This SmartMoney post on “Why You’re Not Getting a Raise” doesn’t make sense. The lede:
Didn’t get a raise this year? Blame inflation.
Hmm, I’d blame the weak economy and excess supply of labor before inflation, which seems more correlation than causation. Corporate profits are, after all, at a record high, so the raise money is there:
With unemployment at 8.3 percent and underemployment at 15 percent, there are plenty of people out there who’d love to have your job for less than you take home, as SmartMoney notes.
But let’s roll with Smart Money here on prices. It says wages typically track inflation, and inflation is low, so your raises are low-to-nonexistent. But It also says stuff like this:
While stagnant prices are a boon for consumers on supermarket checkout lines, they can be hard on workers’ bottom lines.
If wages track inflation—and they have over the last few decades as productivity gains have gone almost entirely to capital—it doesn’t matter to workers (in a cashflow sense, as we’ll see below) whether inflation is high or low. If prices rise 10 percent and I get a 10 percent raise, I’m no better off than if prices rise 1 percent and I get a 1 percent raise.
But to the extent that workers tend to be debtors, low inflation and matching wage increases is much worse for them than higher inflation with offsetting wage increases. If you’ve got a $250,000 mortgage on a fixed 30-year note, or $50,000 in student loans, higher inflation is your best friend. It makes it cheaper to pay off your debts. Low inflation makes it more expensive.
Confusingly, SmartMoney’s own data contradicts its premise:
The average base salary increased by 2.7% this year, the same rate as in 2011, according to a survey by human resources consulting firm Mercer.
So you are getting a raise, particularly since inflation was a bit more than half that.
It’s strange that SmartMoney uses this 2.7 percent number from a consulting firm (flack alert!) when we have better data from the government. BLS data on employment costs shows they rose 1.8 percent in the last year, which would actually better fit SmartMoney’s thesis.
If your to-be-sure paragraph has to say something crushingly obvious like this…
To be sure, employees are better off than they would be if prices started rising faster than wages.
… it probably means you’re on the wrong track.
Yeah, this is a bit of a dumb money column. Previous to 30ish years ago, wages drove inflation (which created the ol' wage inflation spiral). Now, inflation is caused by sector demand (some salaries grow MUCH more than others) and commodity shortages (which may be bubble related as in houses or cheap supply related as in rare earths or a combination of both as in oil).
These types of inflation don't produce raises in environments where labor has no leverage. They just suck money out of the household budget and force families to patch their finances with more credit. Inflation doesn't compel a business to raise wages, labor leverage (union action) and labor competition (like in the boom towns) do.
Meanwhile, this will be the picture of the next wave of inflation:
http://www.ritholtz.com/blog/2012/08/2012-drought-disaster/
What a chart. Americans may have to talk to people from Iceland to see what consumer life is like in a hostile to produce environment.
Remember when we were talking about climate change and hedge fund farms?
http://www.cjr.org/the_audit/audit_notes_farmland_booms_reg.php#comments
#1 Posted by Thimbles, CJR on Fri 17 Aug 2012 at 02:11 PM
Smart Money isn't. But they are on to something with their "inflation equals your wages" theory.
In fact, since about 1979, the Federal Reserve has done everything in its power to read its mandate to control inflation as a mandate to control wage increased (for non-bankers).
Just look at the way their definitions and models have changed over that time. And if that doesn't convince, look at your paycheck.
Me? I got one percent this year. That was awesome, as I had not got any raise at all since 2007.
Doin' my part to Whip Inflation Now, I suppose.
#2 Posted by Edward Ericson Jr., CJR on Fri 17 Aug 2012 at 02:55 PM
"In fact, since about 1979, the Federal Reserve has done everything in its power to read its mandate to control inflation as a mandate to control wage increased (for non-bankers)."
Great paper on that topic here:
http://www.thomaspalley.com/docs/articles/selected/Legacy%20of%20Greenspan.pdf
#3 Posted by Thimbles, CJR on Fri 17 Aug 2012 at 04:10 PM
From the SmartMoney post: "To be sure, employees are better off than they would be if prices started rising faster than wages."
padikiller wonders: What part of this are you guys not getting?
The post makes it clear that wages are up a bit over inflation, but not nearly as much so as they have been historically. It's a factually correct piece and provides precisely the context that you say it does not.
If you want to regurgitate another "companies should dole out profits to workers instead of investors" Chittum Special, you can do that without denigrating a perfectly correct article.
The point of the article is that current meager salary increases are largely being lost (in terms of buying power) to inflation - a perfect description of exactly what is happening in the Great Obama Recovery.
It's just REALITY, fellas.
#4 Posted by padikiller, CJR on Sat 18 Aug 2012 at 07:08 PM