Wages growth in Australia goes from terrible to bad as real wage cuts continue

Today (November 17, 2021), the ABS released the latest – Wage Price Index, Australia – for the September-quarter 2021. The WPI data shows that nominal wages growth rose above levels recorded in previous quarters and the pattern resembled the pre-pandemic growth path – low to modest. The inflation rate continues to outstrip nominal wages growth, which means that workers in all sectors bar ‘Professional, scientific and technical services’ experienced on-going cuts drops in their real wages (purchasing power). The behaviour of nominal wages in Australia gives us a clear signal that there is little prospect of sustained inflationary pressures emerging from the labour market any time soon. Wages in the public sector grew by only 1.6 per cent over the 12 months as a result of the ridiculous wage freezes and wage caps that the federal and state governments are imposing. There can be no sustained recovery for the economy post Covid without a significant shift in the way we think about wages growth.

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Why flat wages growth in Australia tells us nothing about the impact of migration on the labour market

One of the important concepts one learns in studying the way firms work with respect to pricing and markups is the distinction between quantity and price adjustment over the course of an economic cycle. When economists talk of supply and demand, they usually refer to price adjustment, where prices adjust up or down when there is an imbalance between these aggregates. Orthodox economics presumes that prices adjust, for example, to eliminate an excess supply, which they apply to the labour market and conclude that the cure for mass unemployment is wage cutting. The problem is that in many circumstances, firms use quantity adjustments long before they contemplate price adjustments, because the former involves lower costs. The Australian Broadcasting Commission (ABC) ran a story from its business reporters today (November 16, 2021) – As migration restarts, will it hold down wages for everyone? – which has also become a feature news segment on its television coverage today. The analysis presented is seriously misleading. It not only fails to characterise the problem properly but buys into a highly contentious debate about whether migration has negative impacts on the labour market prospects for local workers. It behoves analysts to actually construct the problem correctly before they start taking sides in this debate. The ABC article fails in that regard which is disappointing. Their failure also reflects the lack of diversity in opinion they seek these days. They chose to simply rehearse the arguments presented by one pro-migration analysis as if it was definitive rather than seek expert opinion from neutral analysis. But it also demonstrates why understanding the difference between quantity and price adjustment is crucial to getting the conclusions right.

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UK Office of Budget Responsibility demonstrating the well-trodden GIGO format

I have finally been able to read the latest fiscal statement – Autumn Budget and Spending Review 2021 – from the H.M. Treasury, which was released on October 29, 2021. That 202 page document is not something anyone should spend time reading but in my job one has to in order to stay abreast of what is happening around the world. It also took me down the Office of Budget Responsibility snake hole to read their latest – Fiscal risks report – July 2021 – which obviously conditions the way the fiscal statement is framed. That is a really bad document. And as it happens, footnotes in that document take us further into the pit of New Keynesian fiction, where we find modelling that OBR relies on, that has the temerity to model fiscal shocks where labour markets always clear and households choose the unemployment rate, which is constructed as ‘leisure’, as they maximise their satisfaction. I suppose that is okay in a world where we assume households live to infinity. That is, nothing remotely like the world we live in. I don’t plan to analyse in detail the fiscal statement. Rather, here are some reflections on some of the material that the Treasury think is useful in framing the statement. Which helps to explain why these sorts of statements become lame quickly.

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Australian labour market – more than 2 million workers without work – 14.7 per cent

The Australian Bureau of Statistics released the latest labour force data today (November 11, 2021) – Labour Force, Australia – for October 2021. The background is that the entire East Coast has now come out of an extended lockdown over the last few months. The October 2021 data reveals the damage that those lockdowns have caused. But, given that today’s data reflects what was happening about a month ago, it is still too early to say what the speed of recovery will be although more recent payroll data suggests that employment growth is rebounding. But the story of today’s data is that total employment and the unemployment rate are worse than before the pandemic – so the nation has lost ground over the last 20 months. And that is largely because the federal government withdrew its fiscal stimulus too early. The summary results are clear: employment continues to contract, the unemployment and broader underutilisation rates soared. There are nearly 2 million Australian workers without work in one way or another (officially unemployed or underemployed) and several hundred thousand who have left the active labour force due to lack of employment opportunities. Overall, the labour market is in poor shape and the federal government is doing nothing to help. The lack of any significant stimulus from the federal government is telling. There is now definite evidence that further and rather massive fiscal support is required.

