labor productivity growth for the accommodation and food services sectors slowed to 1.19 percent, overall total factor productivity growth fell to 1.19 percent, and average annual total factor productivity changes in accommodations, restaurants, and construcion dropped as well – to 6.36 percent, 2.67 percent, and -9.08 percent, respectively.

Needless to say, productivity grows or shrinks for many different reasons. But nothing in the data show that immigration has bolstered either form of productivity, especially when.pre- and post-amnesty results are compared. In fact, since the 1990s, the greater the total immigrant population, the more both kinds of productivity growth deteriorated for industries relying heavily on illegals. And all the available figures make clear that these sectors have been serious productivity laggards to begin with.

And don’t forget the abundant indirect evidence linking productivity trends to automation – specifically, all the examples I’ve cited in last Sunday’s post and elsewhere of illegal immigrant-reliant industries automating operations ever faster — and precisely to offset the pace-setting wage increases enjoyed by the lowest income workers at least partly because former President Trump’s restrictive policies curbed immigration inflows so effectively. 

In other words, in the real world, changes in supply and demand profoundly affect prices and productivity levels – whatever hokum on the subject is concocted by special interest mouthpieces who work the Swamp World like Todd Schulte.

(What’s Left of) Our Economy: Everything You Wanted to Know About Immigration & the Economy — & Less

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economics, immigrants, Immigration, innovation, labor shortages, Open Borders, productivity, The Washington Post, wages, {What's Left of) Our Economy

Leave it to the zealously pro-Open Borders Washington Post. It chose as the reviewer of a book by two economic historians apparently unaware of the relationship in U.S. history between immigration levels and productivity improvement a business professor seemingly just slightly less clueless about this crucial link either historically and going forward.

Doubt that? Then take a look at this morning’s rave by Harvard business professor Michael Luca about a new study by Ran Abramitzky and Leah Boustan of Stanford and Princeton Universities, respectively, titled Streets of Gold: America’s Untold Story of Immigrant Success.

According to Luca, Streets of Gold “reflects an ongoing renaissance in the field of economic history fueled by technological advances — an increase in digitized records, new techniques to analyze them and the launch of platforms such as Ancestry — that are breathing new life into a range of long-standing questions about immigration. Abramitzky and Boustan are masters of this craft, and they creatively leverage the evolving data landscape to deepen our understanding of the past and present.”

And their overall conclusion (which rightly takes into account the non-economic contributions of immigrants to American life) is that (in Abamitzky’s and Boustan’s words): “Immigration contributes to a flourishing American society” – especially if you take “the long view.”

But there’s no indication in Luca’s review that the authors weigh in on a key (especially in the long view) impact of immigration on the U.S. economy – how it’s affected the progress made by the nation in boosting productivity: its best guarantee for raising living standards on a sustainable basis.

As I’ve written repeatedly, mainstream economic theory holds that one major spur to satisfactory productivity growth is the natural tendency of businesses to replace workers with various types of machinery and new technologies when those workers become too expensive. Most economists would add that although jobs may be lost on net in the short-term, they increase further down the road once these productivity advances create new companies, entire industries, and therefore employment opportunities.

By contrast, when businesses know that wages will stay low – for example, because large immigration inflows will keep pumping up the national labor supply much faster than the demand for workers rises – these companies will feel little need to buy new machinery or otherwise incorporate new technologies simply because they won’t have to.

And more important than what the theory says, abundant evidence indicates that businesses have behaved precisely this way in the past (when scarce and thus increasingly expensive labor prompted acquisitions of labor-saving devices that helped turn the United States into an economic and technology powerhouse), into the present (as industries heavily dependent on penny-wage and often illegal immigrant labor have tended to be major productivity laggards).  

Reviewer Luca demonstrates some awareness that this issue matters in the here and now and going forward, writing that “Compared with the rest of the country, businesses in high-immigration areas have access to more workers and hence less incentive to invest in further automation.”

He also points out that “This has implications for today’s immigration debates.”

But his treatment of the current situation is confused at best and perverse at worst (at least if you buy the economic conventional wisdom and evidence concerning the productivity-immigration relationship).

