Yes, that is what he said. You can read about it in the NYT. The annualized rate of wage growth in the last three months compared with the prior three months was just 2.0 percent. So, if there is a problem with getting qualified workers it seems to be primarily in the human resources department.
Yes, that is what he said. You can read about it in the NYT. The annualized rate of wage growth in the last three months compared with the prior three months was just 2.0 percent. So, if there is a problem with getting qualified workers it seems to be primarily in the human resources department.
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If the Fed is really targeting 2.0 percent inflation, it is hard to understand why it would be considering further interest rate hikes. Inflation has been slowing in recent months, to a rate of just 1.4 percent in the core personal consumption expenditure deflator. The June jobs report gave more evidence that wage growth is slowing as well. The figure below shows the annualized rate of inflation taking the average hourly wage for the last three months (April, May, and June), compared with the average for the prior three months (January, February, and March).
Source: Bureau of Labor Statistics.
As can be seen, there was some acceleration in wage growth by this measure in the first half of 2016, with a peak of just over 3.0 percent in May. Since then the general direction has been downward. The most recent data puts the annualized rate of wage growth by this measure at just over 2.0 percent. We all know the story that wage growth is supposed to accelerate in a tight labor market, but maybe the data are trying to tell us that the labor market just isn’t very tight.
If the Fed is really targeting 2.0 percent inflation, it is hard to understand why it would be considering further interest rate hikes. Inflation has been slowing in recent months, to a rate of just 1.4 percent in the core personal consumption expenditure deflator. The June jobs report gave more evidence that wage growth is slowing as well. The figure below shows the annualized rate of inflation taking the average hourly wage for the last three months (April, May, and June), compared with the average for the prior three months (January, February, and March).
Source: Bureau of Labor Statistics.
As can be seen, there was some acceleration in wage growth by this measure in the first half of 2016, with a peak of just over 3.0 percent in May. Since then the general direction has been downward. The most recent data puts the annualized rate of wage growth by this measure at just over 2.0 percent. We all know the story that wage growth is supposed to accelerate in a tight labor market, but maybe the data are trying to tell us that the labor market just isn’t very tight.
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An NYT piece on the growth of oil exports may have given readers a misleading impression of the state of the U.S. oil industry. The piece was headlined, “oil exports, illegal for decades, now fuel a Texas port boom.” It told readers:
“Oil exports grew slowly through most of 2016, but this year there has been a surge reaching 1.3 million barrels a day — roughly 15 percent of domestic production — which even at today’s depressed prices is worth more than $1.5 billion a month.”
It is worth noting that the rise in oil exports has been accompanied by a rise in oil imports. According to the Energy Information Agency, imports of crude and petroleum products bottomed out at 9.2 million barrels a day in 2014. By 2016, imports had risen by more than 900,000 barrels a day to 10.1 million.
By allowing exports of oil, some oil that would have otherwise been consumed domestically is instead being exported. This oil is being replaced by oil from other countries. While this opening of trade increases efficiency, if we ignore the environmental costs associated with more transportation of oil and petroleum products, it means somewhat higher prices for domestic consumers.
The oil that is being imported almost certainly costs more than the domestically produced oil that is now being exported instead of sold domestically. It would have been helpful to note this fact in the article.
An NYT piece on the growth of oil exports may have given readers a misleading impression of the state of the U.S. oil industry. The piece was headlined, “oil exports, illegal for decades, now fuel a Texas port boom.” It told readers:
“Oil exports grew slowly through most of 2016, but this year there has been a surge reaching 1.3 million barrels a day — roughly 15 percent of domestic production — which even at today’s depressed prices is worth more than $1.5 billion a month.”
It is worth noting that the rise in oil exports has been accompanied by a rise in oil imports. According to the Energy Information Agency, imports of crude and petroleum products bottomed out at 9.2 million barrels a day in 2014. By 2016, imports had risen by more than 900,000 barrels a day to 10.1 million.
