Fed Chairman Ben Bernanke told senators Wednesday that he sees "some evidence" that wages are finally beginning to catch up with productivity growth ... "It's been slow coming. I want to be clear about that," Bernanke said of wage growth.
This is technically true as well. And explain to me the difference between two things:
One thing is technically true while the other is just true (but not techically).
So which part of the testimony was false again?
Also keep in mind that BB is not a hawk or a dove (i.e. he aint a bird) but rather evaluates the data without a bias as any rational central banker should.
sharkbait, I've been very positive about Bernanke, but I just pointed out (previous post) that Bernanke was incorrect about disposable income. Kudos to Nutting for making a similar point on wages. I also pointed out a few days ago that total compensation wasn't keeping up with productivity (taking exception to Lazear). Nutting also made that point.
Part of the reason that there seems to be more heat than light in the debate about if workers are keeping up with inflation is the difference between wages and compensation. From the perspective of the employer, it is Comp that really counts, from the perspective of the worker, it is wages that really count. The big difference between the two is health care costs. If workers were getting better health care coverage they might feel that total comp was a reasonable measure. The problem is that from their perspective, it is getting worse. Higher co-pays and deductables etc. It is just not getting worse at the rate that higher health care costs alone would indicate. The fault seems to me to reside in our rediculously inefficent health care system. 15.3% of GDP and rising when no other country in the OECD breaks 9%. Most of them have much better results on the basic international comparitors of health care success (infant mortality, life expectantcy etc). However, even on a comp basis, it does not keep up with productivity, even if it might be going up slightly faster (for some select short periods) than inflation.
Bernanke is not wrong. Nutting is apparently confused by the meaning of the phrase percentage point. Usually when people use that phrase, they are comparing two numbers both expressed in percent. That is exactly what Bernanke is doing. Nominal hourly earnings are up 3.9% over the past 12 months compared with 2.6% a year earlier a difference of about a percentage point. Given his use of the phrase percentage point, it should be clear that the hourly earnings number to which he refers is the growth rate of hourly earnings, and in context, he is obviously referring to nominal earnings. The evidence for wages catching up is based on the premise that the growth rate of ex ante real wages is increasing. If this growth rate were to continue increasing, and if we were to stop getting positive inflation surprises, then wages would indeed catch up. As Bernanke says, the evidence is not very overwhelming perhaps an understatement, but I dont think Bernanke is being entirely unreasonable to say that there is some evidence.
knzn - Bernanke clearly implied this one point increase in 'wage growth' should translate into more discretionary spending. This is unlikely to happen since inflation increased even faster during the same period. It might be a nominal increase in wage growth and larger than last year... but with inflation considered it is still a 'real' decline in wages and should result in a decline in discretionary spending - which was CR's & Nuttings point.
That is unless savings go even more negative. Lets hope not, eh?
Either Bernanke doesn't get it (doubt that) or doesn't want to go there (bingo).
Any increase in productivity, goes directly to the top tier income earners. For the bottom 99% of the income earners, real wage growth continues to stagnate. This has been the story for the past 20+ years...
dryfly, It could translate into more discretionary spending, depending on how it affects peoples expectations of future wage growth. The model Bernanke has in his head is apparently one in which changes in the rate of nominal wage growth are persistent whereas changes in the inflation rate are transient. If households have the same model (or if the model reflects a substantive reality that is incorporated in their expectations), then the increase in nominal wage growth will be perceived as an increase in permanent income even though it is not an increase in current income.
The only way it could translate into more discretionary spending is if people borrowed even more than they already have -- rationalizing this by some expected future increase in wages. How many people out there really are counting on a big pay hike this year? Not where I work. That aside, your theory blithely ignores the fact that consumer debt levels weren't at historic highs. So maybe people who are lucky enough to have a pay increase have that money earmarked for paying down their Visa bills?
knzn, yes, you are correct that Bernanke was comparing nominal wage gains for "last year versus the previous year". Unfortunately this is in the Q&A and there is no transcript. So Nutting's point about real wages is comparing apple to oranges. Of course comparing nominal wage gains year to year might just be saying there is more inflation (correct in the case) - so what was Bernanke's point? I wish the FED would provide the transcript for the Q&A.
Along those lines, I wish Nutting had jumped on Bernanke for his rising disposable income statement - also technically correct, but misleading - and since Bernanke is using nominal DPI his apparent conclusion (that rising nominal DPI will support housing) seems wrong.
On the second point, Nutting is correct. Bernanke's "Closer to zero" statement is misleading, and of course real compensation is not catching up with productivity. We will see if there is some persistent in real compensation if inflation falls.
Billmon had a nice take on Ben's talk... Ben to Wall Street: Party On, Dudes.