Principally, he claims that “the United States is expected to face a dramatic labor market shortage as baby boomers retire and lower birthrates over time result in fewer young people to replace them.” Let’s assume that’s true – despite all the evidence that more and more employers are filling all the job openings they’ve been claiming by automating. (See, e.g., here, here, and here.)

Why, though , does Luca simply conclude that “Increased immigration is one approach to avoiding the crunch. Notably, the other way to avert this crisis is through further automation, enabled by rapid advances in artificial intelligence. Immigration policy will help shape the extent to which the economy relies on people vs. machines in the decades to come.”

Is he really implying that a low-productivity — and therefore low-innovation — future would be a perfectly fine one for immigration (and other) policymakers to be seeking?

Just as important, although Luca clearly recognizes that these questions have at least some importance nowadays, he provides no indication of where the book’s authors stand.

So let the reader beware. Luca clearly believes, as Post headline writers claim, that Streets of Gold makes clear “What the research really says about American immigration.”  What his review makes clear is that this claim isn’t even close.

   

(What’s Left of) Our Economy: More Evidence that Pay Really is Worsening U.S. Inflation

Tags

ECI, Employment Cost Index, Federal Reserve, inflation, Labor Department, labor productivity, multifactor productivity, productivity, recession, wages, workers, {What's Left of) Our Economy

Back in February, I wrote that although U.S. workers’ hourly wages were rising more slowly than the standard measure of consumer prices (the Consumer Price Index, or CPI), and therefore on that basis couldn’t be blamed for the recent, historically high inflation, there was one reason to be worried about the last few years’ healthy pay hikes: Such pay was rising faster than worker productivity.

I explained that this trend inevitably fueled inflation because “when businesses are in situations where wages are rising but their operations are becoming more efficient at a faster rate, they can maintain and even increase profits without passing higher costs on to their customers. When productivity is rising more slowly than inflation, this option isn’t available – or not nearly as readily.”

And more important than my views on the subject, these concerns have been expressed by Jerome Powell, Chairman of the Federal Reserve, the U.S. central bank that has the federal government’s main inflation-fighting responsibilities.

So it’s discouraging to report that new government data on both pay and productivity have come out in the last two weeks, and they make clear that the pay-productivity gap has just been widening faster than ever.

The pay data come from the Labor Department’s latest Employment Cost Index (ECI), which tracks not only hourly wages but salaries and benefits, while the productivity figures come from Labor’s new release on labor productivity, which measures how much output a single worker turns out in a single hour. And conveniently, both releases take the story through the first quarter of this year.

The results? From the fourth quarter of last year through this year’s first quarter, total compensation for all private sector workers, the ECI increased by 1.42 percent, while labor productivity for non-farm businesses (the category most closely followed, and basically identical with the private sector) fell by 1.93 percent. That last number was labor productivity’s worst such performance since the third quarter of 1947. (As RealityChek regulars know, I focus on private sector workers because their pay levels largely reflect market forces, not politicians’ decisions, and consequently reveal more about the labor picture’s fundamentals.)  

The year-on-year statistics aren’t much better – if at all. Between the first quarter of last year and the first quarter of this year, the ECI for the private sector grew by 4.75 percent, but labor productivity dipped by 0.62 percent.

And since the U.S. economy began recovering from the first wave of the CCP Virus pandemic, during the third quarter of 2020, the private sector ECI is up by 6.61 percent, while labor productivity is down by 0.78 percent.

As also known by RealityChek readers, labor productivity isn’t the economy’s only measure of efficiency. Multifactor productivity is a broader, and therefore presumably more useful gauge. It’s not as easy to work with because its results only come out annually, and the latest only take the story up to the end of last year.

The picture is decidedly more encouraging – at least recently. From 2020-2021, multifactor productivity for non-farm businesses improved by 3.17 percent. But it still wasn’t good relatively speaking, since from the fourth quarter of 2020 through the fourth quarter of 2021, the private sector ECI increased by 4.38 percent.

