Friday, February 12, 2016

Some Thoughts on Sticky Wage Considerations

Are sticky wages rational? Given the nature of sticky general equilibrium conditions, perhaps. Substantial compensation is expected, when sacrifice and extensive investment are needed to access high skill employment. Consequently: instead of attempting to roll back asymmetric compensation, a different approach is needed. Symmetrically arbitraged time value could generate a broader base of labor force participation over time, and generate more growth than general equilibrium conditions presently allow.

The challenge in alternative equilibrium is to "loosen" high skill requirements (and by extension, wages) for local groups which opt to use time value equally. Both wage and skill requirement "loosening" would gain assistance from "just in time" knowledge use, and active (i.e. not replicative) forms of knowledge product. By substituting time arbitrage for skills arbitrage, time value becomes an actual form of private property. Individuals would gain the ability to personally negotiate for time preferences in the workplace, instead of relying on outside groups to do so in their stead.

However I've gotten somewhat ahead of myself. The immediate concern is existing sticky wages and the extent to which they create negative effects for employment levels, now. Why isn't it possible to "unstick" wages, so as to increase labor force participation (and by extension, growth) in general equilibrium?

It can be difficult to create flexible wages, for the sought after work which is recognizably stable. Plus, these are the workplaces which anchor general equilibrium conditions. There are many interlocking factors which are taken for granted in general equilibrium, hence it is difficult to dislodge some without affecting others. Even though a wide range of jobs have become flexible in terms of time use and income, much of this is the more marginal category of gig employment. Consequently, this more readily available work is considered a temporary measure, until one becomes more fully engaged in the marketplace. Meanwhile, the line for full engagement continues to grow longer...

Relative to non tradable sector employment, tradable sector wages are less sticky because they are more responsive to pricing structure and market conditions. Since time value in tradable sectors is separate from finished product, both skill sets and time use in the workplace are easy to adjust or even transform. Whereas the time based product of non tradable sectors has been slower to evolve.

If that were not enough, non tradable sector activity remains a secondary market. Instead of generating wealth through internal means, knowledge based services rely on redistribution and other preexisting wealth. As a result, skills value became associated with political positioning, on the part of associations which manage knowledge product. These are the stickiest wages of all - the ones most in need of assistance from local corporations, to generate new supply and demand in the marketplace.

New marketplace capacity will also include new rights to produce, or put simply, rights to work. Previously, "rights to work" were sought in tradable sectors. Exceptions to right to work laws were carved out for non tradable sectors, in part due to the greater degree of time investment that was necessary for employment. For non tradable sectors, the issue was not so much one of providing "more" employment, but making certain that existing employment had sufficient protection.

Another aspect of sticky wages is continued pressure for rising minimum wage levels. Employment losses are not always obvious afterward, because of the degree to which further unemployment is shifted elsewhere. The recent closures of Walmart stores in rural areas across the U.S., provides a good example, how retail and restaurants may respond to higher minimum wages. As it turns out, the loss in this instance was not only that of jobs, but also marketplace capacity. Rural residents will now need to pay an essentially hidden price, in that they will need to drive further to access stores (or restaurants) which can keep their doors open after wage increases.

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