I think what's going on is, we're having period of high inflation. Here's my theorey: this high inflation is effectively lowering the minimum wage level because minimum wage isn't keeping pace with the real rate of inflation. and because minimum wage is decreasing in real terms, this opens up lots of new positions that were made illegal by minimum wage. and so more and more people are finding jobs at the low end of the spectrum just above minimum wage and it's why the official reported Unemployment rates are so low and yet we have one hell of a sluggish economy.
Conclusion:
the low official Unemployment rates are not a reflection of a healthy economy, they are a reflection of decreasing minimum wages.
Bottom 25th percentile has been zero or negative growth at least back to 1998. This would include minimum wage and support the original argument. This doesn't seem to correct for inflation, so zero or negative wage growth is punished completely by inflation.
Sure but not everyone stays in the bottom 25%. College students would be one category that you would expect this to be true of. I was certainly in the poverty level in college, but not anymore.
What we really care about are the people who are persistently in poverty and whether or not that number grows or shrinks. If it shrinks the economy is helping real people, if it's not, it's helping the well off.
So you are arguing that there is increasing mobility?
Or do you argue that people are bouncing between jobs with lower wage growth and higher wage growth, so the bottom 25% of wages are getting worse and worse, yet they are only temporary?
It seems pretty clear that 25% of earners experience no growth or negative growth YoY while 25% of earners see wage growth that outpaces inflation. Unless they are swapping places constantly, it's not really healthy for this to occur over a long period of time (as it has).
Are you sure that this chart shows bottom 25% of wages and not the bottom 25% of wage change?
They provide this definition: Wage Growth Tracker is a measure of the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart.
Chart 1 plots the time series of the median, along with the mean, and the 75th and 25th percentiles of the individual wage growth distribution
I believe this chart will almost always show little or negative numbers for the bottom 25% of wage growth. By definition.
Are you arguing there's not increasing mobility, with this new fangled internet and the series of tubes and what have you? Upward mobility has never been more available across all income brackets.
Again... you want to look at the number of people in poverty. That's the true metric of an economy, not the unemployment number.
True metric of an economy is not just poverty rate.
I can have 3x the income of monthly food budget (poverty threshold). What happens when housing per month is also 3x the cost of food per month?
Poverty threshold is a poor indicator of the economic health. Poverty can lower while the ability for the average citizen to support a family continues to drop.
Are you arguing there's not increasing mobility, with this new fangled internet and the series of tubes and what have you?
That's not an argument. Technological improvements can result in consolidation of capital and rising inequality. Something like that would be indicated by... top 25% of wage earners outpacing inflation while bottom 25% continue to stagnate or fall behind.
EDIT: The last poverty rate publication showed the supplemental poverty rate rising (taking into account more factors that traditional poverty rate). Previous to the pandemic, they were largely correlated. We will have to wait until the 2024 results to see if the inversion holds true.
One way to think of an economy is GDP/stock market/etc. Another way to think of it is: "What is the maximum level of poverty before there's a revolution?" Moving people from the poverty class to the middle class should be a basic goal for any economy -- because it's likely to affect the most citizens.
That's not an argument.
So if you're in small town Nebraska in 1910/20/30/40/50/60/70/80/90's, it was super hard to learn calculus (one example) unless you enrolled in college and traveled to the university/college, etc. Why? No one else knew it, nor could they teach it.
Back before 2000's era, people were held back, mostly based upon where they were born. In the internet era, you can be a millionaire/billionaire without having to travel to the shit hole that is silicon valley. Amazing!
Edit:
I saw your edit, and yes, you would expect poverty to go up in a down turn economy. But you would also expect it to go down if economic gains are truly affecting everyone, and not just the rich or upper middle class.
I don’t think college students would be counted in this metric because it only counts people who want a full time job. A full time college student likely does not.
Across all earnings brackets, or only some? We know for a fact that the parent comment was correct that minimum wage has not kept up with inflation, and I'd like to see how earnings have compared to inflation across brackets rather than in aggregate.
Sure, inflation rates have come down from their highs, but we don't have deflation so $1 today is still worth less than $1 from 2020 — which means $15/hr minimum wage is worth less today than in 2020.