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When labour shortages just signal management caprice – case study

I have been researching the so-called labour shortage that business types are talking about relentlessly as part of their on-going strategy to undermine the conditions of work and make more profit. In the course of that enquiry, I came across an interesting juxtaposition between two US companies that illustrate a lot of what we have known about for years but have allowed this relentless, neoliberal, race-to-the-bottom to obscure. Well-paid workers with job security, work better and are happy workers. Companies that pursue the ‘race-to-the-bottom’ strategy and seek to build profits by trashing the conditions they offer workers eventually struggle to prosper because their bad reputation undermines their ability to attract productive workers. In the case we discuss today, the so-called ‘labour shortage’ is really just a signal of management caprice. Rather than being a shortage of workers, there is a shortage of workers who will tolerate the indignity of low wages, onerous conditions and capricious management. It is also a union versus non-union type of discussion where the unionised work places generate high productivity and worker attachment, while the non-unionised workplaces find it hard to attract reliable staff and blame it all on ‘labour shortages’.

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US labour market improves but still a long way to go before full employment is reached

Last Friday (November 5, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – October 2021 – which reported a total payroll employment rise of only 531,000 jobs in August and a 0.2 points decline in the official unemployment rate to 4.6 per cent. With participation unchanged, this was a stronger result than the previous month and the employment-population ratio rose by 0.1 points. It is still well down on the February 2020 peak though. The US labour market is still 4,204 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. An occupational analysis shows that the lower paid occupations have not participated proportionally in the jobs growth and many groups have endured real Median weekly earning cuts over the course of the pandemic. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.

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The Weekend Quiz – November 6-7, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The pandemic that just keeps giving, and not in a good way!

Today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today, he has taken a breather from teaching and exam marking to write about the long-run uneven labour market impacts of the COVID-19 pandemic. The COVID-19 pandemic has been the global emergency that just keeps giving. And not in a good way! Daily figures from around the world show that the pandemic’s health impacts continue to be widely felt. So, it’s over to Scott to explain how.

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The Weekend Quiz – October 30-31, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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In the battle between government and the hedge fund gamblers – the government has all the cards

Given my inflation report yesterday, I have shifted my usual Wednesday light blog post day and music feature to today. The economic debate has moved in recent years from ‘when is the government going broke’ to ‘hyperinflation is approaching’. It amazes me how puerile the economic commentary is as journalists and economists seeking headlines trot out headlines about how bad something (insert: insolvency, inflation, whatever is the latest craze) is going to be and what needs to be done about it. Nothing much happens in the real world and they keep their jobs and begin the next mania. Replay. And so it goes. It seems though that within this fictional world, that masquerades as informed economic commentary, subtle changes are underway. Governments worked out that during the GFC, the only weapon they had that would save the system was fiscal policy. They also worked out that large-scale bond buying by their central banks complemented the effective use of fiscal policy and didn’t deliver all the maelstrom that the mainstream New Keynesian textbooks predicted. The pandemic has accentuated that. And now there is this sort of stand-off between the ‘markets’ that were given too much latitude in the pre-GFC period and governments. The market players, who have become accustomed to manipulating government policy to ratify their speculative bets, which delivered massive profits to the hedge funds and the like, are now confronting central banks and treasuries that actually have power and cannot be bullied into delivering such policy ratification. That is progress and interesting to observe.

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When ‘new’ is really old and doesn’t get us very far – latest BIS paper

It takes a while for the mainstream organisations in economics, banking and finance to start to realise that the framework they use cannot explain the actual events in the real world, without serious revision. The problem though, is that the overall framework is flawed and the typical ‘response to anomaly’ approach, which changes a few assumptions to get ‘novel results’ is inadequate because it leaves one blind to all the possible policy solutions. The latest example is the Bank of International Settlements paper – Indebted Demand (released October 19, 2021) – which was written by three economists from Princeton, Harvard and Chicago Booth, respectively. They now recognise that rising inequality and massive household debt is a major problem for economic growth and macroeconomic stability. But, in maintaining ‘conventional’ assumptions about the government sector, they miss the vital linkages in the story, that Modern Monetary Theory (MMT) economists have been providing for the last 25 or so years. Whether these responses to anomaly represent progress or different variations in a flawed ‘chess’ strategy is a matter of opinion. My thought is they are a largely a waste of time, although marginally, they demonstrate that elements of mainstream macro theory that were considered core elements a decade ago are no longer sustainable.

