The Japanese wage problem

I read a lot about Japan. It has interested me since the early 1990s commercial property collapse and the subsequent fiscal and monetary policy measures that the Japanese government deployed to deal with it, which took policy settings outside the bounds that mainstream economists could cope with. These economists predicted the worst based on mindless extrapolations of their ‘theoretical’ models, which are really incapable of dealing with the real world in any meaningful way. Their worst didn’t come and some 3 decades later, with policy settings still at ‘extreme’ levels compared to the way mainstream economists think (and the policy makers are not budging it seems), Japan continues to demonstrate why New Keynesian macroeconomics is inapplicable and why Modern Monetary Theory (MMT) has traction. And while Japan provides first-class public transport, health and education systems, a viable housing policy, good urban systems, and has maintained low unemployment rates even during the GFC and the pandemic, there is one feature that is troublesome – the flat lining wages growth over the last 20 years. I have been very interested in learning the reasons for this phenomenon, which sets Japan apart from most other nations (who have also experienced low wages growth – but not that low). I plan to work on this aspect, in part, when I move to Kyoto next month for an extended stay.

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It all adds up to the conclusion that system change is required not progressive tinkering

It’s Wednesday and some short items that caught my interest over the last week. The FAO’s latest – Food Price Index – shows that even though food prices fell 8.6 per cent from June (to August), “the fourth consecutive monthly decline”, they are still massive inflated (13.1 per cent higher than August 2020) and the “world’s top four grain traders” are profiting from record sales in the face of supply disruptions. The World Food Program informs us that 345 million people are enduring ‘acute food insecurity’ which is nearly 3 times the pre-pandemic number. The system is not working and I have some things to say about that below. Further, latest PMI data from Europe shows that price pressures are declining, which brings into question those (with vested interests) calling for even higher interest rates. And then some music.

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Australian labour market deteriorating as employment and participation contract

The Australian Bureau of Statistics (ABS) released of the latest labour force data today (August 18, 2022) – Labour Force, Australia – for July 2022. With Covid infection rates rising quickly, and already around 780,000 workers working few hours than usual because of sickness, I predicted last month that there would be a deterioration in the labour market in the coming months. That trend emerged in July 2022. The labour market deteriorated in July 2022 with employment and participation both contracting. While the official unemployment rate fell to 3.4 per cent this was all down to the decline in participation. Had the participation rate not declined the unemployment rate would have risen from 3.6 per cent to 3.9 per cent. Further, the underlying (‘What-if’) unemployment rate is closer to 6.1 per cent rather than the official rate of 3.4 per cent. There are still 1313.7 thousand Australian workers without work in one way or another (officially unemployed or underemployed). The only reason the unemployment rate is so low is because the underlying population growth remains low after the border closures over the last two years. Overall, the situation worsened over July.

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Australia – wages growth flat and purchasing power of workers is plummeting to new depths

All eyes have been waiting for today’s release (August 17, 2022) of the – Wage Price Index, Australia – by the Australian Bureau of Statistics for the June-quarter, given that the Reserve Bank of Australia has been claiming wage pressures are becoming threatening and using that as a cover for unnecessarily pushing up interest rates. Prior to pushing up interest rates over the last several months, the RBA had been signalling that they would not move on interest rates until there was a concerted increase in wages growth, which has been at record low levels for some years now. On the back of that information, many new entrants to the housing market ran up massive mortgage debts and now feel dudded by the central bank. Whatever, information on wages the RBA is privy too is not gelling at all with the official data, which continues to show that wages growth remains flat (hasn’t moved in three months) and at record low levels. The is no acceleration. Wages growth is not driving the inflation trajectory. Workers are enduring massive real wage cuts and the RBA has made that worse by pushing up mortgage rates for those exposed. The business sector, as a whole, thinks it is clever to always oppose wages growth and the banks love that because they can foist more debt onto households to maintain their consumption expenditure. But the reality is clear – there can be no sustained recovery for the economy post Covid without significant increases in the current rate of wages growth.

