Per Gad Levanon (January 12, 2015): In November 2013 Larry Summers proposed that the inability to reach full employment in the U.S. stems from chronically weak aggregate demand [and] aggregate demand will continue to fall short of supply, which effectively prevents the economy from reaching full employment or exhibiting significant demand...
Then Levanon writes: "Fast forward a year, and the argument that we will not be able to reach full employment looks almost silly. The unemployment rate stands at 5.6%, just 0.1% above the CBO’s 5.5% natural rate. And with the rapid job growth seen in recent quarters, we are about to zoom towards full employment on the way to a much tighter labor market in 2015 ... Fast forward two years and consider what kind of labor market and economy we may be operating in if these trends continue:
* In early 2017, the unemployment rate will likely be close to 4%.
* The “war for talent” will be at full swing, with quit rates close to their late 2000 peak.
* Wages and salaries will grow at 3-4% annually.
* Profitability will be declining as labor costs grow faster than revenues.
* Some operations will no longer be profitable and will close down, leading to slower economic growth.
* The rise in labor costs will gradually be passed on to the consumer, and inflationary pressures will develop.
Gad Levanon predicts stagnation by 2017, and then says: "On top of that, in early 2017 we would still have in front of us more than a decade of massive retirement of baby boomers and almost no growth in labor supply. We are just at the beginning of a very long labor supply squeeze."(MY note: Oh really? We currently have 92 million "not in the labor force" because many of them can't find jobs.)
Per Mark Thoma (January 12, 2015):
The unemployment rate continues its slow but steady downward path and now stands at 5.6 percent, but wages remain flat. In response, most analysts made two points. First, the lack of wage growth indicates that we are not yet close enough to full employment to generate upward pressure on wages ... Second, once we do get closer to full employment the picture for wages will change and the long awaited acceleration in labor compensation will finally materialize. I fear this trust that market forces will eventually raise wages will lead to disappointment.
Until workers recover the bargaining power they lost with the decline of unions and the rise of globalization, it’s hard to imagine a reversal of the forces pushing us toward stagnating wages and ever higher inequality. It’s not market forces alone that are determining the split of income between those at the top of the income distribution and those below, it’s also the institutions that determine who holds the cards in negotiations over wages. Presently workers are not faring well ... The ability of traditional unions to negotiate over wages has been undercut by globalization, technology, and the threat of offshoring."
Per Robert Reich (January 13, 2015) Why Wages Won’t Rise:
There’s reason to believe the link between falling unemployment and rising wages has been severed. For one thing, it’s easier than ever for American employers to get the workers they need at low cost by outsourcing jobs abroad rather than hiking wages at home. Outsourcing can now be done at the click of a computer keyboard. Besides, many workers in developing nations now have access to both the education and the advanced technologies to be as productive as American workers. So CEOs ask, why pay more? Meanwhile here at home, a whole new generation of smart technologies is taking over jobs that used to be done only by people. Rather than pay higher wages, it’s cheaper for employers to install more robots. In addition, millions of Americans who dropped out of the labor market in the Great Recession are still jobless. Employers know they can fill whatever job openings emerge with this “reserve army” of the hidden unemployed – again, without raising wages. Insecure workers don’t demand higher wages when unemployment drops. They’re grateful simply to have a job. Workers used to be represented by trade unions that utilized tight labor markets to bargain for higher pay. Today, though, fewer than 7 percent of private-sector workers are unionized. The growing use of outsourcing abroad and of labor-replacing technologies, the large reserve of hidden unemployed, the mounting economic insecurities, and the demise of labor unions have been actively pursued by corporations and encouraged by Wall Street. Payrolls are the single biggest cost of business. Lower payrolls mean higher profits. As corporations have steadily weakened their workers’ bargaining power, the link between productivity and workers’ income has been severed. Low unemployment won’t lead to higher pay for most Americans because the key strategy of the nation’s large corporations and financial sector has been to prevent wages from rising. And, if you hadn’t noticed, the big corporations and Wall Street are calling the shots.
Research increasingly shows that boosting education levels might not live up to the hype. Recent research finds that the demand for skilled labor appears to be on the decline. Now this is not to say that education is irrelevant or undesirable. A more educated workforce is likely to be more productive, leading to faster economic growth. And, securing a college education has other economic and non-economic benefits. For example, a college degree may act as a shield against dropping out of the labor force as the economy becomes a “cruel game of musical chairs.” But the sad reality is that higher levels of college education, once thought of as the best tool to reduce inequality, may no longer live up to the hype.
Holding a four-year college degree gives a worker a distinct advantage in the U.S. labor market. The wage gap between college-educated working adults and those with high school degrees is large and has grown steadily over the past 35 years. This gap appears to be bolstered by technological advances in the workplace, notably the ever-growing reliance on computers, because the skills needed to apply these technologies are often acquired through or associated with higher education. Since 2000, however, this trend has altered. Increasingly, the U.S. labor market favors workers who hold a graduate degree, while the wage advantage for those who hold a four-year college degree has changed little. (My comment: In other words, you now need a masters degree to get a job that someone with a GED could have had 20 years ago, displacing high school grads and dropouts. 20 years from now one will need a PhD to flip burgers.)
USA! USA! USA! --- Since the 2008 recession, 1.7 million more kids (ages 0 to 18) in the U.S. have fallen into poverty, for a total of almost 15 million. The official child poverty rate in the U.S. now stands at 20 percent, the second-highest among developed nations.
Quote of the Day (Bloomberg): "Instead of developing realistic and testable theories like those in biology or physics, [economists] often aim only to develop 'theoretical cases' -- imaginary mathematical worlds with their own rules of cause and effect."
* I believe what Mark Thoma wrote makes a lot of sense. And Robert Reich hit a home run. Whereas, Gad Levanon (who makes absurd predictions) lives in an imaginary world.