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Marx’s dream does not justify ignoring day-to-day human suffering

One of the recurring criticisms I face when presenting at events comes from those who say they are ‘socialists’ or ‘Marxists’. They accuse me in various ways of being an apologist for capitalism, for offering palliative solutions to workers, which will delay the break down of the system and the revolution to socialism and communism. These critics proudly announce they follow Marx’s solutions and that they reject Modern Monetary Theory (MMT) because it is just a stooge for capitalism. The problem is that Marx had no real vision of how we would transit to Communism. A recent book referred to Marx’s philosophical position on this as a ‘dream’ (more later). And MMT is not specific to any mode of production, by which I mean, who owns the material means of production. It is applicable to any monetary system, and I cannot imagine any modern, technologically-based society functioning outside of that reality – socialist, capitalist or otherwise. But, moreover, the critics seem to be displaying a lack of basic humanity where they exercise reasoning that Noam Chomsky regularly refers to as belonging in a philosophy seminar. Even progressives (and socialists) have to be aware of humanity – as they plot and scheme for the revolution.

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Latest US quits behaviour signals possible shift in power to workers

The US Bureau of Labor Statistics published the latest JOLTs data last week (October 12, 2021) – Job Openings and Labor Turnover Summary – August 2021 – which has raised a possible shift in bargaining power in the US labour market towards workers. The most obvious sign of that is the rising quit rates, which are most prevalent in the low-wage sectors. While there is still some slack in the US labour market, the evidence suggests that workers are taking advantage of the improved job opportunities to pursue better wages and conditions. We will have to wait and see whether there are any significant wage outcomes arising from this behaviour or whether workers are just jumping from very bad to bad jobs. Time will tell.

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The Weekend Quiz – October 16-17, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Australian labour market continues to contract

The Australian Bureau of Statistics released the latest labour force data today (October 14, 2021) – Labour Force, Australia – for September 2021. The background is that the entire East Coast is in or has been in lockdown over the last few months and for the two largest labour markets (NSW and Victoria) that lockdown has been very tight. Both states are in the process of easing restrictions as vaccination rates rise. The September 2021 data reveals that the longer NSW lockdown is now impacting heavily on employment growth which is now 4.7 points below the March 2020 level. Similarly, Victoria’s employment level has fallen and is 2.1 points below the pre-pandemic level. Overall for the nation, employment fell for the second consecutive month as did the participation, the latter cushioning the rise in official unemployment. But if we take into account the participation decline, the actual unemployment rate would be 5.7 per cent rather than the official rate of 4.6 per cent. Quite a difference. The turbulence caused by the pandemic has really masked the steady decline before that and my estimates are that the true unemployment rate, taking into account the rise in hidden unemployment since August 2019, is close to 7 per cent. Again, quite a difference. The more stable ratio – the Employment-to-Population ratio plunged again in September – two months of massive declines. Last month, I predicted the situation will would worse in September – and it did. So while the unemployment rate might be relatively low by recent historical standards, the situation is dire. The lack of any significant stimulus from the federal government is telling. There is now definite evidence that further and rather massive fiscal support is required.

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US labour market – recovery in a fairly languid state

Last Friday (October 8, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – September 2021 – which reported a total payroll employment rise of only 194,000 jobs in August and a 0.4 points decline in the official unemployment rate to 4.8 per cent. The combination of rising employment and falling unemployment might suggest that things are improving. But the reality is that the active labour force shrunk significantly as the participation rate fell by 0.1 points in the face of declining employment opportunities. The results suggest that the labour market recovery has slowed quite significantly from the situation mid-year. The US labour market is still 4,970 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Further, it is clear that there has been a slight bias towards low pay jobs being added in the recovery at the expense of above-median wage jobs, particularly in the service occupations.

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The Weekend Quiz – October 9-10, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – October 2-3, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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(Modern) Marx and MMT – Part 2

This is Part 2 of my analysis of the way that fundamental ideas in Modern Monetary Theory (MMT) are totally consistent with a reasonable interpretation of Marx’s work. The motivation to clarify these issues came after I spoke at an event last weekend in the UK and shared a panel with a critic who claimed that Marx’s work established that MMT is wrong to assume that unemployment is a monetary phenomenon (insufficient spending) and that government spending can do anything about it. The claim was based on a view that Marx thought that capitalist firms have some unique logic that if they decide not to produce no amount of sales orders will induce them to expand production even if they have massive excess capacity (‘machines lying idle’) and a huge pool of idle labour to draw upon. No reasonable reading of Marx’s work would lead to that conclusion. In this part, we will consider what Marx thought about crisis and some later developments of his reproduction schemes, which make it clear that effective demand drives capitalist output, which conditions their employment decisions.

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The Weekend Quiz – September 25-26, 2021 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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