The smartest people in the U.S. say that a wage-price spiral cannot occur. “Giving Workers a Raise Is Not Going to Make Inflation Worse” (New York Times, October 2):
At the moment, wages are rising faster than inflation, which means that “real,” or inflation-adjusted wages, are rising.
“There is almost no evidence” that wage increases lead to inflation, Rosenberg wrote. His firm conducted a statistical test (called Granger causality) that found inflation causes wage increases, but not the other way around. He predicted that rather than passing along higher wage costs to customers, companies would be forced to swallow them and accept lower profits.
In other words, the Science of Rosenberg and Granger proves that cars and bicycles sell for the same amount because higher costs for producers don’t shift the supply curve and change the equilibrium price.
Here’s the latest from our local schools:
The School District of Palm Beach County reached an agreement with the Palm Beach County Classroom Teachers Association (CTA) that will give an average 7% pay increase and one-time 3% bonus to instructional employees. The agreement was approved by the School Board during its Special Meeting on October 4, 2023. The significant raise demonstrates the District’s commitment to fairly compensating teachers for their hard work and dedication to students.
There is no possibility of the price of property tax going up to pay for this, according to the New York Times.
September 2023: Hollywood agrees on a new, higher-paying, contract with writers; “an 18 percent pay bump and a 26 percent increase in the base rate with which residual payments are calculated” (Washington Post)
October 2023: “Streaming services keep getting more expensive: all the latest price increases” (The Verge).
Received October 10, 2023, regarding the supply for our 10-year-old crack addict:
Also from October: “Ford Already Covering UAW Wage Increases With Huge 2024 F-150 Price Hikes”.
July 2023: “Disneyland Workers Could Get Nearly $20 an Hour Following Appeals Court Ruling”.
October 2023: “On the most popular days, though, Disneyland is raising prices by more than 8% to $194. For a five-day ticket, Disneyland raised prices by nearly 16% to $480. The park also raised the price of various add-ons. Disneyland’s Genie+ product, which gives customers access to shorter lines, will now cost $30 a person, up by $5. For five-day tickets, the price for Park Hopper, which lets customers go between Disneyland and Disney California Adventure Park on the same day, also rose by 25% to $75. Disneyland also raised the price for parking and other products, including its Magic Key annual passes.” (Wall Street Journal)
Readers: What else have you seen that could be considered evidence for my discredited theory that a wage-price spiral could occur?
The good news: if your own income isn’t keeping up with inflation, you can save money by shopping at Costco. On a September 25, 2023 visit, they were offering a bottle of Champagne for $4,500, including a free glass.
Free Champagne, what costs $4,500 is the Farbergé vase. It is about $1,000 less than what others charge.
https://robbreport.com/food-drink/wine/faberge-chateau-champagne-bligny-bottle-holder-1234824647/
Actually Chateau de Bligny does not seem to be particularly expensive.
https://www.wine-searcher.com/find/de+bligny+grand+rsrv+brut+champagne+france/1/usa-ny-y
In what concerns economics you can say pretty much anything you want, it is not a science. It has more in common with literature. Actually, there is some overlap between both disciplines, as shown by Paul Krugman who happens to be bad at both.
I think your analysis is good, but the underlying question is, “if wages rise on a particular good or service, what is the percentage of the product that is actually wages”?
For instance, people talk about how illegal immigration is needed otherwise you would be paying “$5 per head of cabbage instead of $2.50”; however if you look at the actual labor input into a head of cabbage, it is about 20 cents by my estimate; so how does it going to 30 cents, justify a retail price increase of $2.50?
Interesting article on Ford’s estimated costs including labor ($5400 of labor costs on a $50K+ vehicle) : https://trucksauthority.com/how-much-does-it-cost-ford-to-build-a-new-f-150/
paddy and others: Do you have a good source for what percentage of Ford or GM’s revenue goes to paying union workers? It is easy to find articles about how much workers get per hour, but seemingly impossible to find the aggregate number.
philg: shouldn’t this “cost of labour” be in a SEC regulatory filing somewhere ? Supposedly that’s what analysts ferret out.
PS: I asked ChatGPT 3.5 but it’s useless with its inability to look at specific documents. The good stuff is allegedly behind v4’s paywall
I pay and GPT 4 is just as useless. It tells me to use Google, basically.
As of my last update in January 2022, I don’t have specific percentage figures detailing how much of General Motors’ (GM) revenue goes to labor. However, labor costs are a significant part of GM’s overall costs, particularly in North America, where union wages and benefits can be substantial.
To get an accurate and up-to-date percentage, you’ll want to consult GM’s recent annual reports, 10-K filings with the U.S. Securities and Exchange Commission, or financial statements, which provide breakdowns of their costs, including labor. You can also look into any recent negotiations or agreements with labor unions like the United Auto Workers (UAW), which might give insights into current labor costs.