But that's always true, and forever will be as long as the fed believes that gentle inflation is the way to spin the economy. And most serious economists, even the freshwater kind, don't want that to change.
If you think deflation is better, ie money in the bank should be worth more over time, just look at what happened to Japan with their deflationary economy. Some call it the "Lost Decade".
No one argued that deflation is better. But it is obviously true that inflation-adjusted minimum wages are much (20%+!) lower than they were a couple years ago.
But that's not even the highest level of inflation in my lifetime. 1980 had 14% (!) inflation. There are probably people in your life that remember the gas lines from the 1970's.
The point I have is when looked from 20 years from now, it will be a blip. It's not the great depression, it's not the gas crisis of the 1970's. It's not even as bad as 2008.
Yes it sucks in the moment, but it won't in a few years when wages catch up finally.
Whenever I hear people complain about rent or groceries I always politely inform them that the Δ Δ of their rent is quite low this month and that means the economy is in fact good
You're in good company. When President Nixon was campaigning for reelection in 1972 he told voters that the third derivative of inflation was decreasing.
Comments
I think what's going on is, we're having period of high inflation. Here's my theorey: this high inflation is effectively lowering the minimum wage level because minimum wage isn't keeping pace with the real rate of inflation. and because minimum wage is decreasing in real terms, this opens up lots of new positions that were made illegal by minimum wage. and so more and more people are finding jobs at the low end of the spectrum just above minimum wage and it's why the official reported Unemployment rates are so low and yet we have one hell of a sluggish economy.
Conclusion: the low official Unemployment rates are not a reflection of a healthy economy, they are a reflection of decreasing minimum wages.
This is basically Keynes' theory of wages and prices.
https://en.wikipedia.org/wiki/Keynes%27s_theory_of_wages_and...
Wages have been increasing faster than inflation for the last 10 months.
Bottom 25th percentile has been zero or negative growth at least back to 1998. This would include minimum wage and support the original argument. This doesn't seem to correct for inflation, so zero or negative wage growth is punished completely by inflation.
source: https://www.atlantafed.org/chcs/wage-growth-tracker#Tab3
Sure but not everyone stays in the bottom 25%. College students would be one category that you would expect this to be true of. I was certainly in the poverty level in college, but not anymore.
What we really care about are the people who are persistently in poverty and whether or not that number grows or shrinks. If it shrinks the economy is helping real people, if it's not, it's helping the well off.
So you are arguing that there is increasing mobility?
Or do you argue that people are bouncing between jobs with lower wage growth and higher wage growth, so the bottom 25% of wages are getting worse and worse, yet they are only temporary?
It seems pretty clear that 25% of earners experience no growth or negative growth YoY while 25% of earners see wage growth that outpaces inflation. Unless they are swapping places constantly, it's not really healthy for this to occur over a long period of time (as it has).
Are you sure that this chart shows bottom 25% of wages and not the bottom 25% of wage change?
They provide this definition: Wage Growth Tracker is a measure of the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart.
Chart 1 plots the time series of the median, along with the mean, and the 75th and 25th percentiles of the individual wage growth distribution
I believe this chart will almost always show little or negative numbers for the bottom 25% of wage growth. By definition.
I think you’re totally right. My big mistake facepalm
Still trying to make time to play with the data myself but I suspect it won’t really contain the information I want.
Are you arguing there's not increasing mobility, with this new fangled internet and the series of tubes and what have you? Upward mobility has never been more available across all income brackets.
Again... you want to look at the number of people in poverty. That's the true metric of an economy, not the unemployment number.
True metric of an economy is not just poverty rate.
I can have 3x the income of monthly food budget (poverty threshold). What happens when housing per month is also 3x the cost of food per month?
Poverty threshold is a poor indicator of the economic health. Poverty can lower while the ability for the average citizen to support a family continues to drop.
That's not an argument. Technological improvements can result in consolidation of capital and rising inequality. Something like that would be indicated by... top 25% of wage earners outpacing inflation while bottom 25% continue to stagnate or fall behind.