Worse, from 2001 (when the Labor Department began the ECI) to last year, pay b that gauge was up 74 percent while non-farm business multifactor productivity had advanced by a mere 16.46 percent.  Therefore, clearly the recent pay and productivity numbers don’t simply stem from pandemic-related distortions of the economy. 

To repeat important points from last February’s post, the productivity lag doesn’t mean that U.S. workers overall don’t deserve nice-sized raises and better benefits, and it certainly doesn’t mean that they’re solely or largely to blame even for poor labor productivity growth. After all, managers are paid as handsomely as they are fundamentally to figure out how to make their employees more productive. Also, productivity is a barometer of economic performance that’s unusually difficult to determine precisely.

But the new figures do strengthen the case that labor costs bear significant responsibility for boosting inflation, and that a major fear surrounding overheated price increases – that inflation acquires powerful momentum as surging prices lead to big wage hike demands and vice versa, and create a spiralling effect that’s excuciatingly difficult to end without the Fed throwing the economy into recession. Just as depressingly, the new pay and productivity figures also strengthen the case that, unless the economy becomes a lot more productive very quickly, the sooner this harsh medicine is administered, the better for everyone in the long run.

Making News: Back on National Radio Talking U.S. Economic Divorce from China…& More!

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China, decoupling, Immigration, inflation, investment, Jeremy Beck, Making News, Market Wrap with Moe Ansari, Moe Ansari, NumbersUSA, tariffs, tech, Trade, wages

I’m pleased to announce that tonight I’m scheduled to be back on the nationally syndicated “Market Wrap with Moe Ansari” radio program to discuss U.S.-China economic relations. Our focus:  the crucial question of whether and how easily America can decouple trade-wise, tech-wise, and investment-wise from the hostile regime in Beijing.

“Market Wrap” is broadcast nightly between 8 and 9 PM EST, the guest segments typically come in the second half-hour, and you can tune in by visiting Moe’s website and clicking on the “Listen Live” link on the right-hand side.

As usual, moreover, if you can’t tune in, the podcast will be posted as soon as it’s on-line.

In addition, it was great to see Jeremy Beck of the immigration realist group NumbersUSA quote from my April 7 post in a column on the damage done by decades of mass immigration to the U.S. economy — including to the wages of working class Americans. Here’s the link.   

And keep checking in with RealityChek for news of upcoming media appearances and other developments

(What’s Left of) Our Economy: Pro-Immigration Labor Shortage Claims Keep Going Up as Real Wages Keep Going Down

Tags

compensation, Employment Cost Index, immigrants, Immigration, inflation, inflation-adjusted wages, Labor Department, labor shortage, productivity, wages, Washington Post, workers, {What's Left of) Our Economy

It’s as if the Open Borders Lobby – both its conservative and liberal wings – has recently decided that it’s really had enough of labor market tightness that’s due to reduced immigration, and that’s also giving so many of America’s workers a long-needed pay raise. So it’s been re-upping the pressure to open the floodgates once again and solve this terrible problem. (See, e.g., here, here, and here.)

As is so often the case, the Open Borders-happy Washington Post editorial board has made the case most succinctly: “[C]ompanies are frantically trying to hire enough workers to keep up with the surge in demand for everything from waffle irons to cars. The nation has more than 11 million job openings and 6 million unemployed.

“This imbalance is giving workers and job seekers tremendous power. Pay is rising at the fastest pace in years….”

Yet this claim is not only profoundly anti-American worker. It’s completely false – at least if you look at the only measures of pay that reveal anything about whether employees are getting ahead or not. And they’re of course the compensation measures adjusted for inflation.

What do they show? Between 2020 and 2021, inflation-adjusted hourly pay for all U.S. workers in the private sector were down by 2.10 percent and for blue-collar workers by 1.52 percent. (As known by RealityChek regulars, the U.S. Labor Department that tracks pay trends for the federal government doesn’t monitor any type of compensation for public sector workers because their wages and salaries and benefits are determined largely by politicians’ decisions, not the forces of supply and demand. As a result, they’re thought to say little about the labor market’s true strengths or weaknesses.)

