Sunday, August 20, 2017

Could New Time Value Counter Negative Wage Growth?

If the zero sum political mindset coming out of Washington weren't enough, the Fed's reliance on an outdated Phillips Curve framework, is another reminder of inept policy. In spite of Tim Duy's hopes that wage growth will soon improve, as Marcus Nunes aptly illustrates, "Faster wage growth is not in the cards."

Earlier this month, Eric Basmajian of Seeking Alpha, was also focused on the bigger negative wage growth picture. in "The Slowdown is Happening", he wrote:
The impact of negative wage growth is beginning to rip through the economy as the economic data shows serious warning signs...The biggest market theme that is ultimately causing the slowdown in the economy, and the stock market, is the inability of wage growth to outpace shelter inflation...Growth in employment has been slowing for over two years. As employment growth slows, the growth in total wages earned slows as well. Wages are the driving factor behind all consumption.
Even as the cost of new homes has fallen slightly, the rising cost of existing homes, more than makes up the difference. Basmajian continues: inflation is severely negative which is signaling immediate distress to the consumer. In fact, the only time this metric was negative during the past 30 years was in recessions so its current standing at -1.1% is very alarming. This negative growth in wages cannot be shrugged off anymore because the adverse effects are bleeding into headlines left and right.
Part of the decline in wage growth, is directly attributable to the organizational patterns of the present. Too many aspects of time value in the marketplace have become difficult to quantify, which in turn means difficulty in determining the necessary resource utilization for aggregate output.

Further, the fact so many time based services rely on limited revenue streams at the outset, means the wage compensation of non tradable sector time based product, is diverging. Less of this time based product, will continue to receive "full" compensation and benefits in the near future. And the services product of non tradable sector activity, is a larger category than the wages of tradable sectors which remain more broadly represented by aggregate output gains.

While today's non tradable sectors likely have few options for reversing wage divergence, better internal alignment of services capacity, could assist the real wage capacity of workers with lower income levels. Fortunately, time value could become a more important component of quantifiable output and wealth creation. Matched time (time arbitrage), as a unit of economic measure, would make it possible to generate a defined form of local equilibrium for non tradable sector activity.

Perhaps "defined equilibrium" would be a more benign description of economic possibility. In part since the word "alternative" is becoming associated with extreme viewpoints, I may be using it less. Defined equilibrium seems to provide better clarity, since it suggests unique "takes" and qualities for group preferences in local settings.

Defined equilibrium settings are all about the generation of new wealth. A marketplace for time value, could mean productive agglomeration with more flexible strategies for risk taking and investment, in terms of both human capital and asset creation. With a little luck, new approaches to wealth building could ease the pressure on more highly sought after regions of economic activity. That pressure is evident - for instance - in the higher costs of existing housing, in relation to new housing.

When units of time are purchased via other units of time, individuals can directly contribute to time based commodity formation, on mutually agreeable terms. Hence time arbitrage would expand equilibrium capacity, whereas labour (time value) in traditional non tradable sector activity is additional velocity in an already existing equilibrium. Time arbitrage could eventually contribute to real wage growth, since it takes place in a framework which reduces two basic areas of consumption costs. More than anything else, the costs of housing and time based services have made consistently rising nominal wages appear as though a necessity.

Hopefully, others who are moderate in outlook, will come forward with more ideas that can counter negative wage growth, as well. Too many moderates have not been taken seriously by the public in recent years, because they have not been proactive on economic reforms to an extent society can continue moving forward. Unfortunately, it's no longer enough to defend capitalism in hopes that all will be well, at this critical juncture. It's time to allow economic experimentation for small groups - experimentation which doesn't require making harsh demands on those who don't wish to participate. Fortunately, economic inclusion and integration, need not mean that everyone has to walk the same economic path.

No comments:

Post a Comment