If you have access to GM’s recent financial statements or annual reports, I can help you interpret the figures to ascertain the labor cost percentage relative to revenue.
I asked “What percentage of Ford revenue in 2019 went to paying workers?” and ChatGPT gave a similarly useless homework assignment to the paying user:
To determine the percentage of Ford’s revenue in 2019 that went to paying workers, you’d typically consult the company’s 2019 annual report or 10-K filing, which breaks down their financial performance for that year.
As of my last update in January 2022, I don’t have the exact figure ready for the percentage of Ford’s 2019 revenue that went to labor. However, you can approximate this by looking at the ‘Cost of Goods Sold’ (COGS) or ‘Cost of Sales’ section of their income statement, as labor costs are a significant component of these expenses for auto manufacturers.
To get an accurate percentage:
Find the total revenue for Ford in 2019.
Identify the labor costs for the year.
Divide the labor costs by the total revenue and multiply by 100 to get the percentage.
Remember that not all of the COGS or Cost of Sales is labor. There are also parts, manufacturing overhead, and other costs associated. To extract the exact labor portion, you’d need detailed cost breakdowns that companies typically don’t disclose in full in their public reports. But they might provide some indications or general figures related to labor costs in their discussions or footnotes.
If you provide me with Ford’s 2019 financial data, I can assist you further in analyzing it. Otherwise, for precise numbers, you’d want to refer directly to Ford’s official documentation or financial databases.
Only government has the ability to create more currency without value. From inflation point of view it is irrelevant who gets more of “money”. I guess millionaires buying middle class super car Corvette can maintain elastic demand for them and GM could raise labor costs by 100% if it wishes. Here, real common price inflation, without any noticeable growing in personal income for workers https://twitter.com/LibertyCappy/status/1713707073425285128
Q: what’s the difference between micro-economists and macro-economists?
A: micro-economist are wrong about specific things, while macro-economists are wrong about things in general.
I think you can get a good estimation of the total labor costs = hours/car x labor cost/hour x number of cars. The number of labor hours per car is surprisingly (to me) low. There is no way you can build a piston airplane with so few labor hours. Perhaps that is. why new airplanes are so expensive (besides other factors, like liability).
https://www.autonews.com/assets/pdf/ca2018861.pdf
This site claims that Tesla labor cost per car was about $3,000 (2018).
https://cleantechnica.com/2018/07/01/peeking-behind-teslas-labor-curtain/
To my simple mind it seems the NYT has actually got it right here. Consider an economy with $100 in it. The workers go on strike and get their pay raised by a factor of 1,000. Employers raise prices to match.
Now there’s $100,000 in the economy, right? Where did the extra $99,900 come from?
The “$4500 bottle in a costco” makes it clear that a lot of people already got their pandemic raises. If it’s a spiral, why try to stop it only after the 1% got theirs? We are already on the roller coaster
The Cantillon effect describes how when money is printed, those closest to the money (bankers and big corps) benefit quickly. Then when the money eventually trickles down to those at the bottom of the pyramid, those who benefitted first can can whine about wage/price spirals and talk about how the workers just need to take one for the team to tame inflation.
Only increased income of workers cause inflation? Increased income of shareholders and managing class does not cause inflation? I think that not until worker reaches his maximum for 401K or IRA contributions extra worker income may even go into demand for goods and services. It may propel bad management of large public corporations in DJIA and thus cause inflation by increasing CEO bonuses, maybe.
During non-inflationary times of 19th century workers and mechanics at small private shops, foundries and mills were getting larger percentage of their business income. With advance of large plants worker wage dropped dramatically; inflation appeared not long after.
The lion kingdom is experiencing a price spiral but not a wage spiral. Maybe doing something besides blog commenting would help with that, but still, the increased prices are all going to the investors.
Do not worry, here is inflation buster from previous post
https://philip.greenspun.com/blog/wp-content/uploads/2023/10/image-1.png
Smartest people keep discussing what group of people involved in producing goods and services creates inflation, probably as consequence of treating NYT as intellectual playground. The question was very well explained decades ago https://www.youtube.com/watch?v=F94jGTWNWsA
Milton Friedman – Only Government Creates Inflation
Instead of worrying about economics, spent a cloudy afternoon watching the 10/14 annular solar eclipse on an outdoor large screen TV, thanks to telescopes, cameras, and internet streaming. Accurate predictions said we would’ve only seen 47% cover locally, without clouds. Dark matter and energy, and inflationary universe are real? Physics is fascinating…
We saw it here in Florida with solar binoculars (https://www.celestron.com/products/eclipsmart-10x42mm-porro-solar-binoculars ).
It was a dark circle covering about half of the sun.
Inflation is caused by the government printing too much money. This has been proven over and over again, in multiple countries.
If you want less inflation, they have to stop the printing presses in Washington.
Don’t hold your breath.