Do you know when such wages have fallen by that much? Try “never” for the entire workforce (where the Labor Department data go back to 2006), and for blue collar workers, several times during the 1970s, which were a terrible time for the economy overall. (For this group, the official numbers go back to 1964).

But haven’t better benefits compensated? Two Labor Department data sets do measure changes in all forms of compensation. The best known, and the one most closely followed by the Federal Reserve and leading economists everywhere, is the Employment Cost Index (ECI). It covers state and local government (though not federal) employees as well as private sector workers. But there’s no evidence of any inflation-adjusted gains for the nation’s workforce – much less outsized gains – from these statistics either.

From the fourth quarter of 2020 to the fourth quarter of 2021, this index did increase by 4.37 percent for all covered workers (breakouts for white- and blue-collar employees only go up to 2006). Yet during this period, the Labor Department’s inflation measure, the Consumer Price Index, was up 7.42 percent. That’s called “falling behind” in my book.

When business (and government on the state and local levels) starts offering pay that’s rising higher than the inflation rate, then Americans as a whole can start worrying about genuine labor shortages. (And even then, as I’ve written, it would be much better for the economy as a whole if companies responded by boosting their productivity, rather than by agitating for more mass immigation with the aim of driving wages down and of course dodging any incentives to operate more efficiently.) For now, though, it’s obvious that what U.S. business is “frantic” about (to use the Post‘s term) isn’t a shortage of workers. It’s a shortage of cheap workers.

(What’s Left of) Our Economy: Americans’ Real Wages Keep Sinking

Tags

CCP Virus, China, consumer price index, coronavirus, cost of living, COVID 19, CPI, energy, food, inflation, inflation-adjusted wages, living costs, lockdowns, private sector, real wages, Russia, sanctions, supply chains, Ukraine, Ukraine invasion, Ukraine-Russia war, wages, Wuhan virus, zero covid policy, {What's Left of) Our Economy

Last Thursday’s news coverage of U.S. inflation rates (as measured by the Labor Department’s Consumer Price Index, or CPI) rightly emphasized that the February headline figure hit its highest annual rate in 40 years. What such reports seem to have missed is something at least as important, especially for understanding why the American public seems so angry about these price hikes despite lots of other strong economic indicators.

Specifically, the same day the Labor Department released the new CPI numbers, it also posted data showing that after adjusting for inflation, wages for many major categories of U.S. workers saw their greatest drops in several months and in some cases longer than that. And much of the news was especially bad in manufacturing.

To start with the broadest grouping, in February, hourly pay for the average private sector worker fell on month by 0.80 percent, the worst such performance since the 1.72 percent decrease in June, 2020, early during the recovery from the CCP Virus’ first wave. (As known by RealityChek regulars, the Labor Department doesn’t track wages for government workers because those pay levels are mainly set by politicians’ decisions, and therefore say little about the fundamental state of the nation’s labor market or broader economy.)

For private sector production and nonsupervisory workers (who are often called blue-collar workers), the 0.86 real wage decline they experienced was also the worst since June, 2020 (1.30 percent).

On an annual basis, after-inflation wages in February sank for all private sector workers by 2.63 percent – the fastest pace since last May’s 2.67 percent. And for the blue-collar subset, they’re off by 1.93 percent – also the most since last May (2.69 percent).

Throughout manufacturing, these inflation-adjusted wages took major hits, too. For all workers in the sector, such pay dropped by 1.29 percent between January and February – the biggest falloff since May, 2020’s 1.76 percent. For industry’s blue-collar employees, they tumbled by 0.57 percent – the steepest since June, 2020’s 1.31 percent.

Much worse for manufacturing wages were the February year-on-year results. For manufacturing as a whole, they were down in after-inflation terms by 3.43 percent – the greatest decline since April, 2021’s 3.85 percent.

But the real stunner came for the production and nonsupervisory group. The 3.41 percent annual retreat in their real wages was the worst in more than 41 years – going back to July, 1980’s 3.90 percent.

And especially discouraging – with further price hikes in energy (and all the products and services that depend on it) and food seemingly certain because Russia’s invasion of Ukraine has disrupted global markets and supply chains anew, inflation-adjusted wages also seem likely to keep falling. The news that China has just locked down two big industrial cities in an attempt to fight a CCP Virus surge with its Zero Covid policy won’t help, either.