Kudos for what exactly?
Fed Chairman Ben Bernanke told senators Wednesday that he sees "some evidence" that wages are finally beginning to catch up with productivity growth ... "It's been slow coming. I want to be clear about that," Bernanke said of wage growth.
This is technically true as well. And explain to me the difference between two things:
One thing is technically true while the other is just true (but not techically).
So which part of the testimony was false again?
Also keep in mind that BB is not a hawk or a dove (i.e. he aint a bird) but rather evaluates the data without a bias as any rational central banker should.
sharkbait, I've been very positive about Bernanke, but I just pointed out (previous post) that Bernanke was incorrect about disposable income. Kudos to Nutting for making a similar point on wages. I also pointed out a few days ago that total compensation wasn't keeping up with productivity (taking exception to Lazear). Nutting also made that point.
Best Wishes.
Part of the reason that there seems to be more heat than light in the debate about if workers are keeping up with inflation is the difference between wages and compensation. From the perspective of the employer, it is Comp that really counts, from the perspective of the worker, it is wages that really count. The big difference between the two is health care costs. If workers were getting better health care coverage they might feel that total comp was a reasonable measure. The problem is that from their perspective, it is getting worse. Higher co-pays and deductables etc. It is just not getting worse at the rate that higher health care costs alone would indicate. The fault seems to me to reside in our rediculously inefficent health care system. 15.3% of GDP and rising when no other country in the OECD breaks 9%. Most of them have much better results on the basic international comparitors of health care success (infant mortality, life expectantcy etc). However, even on a comp basis, it does not keep up with productivity, even if it might be going up slightly faster (for some select short periods) than inflation.
Bernanke is not wrong. Nutting is apparently confused by the meaning of the phrase percentage point. Usually when people use that phrase, they are comparing two numbers both expressed in percent. That is exactly what Bernanke is doing. Nominal hourly earnings are up 3.9% over the past 12 months compared with 2.6% a year earlier a difference of about a percentage point. Given his use of the phrase percentage point, it should be clear that the hourly earnings number to which he refers is the growth rate of hourly earnings, and in context, he is obviously referring to nominal earnings. The evidence for wages catching up is based on the premise that the growth rate of ex ante real wages is increasing. If this growth rate were to continue increasing, and if we were to stop getting positive inflation surprises, then wages would indeed catch up. As Bernanke says, the evidence is not very overwhelming perhaps an understatement, but I dont think Bernanke is being entirely unreasonable to say that there is some evidence.
knzn - Bernanke clearly implied this one point increase in 'wage growth' should translate into more discretionary spending. This is unlikely to happen since inflation increased even faster during the same period. It might be a nominal increase in wage growth and larger than last year... but with inflation considered it is still a 'real' decline in wages and should result in a decline in discretionary spending - which was CR's & Nuttings point.
That is unless savings go even more negative. Lets hope not, eh?
Either Bernanke doesn't get it (doubt that) or doesn't want to go there (bingo).
Any increase in productivity, goes directly to the top tier income earners. For the bottom 99% of the income earners, real wage growth continues to stagnate. This has been the story for the past 20+ years...
dryfly, It could translate into more discretionary spending, depending on how it affects peoples expectations of future wage growth. The model Bernanke has in his head is apparently one in which changes in the rate of nominal wage growth are persistent whereas changes in the inflation rate are transient. If households have the same model (or if the model reflects a substantive reality that is incorporated in their expectations), then the increase in nominal wage growth will be perceived as an increase in permanent income even though it is not an increase in current income.
The only way it could translate into more discretionary spending is if people borrowed even more than they already have -- rationalizing this by some expected future increase in wages. How many people out there really are counting on a big pay hike this year? Not where I work. That aside, your theory blithely ignores the fact that consumer debt levels weren't at historic highs. So maybe people who are lucky enough to have a pay increase have that money earmarked for paying down their Visa bills?
knzn, yes, you are correct that Bernanke was comparing nominal wage gains for "last year versus the previous year". Unfortunately this is in the Q&A and there is no transcript. So Nutting's point about real wages is comparing apple to oranges. Of course comparing nominal wage gains year to year might just be saying there is more inflation (correct in the case) - so what was Bernanke's point? I wish the FED would provide the transcript for the Q&A.
Along those lines, I wish Nutting had jumped on Bernanke for his rising disposable income statement - also technically correct, but misleading - and since Bernanke is using nominal DPI his apparent conclusion (that rising nominal DPI will support housing) seems wrong.
On the second point, Nutting is correct. Bernanke's "Closer to zero" statement is misleading, and of course real compensation is not catching up with productivity. We will see if there is some persistent in real compensation if inflation falls.
Best Wishes.