Today brings us a consequence of yesterday;s discussion as we analyse the latest wages numbers which are entwined with the productivity situation. These days the causality is invariably assumed to be from productivity to wages but there is this about Henry Ford from National Public Radio in the US.
$5 a day, for eight hours of work in a bustling factory.
That was more than double the average factory wage at that time, and for U.S. workers it was one of the defining moments of the 20th century.
Which led to this.
”It was an absolute, total success,” Kreipke says. “In fact, it was better than anybody had even thought.”
The benefits were almost immediate. Productivity surged, and the Ford Motor Co. doubled its profits in less than two years. Ford ended up calling it the best cost-cutting move he ever made.
Some combination of positive and lateral thinking led Henry Ford to quite a triumph as we mull whether anyone would have that courage today. Perhaps some do but they are on a smaller scale and get missed.
Also there is the issue that some advances take us backwards in some respects as research from Princeton in the US quoted by regis told us this.
In their aggressive scenario, the world stock of robots will quadruple by 2025. This would correspond to 5.25 more robots per thousand workers in the United States, and with our estimates, it would lead to a 0.94-1.76 percentage
points lower employment to population ratio and 1.3-2.6 percent lower wage growth between 2015 and 2025.
This type of analysis is usually nose to the grindstone stuff however or if you like a type of micro economics where the measured effects are likely to look bad as robots replace people and the loss of usually skilled jobs leads to lower average wages. PWC have given a more macro style analysis a go. From the Guardian.
Artificial intelligence is set to create more than 7m new UK jobs in healthcare, science and education by 2037, more than making up for the jobs lost in manufacturing and other sectors through automation, according to a report.
A report from PricewaterhouseCoopers argued that AI would create slightly more jobs (7.2m) than it displaced (7m) by boosting economic growth. The firm estimated about 20% of jobs would be automated over the next 20 years and no sector would be unaffected.
In essence it comes down to this assumption.
as real incomes rise
Some may be wondering if “as society becomes richer” necessarily leads to that especially after a period where policies like QE have led to wealth rising via higher asset prices but real incomes have struggled in many places and real wages in the UK have fallen. The truth is that we are unsure and analysis on both sides mostly depends on the assumptions behind it. You pretty much get the answer you looked for.
What are wages doing?
Actually UK wage growth has been if we allow for the margin of error looks to have been pretty stable so far in 2018.
Between March to May 2017 and March to May 2018, in nominal terms, regular pay increased by 2.7%, slightly lower than the growth rate between February to April 2017 and February to April 2018 (2.8%).
Between March to May 2017 and March to May 2018, in nominal terms, total pay increased by 2.5%, slightly lower than the growth rate between February to April 2017 and February to April 2018 (2.6%).
Whilst there is a small fall on this basis we see that from February to May total pay growth has gone 2.6%, 2.5%, 2.6% and now 2.5%. By the standards of these numbers that is remarkably stable. This poses a question for the Bank of England as there is not much of a sign of annual wage growth there.
If we move to real wages we find that most of the change we have seen has come from falling inflation.
Between March to May 2017 and March to May 2018, in real terms (that is, adjusted for consumer price inflation), regular pay for employees in Great Britain increased by 0.4% and total pay for employees in Great Britain increased by 0.2%.
Actually they are being a little disingenuous there as people might think that this refers to the CPI inflation measure whereas later they explain that it is CPIH ( H=Housing) with its fantasy imputed rents. This flatters the numbers as the latter keeps giving lower inflation readings and this is before we get to the Retail Price Index or RPI which would have real pay still falling.
The output gap
Today’s quantity numbers for the UK labour market were good again.
There were 32.40 million people in work, 137,000 more than for December 2017 to February 2018 and 388,000 more than for a year earlier…….The employment rate (the proportion of people aged from 16 to 64 years who were in work) was 75.7%, higher than for a year earlier (74.9%) and the highest since comparable records began in 1971.
Also whilst we do not have a formal measure of underemployment like the U-6 measure in the United States it looks as though it is improving too as Chris Dillow points out.
Big drop in the wider measure of joblessness in Mar-May (unemp+part-timers wanting f-t work + inactive wanting a job) – down from 4.51m to 4.35m
Yet the continuing good news does not seem to be doing much for wages. We get surveys telling us they are picking up but the official data is either missing it or it is not happening. If we go through that logically then is wage growth is taking place it must be in the ranks of the self-employed or smaller companies ( the various official surveys only go to companies with a minimum of ten or in some cases 20 employees).
This looks to have improved because the economy was growing through this period albeit nor very fast but hours worked did this.
the number of people in employment increased by 137,000 but total hours worked fell slightly (by 0.3 million) to 1.03 billion. This small fall in total hours worked reflected a fall in average weekly hours worked by full-time workers.
An odd combination in some ways as why take on more staff whilst reducing hours? But the optimistic view is that employers were expecting a rise in demand and were getting ready for it. Whatever the reason recorded productivity looks to have risen.
There is quite a bit to consider here. If we look back to 2007 we see total pay growth fluctuating around 5% and making a heady 7.3% in February. But before that there were plenty of 4% numbers. Now we occasionally break the 3% barrier but the last time if we use the three-month average was in the summer of 2015. So much for “output gap” style analysis so beloved by the Ivory Towers and the Bank of England.
As to the possible Bank of England move in August today’s numbers are unlikely to change your mind. Those arguing for a rise will look at the strong employment situation and those against will note the slight fading of wage growth. Which will an unreliable boyfriend go for?
What we need are better data sources and let me ask for two clear changes. We need wages data which at least tries to cover the self-employed and smaller businesses. We also need to be much clearer about what full-time employment is. As we stand we are in danger of failing the Yes Minister critique.
Sir Humphrey Appleby: If local authorities don’t send us the statistics that we ask for, then government figures will be a nonsense.
James Hacker: Why?
Sir Humphrey Appleby: They will be incomplete.
James Hacker: But government figures are a nonsense anyway.
Bernard Woolley: I think Sir Humphrey want to ensure they are a complete nonsense. ( The skeleton in the cupboard via IMDb)