Redstate

Here's a conundrum that I have trouble with. If the labor market is tightening, then why don't we see the effects of it, such as higher hourly wages?

From Feb 2005 to Feb 2006, hourly wages rise 3.6%, but inflation accounted for 3% of that. Weekly earnings show the same 3.6% increase. Areas that had seen strong labor demand have also seen strong earnings growth, like construction weekly earnings being up 4.8%, but that hasn't spread out into the wider economy.

Maybe wages are just being a little slow to respond, or maybe the published indicators are not doing a very good job of capturing higher earnings (such as from the stay-at-home self-employed) while overweighting areas with slowing wage growth.

I was going to post a diary on this after I got my kids in bed.

You have covered it well enough, that I have no more comments for now.

I started a job last year fresh out of Grad School making what my Dad made the year before after 25 years at his "Wonderful" union job. Jobs are great in almost every sector now. The sectors where jobs arent good are for the most part the sectors where unions dominate. BIG SURPRISE!!!

...for some businesses.

In Orlando, for example, the unemployment rate is 2.9%.  That means that companies either have to offer much better deals, or have unfilled positions.

I know a number of those "Gen Y" kids (who are supposed to be so unmotivated) who are working two or three jobs, and making serious cash.  One mid-20s gal is making over $50,000 a year - and she's a bartender!

Just practicin' my journalism skills. Sorry.

Women, children, minorities hardest hit.

You might be interested in this article:

"Real Wage" Slaves?

The column is mostly about looking at other factors, arguing that households are better off, and I would mostly agree with that.

I'm more concerned with hourly and weekely earnings in the way they would show a stronger labor market. In that context, it doesn't matter how else people earn money or how houshold composition changes.

The one good point in there in that total compensation has increased. A large chunk of that is increased cost and not from increased quality or services. It's an inflationary illusion. If you were to adjust the benefits for inflation weighted for the appropriate increase in healthcare costs, It wouldn't look as nice.

If you were to adjust the benefits for inflation weighted for the appropriate increase in healthcare costs, It wouldn't look as nice.

And if you were to adjust by the fudge factor and multiply by pi, you would have another meaningless statement. I mean, what's your game, Mac? You gonna keep "adjusting" until things turn out the way you want? That's a game we can all play.

is that since inflation (i.e. quality-adjusted output rising in price) in the healthcare market is higher - allegedly - than ordinary CPI-measured inflation, it is therefore inappropriate to use CPI (or PCE, or what have you) to deflate (the health component of) nominal compensation figures.

In other words, if you constructed a health price index and used that to deflate employment health benefits, the "increasing" real compensation would be shown up as the result of underestimated inflation (i.e. using CPI instead of a medical price index).

(Unless of course, real-wage figures already do take this into account - I have no idea).

I think a good argument can be made for jjason's case, though with the spectacular productivity growth of the past ten years (particularly the past four or five), I have to be at least slightly sceptical.

"dark clouds on horizon" warns Joe McGillish of Ratpoison Econometrics.

And when I compare this situation to the one in France, I have to scratch my head and wonder exactly what the doom and gloomers are on about.

No one really knows of course but I think there are significant problems with how the wage statistics are compiled (such as overweighting traditional industries). But there are even worse problems with the inflation numbers, which capture very little of the non-traditional productivity growth that is being enabled by modern infotech.

Someone upthread talked about stay-at-home self-employment. I don't think they're staying home, but I suspect that a tremendous number of people are doing the tiny-company thing (20-50 people or even smaller) to serve decently-lucrative niches. Because of infotech, they are easy to integrate into global supply chains. This may be a far bigger phenomenon than anyone has figured out how to measure.

I'm inclined to look for arguments against your thesis because of one observation I make nearly every day: people may tell pollsters that they're worried about the economy, but they're all out there buying cars, stuff for their homes and private schooling like it was going out of style. Peoples' opinions come from the last news report they saw or read, but their actions come from reality.

consists of overall compensation, and excluding CPI, what is the differnce between a more accurate measure of medical costs and total compensation.  I'm a little sceptical as well as there are a number  of factors that enter into the wage growth question.

It is Dimocrats that bad-mouth the economy, and their reasons are the same as when they disparage the war, the administration, or whatever they care to criticize.  Leftist media are in full cooperation with the Dims.  

It is true that the economy is recovering strongly, but why would the Republicans want to say so at this point?  We have many polls, but the only one that counts is next November.  The attention span of the American electorate is too short to confuse them with facts while the Dims and the media are confusing them with leftist propaganda.  

Let the economy continue on its spectacular rise, the effects will become obvious, and then the administration can reinforce the obvious, and take credit for it, near election time.  

In a good economy, the incumbents get re-elected.  

Don't you understand? This is the worse economy in 1,500 years! Nobody is working, there are no jobs! All the jobs are gone to Mexico, or China or India!

And it's all Bush's fault!