EDIT: The last poverty rate publication showed the supplemental poverty rate rising (taking into account more factors that traditional poverty rate). Previous to the pandemic, they were largely correlated. We will have to wait until the 2024 results to see if the inversion holds true.
source: https://www.census.gov/content/dam/Census/library/publicatio...
Hard disagree here.
One way to think of an economy is GDP/stock market/etc. Another way to think of it is: "What is the maximum level of poverty before there's a revolution?" Moving people from the poverty class to the middle class should be a basic goal for any economy -- because it's likely to affect the most citizens.
So if you're in small town Nebraska in 1910/20/30/40/50/60/70/80/90's, it was super hard to learn calculus (one example) unless you enrolled in college and traveled to the university/college, etc. Why? No one else knew it, nor could they teach it.
Back before 2000's era, people were held back, mostly based upon where they were born. In the internet era, you can be a millionaire/billionaire without having to travel to the shit hole that is silicon valley. Amazing!
Edit:
I saw your edit, and yes, you would expect poverty to go up in a down turn economy. But you would also expect it to go down if economic gains are truly affecting everyone, and not just the rich or upper middle class.
I don’t think college students would be counted in this metric because it only counts people who want a full time job. A full time college student likely does not.
You've never known college students to work full time jobs and take night school?
I’m not saying it doesn’t happen I’m just saying it’s not a large enough demographic to explain why the bottom 25% should go down.
You didn't say that. I said it was only one category. There are perhaps others.
Again, you need to look the number of people in poverty. Is it growing or shrinking? That's the true metric of an economy.
When you get to 50% or more in poverty, that's revolution territory.
Across all earnings brackets, or only some? We know for a fact that the parent comment was correct that minimum wage has not kept up with inflation, and I'd like to see how earnings have compared to inflation across brackets rather than in aggregate.
average across all brackets. And it's per person. So specific jobs haven't increased that much, the big gains are in people switching employers.
The biggest increases have been in the bottom 10% and the top 10%, union members and job hoppers.
https://www.statista.com/statistics/1351276/wage-growth-vs-i...
Sorry, we are NOT having high inflation any more, regardless of what you feel or think.
Sure, inflation rates have come down from their highs, but we don't have deflation so $1 today is still worth less than $1 from 2020 — which means $15/hr minimum wage is worth less today than in 2020.
But that's always true, and forever will be as long as the fed believes that gentle inflation is the way to spin the economy. And most serious economists, even the freshwater kind, don't want that to change.
If you think deflation is better, ie money in the bank should be worth more over time, just look at what happened to Japan with their deflationary economy. Some call it the "Lost Decade".
No one argued that deflation is better. But it is obviously true that inflation-adjusted minimum wages are much (20%+!) lower than they were a couple years ago.
But that's not even the highest level of inflation in my lifetime. 1980 had 14% (!) inflation. There are probably people in your life that remember the gas lines from the 1970's.
The point I have is when looked from 20 years from now, it will be a blip. It's not the great depression, it's not the gas crisis of the 1970's. It's not even as bad as 2008.
Yes it sucks in the moment, but it won't in a few years when wages catch up finally.
yeah - the gas crisis sucked... and inflation for every year from like 1968(1969) to 1980s(?) was horrid. Cycles within cycles...
The problem isn't about inflation/deflation: the problem is real wages have been dropping for (say) the lowest 25%.
The minimum wage is rising, however.
Whenever I hear people complain about rent or groceries I always politely inform them that the Δ Δ of their rent is quite low this month and that means the economy is in fact good
I'm sure that helps them pay their rent and put food on the table.
Some people believe a bad economy spurs skills development as people look to develop higher paying skills.
They go back to college, they develop new skills, they do some training, etc, etc.
That's what makes economics hard is that we're dealing with 400M walking talking humans in the US.
I wouldn’t go so far to call myself a hero for the wisdom I post but
You're in good company. When President Nixon was campaigning for reelection in 1972 he told voters that the third derivative of inflation was decreasing.
https://en.wikipedia.org/wiki/Third_derivative#%3A%7E%3Atext...
Aren't most rent contracts yearly? So that measure would be 0 most of the time, even when it's bad?
Sorry, just because inflation isnlowerijg doesn't mean the damage that happened is magically solved. We aren't deflating by any means.