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US Labour Market – creating work but participation and real wages falling

Last Friday (August 5, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – July 2022 – which reported a total payroll employment rise of only 528,000 jobs and an official unemployment rate of 3.5 per cent. Many commentators immediately claimed that the labour market was tightening as a result of the decline in the official unemployment rate, but that was all down to a decline in the participation rate – less people looking for work – which is a sure sign that job opportunities are becoming harder to access. When the hires data comes out soon, we will be able to be more definitive on that. The other interesting aspect of this data is that real wages continued to decline in all industry sectors – they have systematically fallen each month since March 2022. I note some commentators are trying to claim that wage pressures are now pushing inflation. That conclusion is untenable given the data. The US labour market is still producing employment but it is hardly booming.

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Trickle down. Remember that. The evidence base continue to reject the notion as a scam

Trickle down. Remember that? This was the idea that if we redirect real income towards capital by boosting profits via real wage suppression and/or corporate tax cuts, as if by magic, corporations will start investing the largesse in productive capital, which stimulates economic growth, and, the benefits ‘trickle down’ to the workers who made the initial sacrifices. The evidence base has never supported the idea yet it still resonates. I read two interesting articles yesterday, which are related even if at first blush they may not appear to be. The first reveals the shocking decline in productive investment by both private and public sectors and the long-term damage that that will have for our capacity to meet the climate challenge. The second shows that the arguments that cutting corporate taxes is good for economic growth is false.

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Who would be so stupid to advocate deliberately putting 2.3 million workers out of work? Guess who?

It’s Wednesday and I am pushed for time today. My local community is in the last stages of trying to stop a massive overdevelopment in our midst, which will damage the social cohesion and environmental amenity in our neighbourhood, while delivering massive profits to a greedy property developer. I have to appear before a tribunal today to document the impacts of the development on these things. Property developers are the scourge. So are mainstream economists like Larry Summers who is proposing that unemployment be deliberately increased by more than 2.3 million and held at that level or higher for years in order to reduce the current (transitory) inflation. Who would be so stupid? And after getting really mad about that and Keir Starmer’s abandonment of working class representation, we can soothe our souls with some Roy Elridge.

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Australia minimum wage rises but the Fair Work Commission still did not preserve real value as they claim

I am back at about 70 per cent but improving. This morning was good news although it should have been better. Australia’s minimum wage setting authority – the Fair Work Commission (FWC) – increased the federal minimum wage by 5.2 per cent or $A40 a week to $A812.60. In their decision – – Annual Wage Review 2021-22 – the FWC sought to protect the real living standards of the lowest-paid workers in the nation after receiving a ‘direction’ from the new Federal Labor Government to do so. They failed. Real wages for low-paid workers will still fall over the next 12 months, just not by as much as they would have had not the Federal government intervened and supported a 5.1 per cent rise (which was the March-quarter inflation rate). So good but should have been better. The major employer groups argued for variously very low nominal rises, while at the same, they enjoying booming profits and rising productivity growth. A scandalous indictment of our system.

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US labour market weakens a little – it is madness to be increasing interest rates in this environment

Last Friday (June 3, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2022 – which reported a total payroll employment rise of only 390,000 jobs and an official unemployment rate of 3.6 per cent. The US labour market is still 822 thousand payroll jobs short from where it was at the end of May 2020, which helps to explain why there are no wage pressures emerging. Real wages continued to decline as the supply disruptions and the greed of increased corporate profit margin push sustain the inflationary pressures. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data. It is madness to be increasing interest rates in this environment.

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US Federal Reserve Bank economists going Marxist on us

It only took about 6 decades or so. And, in between, there has been denial, fiction, and diversions. But here we are 2022 and work that was explicit in the 1960s is now being recognised by the central bank of the largest economy. In fact, the foundations of this new acceptance goes back to the C19th and was developed by you know who – K. Marx. Then a socialist in the 1940s wrote a path breaking article further building the foundations. And then a group of Marxist economists brought the ideas together as a coherent theory of inflation early 1970s as a counter to the growing Monetarist fiction that inflationary pressures were ultimately the product of irresponsible government policy designed to reduce unemployment below some ‘natural rate’. I am referring here to a Finance and Economics Discussion Series (FEDS) working paper – Who Killed the Phillips Curve? A Murder Mystery – published on May 20, 2022 by the Board of Governors of the US Federal Reserve System. I suppose it is progress but along the way – over those 6 decades – there have been a lot of casualties of the fiction central banks created in denial of these findings.

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