By allowing exports of oil, some oil that would have otherwise been consumed domestically is instead being exported. This oil is being replaced by oil from other countries. While this opening of trade increases efficiency, if we ignore the environmental costs associated with more transportation of oil and petroleum products, it means somewhat higher prices for domestic consumers.
The oil that is being imported almost certainly costs more than the domestically produced oil that is now being exported instead of sold domestically. It would have been helpful to note this fact in the article.
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The magic word shows up yet again in an NYT piece on a trade agreement being negotiated between Japan and the European Union. While the deal clearly includes some moves towards trade liberalization, which are discussed in the piece, it likely also includes measures for stronger and longer protections for patents, copyrights, and other forms of intellectual property. These protectionist measures may well outweigh the liberalizing effect of reductions in tariffs and other conventional barriers to trade.
If that is the case, it is clearly wrong to call the deal a “free” trade agreement, since it on net would be increasing protectionism. I don’t happen to know the balance in this pact, but I suspect the NYT doesn’t either. In that case, it would be at least as informative to readers to simply call the deal a “trade agreement” and save a word.
The magic word shows up yet again in an NYT piece on a trade agreement being negotiated between Japan and the European Union. While the deal clearly includes some moves towards trade liberalization, which are discussed in the piece, it likely also includes measures for stronger and longer protections for patents, copyrights, and other forms of intellectual property. These protectionist measures may well outweigh the liberalizing effect of reductions in tariffs and other conventional barriers to trade.
If that is the case, it is clearly wrong to call the deal a “free” trade agreement, since it on net would be increasing protectionism. I don’t happen to know the balance in this pact, but I suspect the NYT doesn’t either. In that case, it would be at least as informative to readers to simply call the deal a “trade agreement” and save a word.
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Lower tariff barriers generally benefit consumers in the form of lower prices. If they don’t increase overall unemployment, they will lead to gains for the economy as a whole. However, there will almost always be specific industries that are losers. This is why it is a bit strange to read in a NYT article on a prospective trade deal between the European Union (EU) and Japan:
“Among other things, the pact would eliminate a 10 percent duty that the E.U. imposes on Japanese car imports, while removing obstacles that European automakers face in Japan. That would be particularly significant for luxury carmakers like BMW, Mercedes and Toyota’s Lexus brand, said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who focuses on the auto industry.
“Those vehicles suffer the most from high import duties. ‘It could be a chance for the high-value, premium vehicles,’ Mr. Dudenhöffer said. American brands like Cadillac or Lincoln ‘won’t have the same advantage and will be in a worse position,’ he said.”
The existing tariffs give the sellers in these markets the opportunity to charge a premium over the tariff-free price. This premium will be lost when the tariffs go away. It is possible that either EU car makers or Japanese car makers will gain enough market share that it will offset the loss of this premium, but it is highly unlikely that both would gain enough market share to offset the loss of the premium. The lower price will undoubtedly lead to some increase in sales and there is the possibility of gaining share at the expense of U.S. car makers and other third country sellers, but these gains would have to be extraordinary to make both sets of manufacturers as winners.
To make the arithmetic simple, suppose a 10 percent tariff is passed on fully to higher prices. Suppose the profit would be 5 percent of the sales price in the absence of the tariff. This means that the tariff makes the profit 15 percent of the sales price. (I’m rounding here.) The loss of tariff protection in this story would then cause the per car profit to fall by two-thirds, meaning that unless sales triple, the company ends up a net loser.
The real world story is more complicated. The tariff is not completely passed on in higher prices and some of the benefits of the higher prices are shared with workers in the form of higher wages. But unless a company in a protected industry has a very large gain in market share, it is unlikely to be a benefit from ending the protection.
Lower tariff barriers generally benefit consumers in the form of lower prices. If they don’t increase overall unemployment, they will lead to gains for the economy as a whole. However, there will almost always be specific industries that are losers. This is why it is a bit strange to read in a NYT article on a prospective trade deal between the European Union (EU) and Japan:
“Among other things, the pact would eliminate a 10 percent duty that the E.U. imposes on Japanese car imports, while removing obstacles that European automakers face in Japan. That would be particularly significant for luxury carmakers like BMW, Mercedes and Toyota’s Lexus brand, said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who focuses on the auto industry.