It’s true, as President Biden and his supporters keep noting, that growth is still strong, and that unemployment is way down.  But the former understandably can seem abstract, and high inflation means that even recent job gainers can’t be faulted for feeling that they’re falling behind economically despite paychecks resuming.  

 

(What’s Left of) Our Economy: Lots of U.S. Growth – & Even More Inflation

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Biden, consumer price index, CPI, GDP, gross domestic product, inflation, inflation-adjusted growth, inflation-adjusted wages, real GDP, State of the Union, wages, {What's Left of) Our Economy

With President Biden’s State of the Union address coming up tonight, a Bloomberg.com headline the other day nicely summed up a major feature of commentary on the economy over the last year: “Inflation Pain Means Biden Gets No Credit for Roaring Economy.”

At least the article lacked the infantile and indeed ignorant “No fair!” tone of many other articles and remarks focusing on the contrast between the downbeat national mood on the state of the economy and the strong data being reported on its actual performance in terms of generating growth and jobs. (See here for my takedown of one leading example.)

As I explained, these complaints are ignorant (or deceitful, depending on your assessment of the complainer) because inflation is so high nowadays that it’s outstripping wage increases on the whole – which means that Americans (and especially the vast majority who rely on wages – and salaries – for the vast majority of their income) are experiencing falling living standards.

The Bloomberg piece thankfully didn’t display any of this whininess. But the headline suggests at least that Mr. Biden deserves at least some credit for the “roaring economy,” – which is a problem. That’s because especially when you look at inflation, too, the economy’s growth rate during his first year in office is anything but impressive. In fact, it looks like nothing more than the latest display by official Washington (including the Federal Reserve) that pumping unheard of amounts of money into the system will inevitably stimulate a certain amount of net positive economic activity – at least for a while.

Specifically, during that first Biden year in office, as fast as the economy expanded after stripping out the effects of rising prices (5.7 percent), it still increased more slowly than the inflation rate (7.0 percent as measured by the Consumer Price Index – CPI). And at least as important, economic growth trailing the inflation rate – in other words, output expanding while the typical American’s paycheck shrinks in real terms – hasn’t been the slightest bit common in recent decades.

During the pre-pandemic economic recovery that began in mid-2009 through the CCP Virus- and lockdowns-marked recessionary year 2020, the growth of inflation-adjusted GDP (gross domestic product, the U.S. government’s standard measure of the economy’s size and rate of change), trailed the inflation rate just once – in 2011. (The inflation data come from here, except for the 2021 number, which I took from the Labor Department. The GDP figures from the Commerce Department tables I always use.)

Further, from the beginning of this century through 2020, these results have appeared only six times – and three of those instances occurred during the bubble years of the century’s first decade. Since that economic story ended in the global financial crisis and worst downturn since the Great Depression of the 1930s, that’s kind of sobering.

Worse, the last time in U.S. economic history when inflation routinely exceeded after-inflation growth was from the mid-1960s through the early 1980s. That’s bad because that era was one of stubbornly high inflation – and because it’s not a time that evokes even minimally satisfactory economic memories for those who lived through it (like me).

I’d choose 1966 as the beginning of that inflation-prone period – not because prices were rising at such torrid rates (at least by subsequent standards) but because they’d abruptly doubled – to three percent from 1.6 percent. In addition, three percent hadn’t been seen since the mid-1950s (according to the table here, whose data differs slightly with the source used above). So it’s not surprising that inflation helped Republicans eat meaningfully into long-time Democratic Congressional majorities in that year’s offyear elections during the Democratic Johnson administration.

From that point, until 1983, when inflation slowed significantly basically because the Federal Reserve engineered two painful recessions, the CPI topped real GDP growth no fewer than 14 out of 18 years.

It’s anyone’s guess whether current inflation will produce comparably awful results. But it’s explaining how he’ll help avoid that scenario, and foster acceptable growth without high inflation, that should be on the President’s mind tonight – not wondering why the nation isn’t more appreciative of its roaring economy.