Tag Archives: Labor

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Global wage cut could slam profits, GDP

The race to the bottom in the global worker wages could eventually lead into an economic depression because it could drive the consumer demand way too low which would not be able to be offset by loose credit says the UN’s International Labour Organization (ILO).

“There is also a problem of collective action: while each individual country may in principle increase aggregate demand for its goods and services by exporting more, not all countries can do so at the same time. The world economy as a whole is a closed economy. If competitive wage cuts or wage moderation policies are pursued simultaneously in a large number of countries, competitive gains will cancel out and the regressive effect of global wage cuts on consumption could lead to a worldwide depression of aggregate demand,” says the report.

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Wages now account 43% of the GDP, a 10% drop since 1970, while corporate profits doubled to 12% of GDP since 2005.

While wage drop trend looks sustainable on the downward course that could be further stumulated by more stringent “right-to-work” laws,  it is less likely, however, that corporate profits could register another 100% gain in next 7 years, and this can have an impact on the stocks.

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Austerity is but one example of the longer road of deliberate policy to accrue an ever larger share of productivity gains onto corporate profits ledger thus delinking wages from productivity gains.

“Since 1980 hourly labour productivity in the non-farm business sector increased by around 85 per cent, while real hourly compensation increased by about 35 per cent,” notes ILO.

Full report here.

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More evidence of job shortages in manufacturing

Three weeks ago, a Detroit TV station reported that manufacturers are facing job shortages and today CNN Money says that the shortage in the manufacturing is so severe that factories are going abroad to import workers.

“U.S. manufacturers, frustrated by a shortage of skilled American factory workers, are going abroad to find them. Business for factories has surged recently, creating a huge demand for machinists, tool and die makers, computer-controlled machine programmers and operators,” writes CNN.

One presumes that this situation is pervasive across the industrial belt from Wisconsin, Indiana, Michigan and Ohio.

Labor import follows H-1B visa program which is approved by the State Department and can be cumbersome and manufacturers acknowledge this.

“H-1B is never going to be the answer to the skills shortage in production jobs in manufacturing,” says Gardner Carrick, senior director with the Manufacturing Institute.

Labor Department is trying to discourage manufacturers from using H-1B visas and have issued a token grant of $2.2 million.

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Jobs: Another unexpected positive datapoint

Unemployment claims unexpectedly fell suggesting labor market is recovering quickly. This nice datapoint was followed by impressive GM earnings and falling mortgage delinquency in Q4, and comes after good numbers in housing. While much of the good news we are hearing is probably already discounted in the Dow chart, the market is yet to discount where we go from here.

While not a forward looking indicator BofA Merrill Lynch Survey of Fund Managers for February shows resurgent bullishness in equities.

“Allocations towards equities have made the largest one-month leap since the beginning of 2011. A net 26 percent of asset allocators are overweight equities, up from 12 percent last month,” writes BofA press release.

Such optimism, of course, is a contrary indicator suggesting that we may be closer to the top on the equities rather then the bottom. However, this survey, last year, showed a slight decline (in June) from previous highs before totally tanking, so we may have more bullishness ahead on this indicator.

As an aside, many good stock trading set-ups involve situations where bullish flags, triangles, diamonds and tradable what-nots are located way above the 50, above the 200 DMA line suggesting that we may have to do some market churning so that we could see what happens to many of them, including the Dow index, once the widely accepted 50 DMA is touched.

Finally, as noted before on this blog, time to start easing out of positions, at least from the technical perspective barring any unexpected events, is once we start approaching 14,200 on the Dow.

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Wage-productivity gap at all time high, Fed

The gap between real wages and output is at an all time high with significant implications on aggregate demand an tax revenue, writes Cleveland Fed.

“In the nonfarm business sector, which accounts for roughly 74 percent of the output produced in the U.S. economy, the share [of labor] has decreased from values around 65 percent before 1980 to the current level of 57.6 percent,” write Margaret Jacobson and Filippo Occhino in Economic Trends.

The text, obviously, does not explain nor present any data as to who pockets the gap, but this rather obvious conclusion, in lieu of record corporate profits, gets another, corporate-friendly, spin.

“When the share of income accruing to labor declines, it means that labor income grows at a lower rate than total income. In other words, the compensation that workers receive in return for their labor grows at a lower rate than the output that they contributed to producing,” write the authors.

So mundane…

The point here is that the products/services that workers make command a much higher price growth then wages so that the aggregate value of labor input keeps shrinking.

What’s the cause? Well, that is debatable depending on one’s politics, except that very little is politically debated as to what to do about this.