“Those vehicles suffer the most from high import duties. ‘It could be a chance for the high-value, premium vehicles,’ Mr. Dudenhöffer said. American brands like Cadillac or Lincoln ‘won’t have the same advantage and will be in a worse position,’ he said.”
The existing tariffs give the sellers in these markets the opportunity to charge a premium over the tariff-free price. This premium will be lost when the tariffs go away. It is possible that either EU car makers or Japanese car makers will gain enough market share that it will offset the loss of this premium, but it is highly unlikely that both would gain enough market share to offset the loss of the premium. The lower price will undoubtedly lead to some increase in sales and there is the possibility of gaining share at the expense of U.S. car makers and other third country sellers, but these gains would have to be extraordinary to make both sets of manufacturers as winners.
To make the arithmetic simple, suppose a 10 percent tariff is passed on fully to higher prices. Suppose the profit would be 5 percent of the sales price in the absence of the tariff. This means that the tariff makes the profit 15 percent of the sales price. (I’m rounding here.) The loss of tariff protection in this story would then cause the per car profit to fall by two-thirds, meaning that unless sales triple, the company ends up a net loser.
The real world story is more complicated. The tariff is not completely passed on in higher prices and some of the benefits of the higher prices are shared with workers in the form of higher wages. But unless a company in a protected industry has a very large gain in market share, it is unlikely to be a benefit from ending the protection.
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Dentists are apparently among the group of workers who lack the skills necessary to compete in the modern economy, who then turn to the government to protect their jobs and wages. This is in effect the story told in this Washington Post news article about the power of the American Dental Association (ADA).
The piece focuses on the ADA’s efforts to block other professionals from doing work that is now done by dentists. While the piece doesn’t mention this fact, the ADA also blocks foreign-trained dentists from practicing in the United States. Dentists cannot practice in the United States unless they have a degree from a U.S. dental school. (Since 2011, graduates of Canadian dental schools have also been allowed to practice here.)
As a result of this protectionism, the pay of dentists averages $200,000 a year, roughly twice as much as their pay in other wealthy countries. This costs the country $20 billion a year (roughly equal to the TANF budget) in higher dental expenses.
It’s striking that the protectionism for dentists gets so little attention relative to much less costly forms of protectionism, like tariffs for steel, cars, or other items. Perhaps it has something to do with the people reporting on the topic identifying with the beneficiaries. I discuss this in chapter 7 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it’s free).
Dentists are apparently among the group of workers who lack the skills necessary to compete in the modern economy, who then turn to the government to protect their jobs and wages. This is in effect the story told in this Washington Post news article about the power of the American Dental Association (ADA).
The piece focuses on the ADA’s efforts to block other professionals from doing work that is now done by dentists. While the piece doesn’t mention this fact, the ADA also blocks foreign-trained dentists from practicing in the United States. Dentists cannot practice in the United States unless they have a degree from a U.S. dental school. (Since 2011, graduates of Canadian dental schools have also been allowed to practice here.)
As a result of this protectionism, the pay of dentists averages $200,000 a year, roughly twice as much as their pay in other wealthy countries. This costs the country $20 billion a year (roughly equal to the TANF budget) in higher dental expenses.
It’s striking that the protectionism for dentists gets so little attention relative to much less costly forms of protectionism, like tariffs for steel, cars, or other items. Perhaps it has something to do with the people reporting on the topic identifying with the beneficiaries. I discuss this in chapter 7 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it’s free).
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That’s the question millions are asking after reading an NYT article on the state of the U.S. aluminum industry. The article notes that an increasing share of aluminum is imported, mostly from Iceland and other countries with low-cost electricity. (The industry uses huge amounts of electricity.) However, it also points out that China is getting a growing share of the market and the industry claims that the Chinese firms are subsidized by the government. The industry and steelworkers union are arguing for offsetting tariffs.