</tongue in cheek&gt

Dell is hiring 10,000 more people in India over the next few years.  Certainly that will be evidence of soup lines forming on the nearest streetcorner next month.      

that the job market is looking upbeat for "U.S. college graduates."

go to the latest census stats, plug in the numbers, and see that only 27.7% of Americans over 25 have a four-year degree.  

So, the economy is looking decent for about one quarter of the population.  Well that's dandy.  Definitely must correlate to the rest of the population, no doubt about it....  

I hadn't noticed the small print that said the stats only referred to the "noninstitutionalized population."  Hence, our lovely prison population drops that college % even lower. (Just like those neat unemployment numbers don't count people who've given up looking for work out of desperation.)

What a booming economy we must have!  Spread the word!

something that better reflects the attitude of your posting.  I suggest "half-full" or better yet, "half-baked".

People who give up on finding work out of "desperation" need a dictionary worse than they need a job!

to the rest of the population

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

Current unemployment rate of 4.8% is pushing the low end of the range of unemployment rates for the past 30 years.

here isn't experiencing an improved economy.  As you point out, recent college grads are in demand, but apparently proven teachers may be unemployable.

That's not 'inflation' you're talking about, that's a sector-specific price hike caused by increased demand. Not every price rise is inflation.

The gripe here is that health care is taking a bigger bite, percentagewise, out of people's budgets. Well, that's reality. The other choice is non-price rationing... like 3-year waits for heart surgery, assuming you live the three years to get it.

I am much more informed about how the payroll employment numbers are derived, but I know that the same CES data is used for the wage series. However, I don't think there is an equivalent to the birth-death model to fill in the holes in the wage data. That would mean that the wage numbers entirely fail to take into account young high tech (and other) companies.

I was the one that mentioned stay-at-home workers, and what I was thinking was thinking of was the growing class of good-wage workers who are now making a living at home. The household survey shows a growing number of self-employed, and the establishment survey doesn't collect pay data for them. While at one time a good paying stay at home job was a rarity, now it is becoming common. (CNBC had a program on this calling it the "E-Bay Effect".)

Complaining about the economy is the American pastime even more than baseball. It is one reason to never trust surveys of how people feel about things. However, the wage series are not those kind of surveys.

That's not 'inflation' you're talking about, that's a sector-specific price hike caused by increased demand.

Uh, that's the definition of demand-pull inflation. My point remains that it might be inappropriate to deflate wages year-to-year with CPI or PCE, since CPI is not an appropriate price index for medical services.

Anyway, I was specifically referring to quality-adjusted output rising in price. That could be from increased demand, although I doubt it since I'd imagine demand for medical services would be fairly inelastic.

It's especially inelastic when everyone is paying for it with OPM.

When you use the phrase "quality-adjusted increase in price," I assume you're trying to factor out value that is added by increased productivity, so as to consider only pricing pressures that come from supply and demand. But there is far more to quality than just productivity improvements.

Specifically in regard to healthcare: this is an industry that is mired in unproductive procedures, and it resists every attempt to become more productive. This is a very long and interesting discussion, but unfortunately tangential to your point.

The real point is that in recent years, the quality of healthcare as measured by improved outcomes has exploded. This is the result of new procedures, new therapies, and new scientific breakthroughs. We are spending more for healthcare because we are getting more health, longer lives, and a better quality of life as a result.

However, Nick Danger is emphatically correct when he points out that economic incentives in America are distorted in regard to healthcare spending, by the fact that individuals don't decide for themselves what to spend on healthcare. If we didn't have the semi-socialized system we do (with a complex web of third-party payers) then it's entirely possible that we would make very different choices in regard to the amount of healthcare we consume. A single-payer system would of course produce far worse outcomes even than we have now.

I was actually trying to factor out quality bias; if something increases in both price and quality, that's not necessarily inflationary, as you concur:

We are spending more for healthcare because we are getting more health, longer lives, and a better quality of life as a result.

As for productivity, increased productivity is, of course, counter-inflationary. Overall my opinion is that since productivity growth in the US has been prodigious for the past ten years or so, particularly the past five, that would be putting severe downward pressure on prices across the board, health too I assume. (A study of productivity growth in the medical sector would be really useful right now). If indeed productivity growth in the health sector is high, then it bodes well.

As for everything else, it's clear that Nick and you are correct on the healthcare mess; through the perversity of incentives, bureaucratic and legislative inertia, federal-state funding issues etc. Most western countries suffer from these problems though.

Making sure that Americans are competitive in the global environment and keeping employment up, especially for college graduates, is vitally important and will likely be one of the most important issues facing the nation in the coming years.

...and it's not growing. Apart from the legal profession, medicine is the only field that has completely resisted productivity improvements from modern infotech and business processes. (Diagnostic instruments are fully computerized and networked but their results still go into inaccessible files.) We run healthcare basically like a cottage industry of small independent producers who jealously guard their professional prerogatives. It just happens to be a nearly $2 trillion cottage industry.

Much of the problem, but not all, stems from over-regulation. This is a big subject, and this probably isn't the place for it.