The piece then presents a comment from an executive at the Molson Coors Brewing:
“If there are duties on aluminum coming to this country, it will obviously get passed on to us and the customer … Our prices will go up.”
The piece doesn’t give any sense of how much beer prices to consumers would rise from the tariffs being considered. While it would take a bit of homework to calculate the prospective increase from a tariff, suppose that tariffs on Chinese aluminum raised the price of aluminum by 10 percent. This is almost certainly too high a figure, since Chinese aluminum only accounts for 5 percent of U.S. consumption, according to the article.
Suppose that the cost of the aluminum accounts for 10 percent of the price of a can of beer in the store. This is also almost certainly far too high since the current cost of aluminum is less than a dollar a pound. If you can get twenty cans out of a pound of aluminum that would make the cost per can less than five cents.
In this scenario, tariffs would raise the price of a can of beer by 1.0 percent. It’s a safe bet that the beer drinking public would rather not pay 1.0 percent more for their beer, but most would probably not be terrified by this prospect.
That’s the question millions are asking after reading an NYT article on the state of the U.S. aluminum industry. The article notes that an increasing share of aluminum is imported, mostly from Iceland and other countries with low-cost electricity. (The industry uses huge amounts of electricity.) However, it also points out that China is getting a growing share of the market and the industry claims that the Chinese firms are subsidized by the government. The industry and steelworkers union are arguing for offsetting tariffs.
The piece then presents a comment from an executive at the Molson Coors Brewing:
“If there are duties on aluminum coming to this country, it will obviously get passed on to us and the customer … Our prices will go up.”
The piece doesn’t give any sense of how much beer prices to consumers would rise from the tariffs being considered. While it would take a bit of homework to calculate the prospective increase from a tariff, suppose that tariffs on Chinese aluminum raised the price of aluminum by 10 percent. This is almost certainly too high a figure, since Chinese aluminum only accounts for 5 percent of U.S. consumption, according to the article.
Suppose that the cost of the aluminum accounts for 10 percent of the price of a can of beer in the store. This is also almost certainly far too high since the current cost of aluminum is less than a dollar a pound. If you can get twenty cans out of a pound of aluminum that would make the cost per can less than five cents.
In this scenario, tariffs would raise the price of a can of beer by 1.0 percent. It’s a safe bet that the beer drinking public would rather not pay 1.0 percent more for their beer, but most would probably not be terrified by this prospect.
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In her column on “Five Myths About Health Insurance,” health economics professor Alexis Pozen pushes a common myth. As part of myth number five, Pozen tells readers;
“Although firms may boast about offering generous health-care benefits, the costs of coverage are largely borne by employees, in the form of lower wages than a competitive market would otherwise support. That helps explain why inflation-adjusted wages have remained flat, even while productivity has increased — it’s all going to cover rising health-care costs.”
While there is some truth to this story in prior decades (only some, since payments for insurance largely came at the expense of pensions), benefit growth has actually trailed wage growth in the recovery, as shown below.
Since benefits have not kept pace with wage growth over the last five years, we should be expecting wages to rise somewhat faster than productivity since we are seeing a shift in compensation from benefits to wages.
In her column on “Five Myths About Health Insurance,” health economics professor Alexis Pozen pushes a common myth. As part of myth number five, Pozen tells readers;
“Although firms may boast about offering generous health-care benefits, the costs of coverage are largely borne by employees, in the form of lower wages than a competitive market would otherwise support. That helps explain why inflation-adjusted wages have remained flat, even while productivity has increased — it’s all going to cover rising health-care costs.”
While there is some truth to this story in prior decades (only some, since payments for insurance largely came at the expense of pensions), benefit growth has actually trailed wage growth in the recovery, as shown below.
Since benefits have not kept pace with wage growth over the last five years, we should be expecting wages to rise somewhat faster than productivity since we are seeing a shift in compensation from benefits to wages.
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