Macro Roundup

how do you say "global wage convergence" in German? (Globale Lohnkonvergenz)

"...Germany introduced aminimum wagein 2015. But some experts argue that in many places it is not being properly enforced. Marcel Fratzscher, head of the DIW think-tank in Berlin, said the least qualified had seen their pay fall:“For people with low qualifications, the hourly rate has decreased from €12 to €9 since the late 1990s..."

Claire Jones, "German wage growth low as workers look beyond pay packets,"Financial Times, June 12, 2017, https://www.ft.com/content/a34ebea0-4b66-11e7-a3f4-c742b9791d43

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“Money is important of course,” said Kim, a 20-year-old student of mathematical economics. “But a job should be good for the soul and fun too.”

At Karlsruhe’s Institute of Technology, a leading technical university producing graduates in sought-after areas such as mathematics, engineering and science, students were happy to talk about their dream jobs — from working for carmakerDaimlerto helping the environment — but none said the size of their pay packet was their main motivation.

Economic prosperity and a rise in the proportion of school leavers going to university are also changing what people expect from their jobs.

Dirk Notheis, managing director of Rantum Capital, a fund set up to provide capital for smaller Mittelstand companies, said: “The problem is more one of a scarcity of workers, and that’s not simply a function of price. It also depends where the company is based. In a big city like Munich, it’s probably less of an issue to persuade a young engineer to join your company. But even if you raise the salary, younger people won’t be willing to move to a smaller place.”

German society is ageingand, with some workers able to retire at 63, the labour market will soon begin to shrink.

As Aluplast’s problems show, another reason why wages are not rising at a faster pace is that staff are not available at any price.

Germany introduced aminimum wagein 2015. But some experts argue that in many places it is not being properly enforced. Marcel Fratzscher, head of the DIW think-tank in Berlin, said the least qualified had seen their pay fall: “For people with low qualifications, the hourly rate has decreased from €12 to €9 since the late 1990s.”

In Karlsruhe’s main train station, Bernd, a florist, lamented the changes. “What does it mean to have low unemployment when inequality stays the same?”

As a result, the days in which less skilled German workers could look forward to regular pay increases seem unlikely to return in the foreseeable future.

Meanwhile the rights of lower-paid workers have been hit by the sweeping labour market and welfare reforms introduced in the 2000s by SPD chancellor Gerhard Schröder. While some credit those changes for the fall in unemployment, critics say they left workers more vulnerable and less able to push for better wages.

Exporters in the motor industry pay 27 per cent more than the average German manufacturer and wages in export-driven groups generally tend to be higher, says Deutsche Bank. But with the proportion of workers covered by collective bargaining dwindling, trade unions have sought to maintain their influence through broader agreements that have given members more job security and benefits such as better pensions and training, rather than focusing solely on wages.

“German companies and workers remember what they had to do to become competitive. They have that in mind now and that will remain in mind in the future too,” said Jonas Prising, head of ManpowerGroup, which researches labour market trends. Manufacturers can easily threaten to switch production to lower-cost countries, he added: “There is an understanding that we live and compete in a global environment.”

Employers and employees alike are reluctant to disrupt years of hard-won competitiveness gains that turned Germany from the “sick man of Europe” into an export champion.

Mario Draghi, ECB president, this month said “backward looking negotiations”, based on low inflation rates seen in previous years, were one reason for moderate wage growth. But other factors range from decade-old labour reforms to employee priorities that go beyond pay packets.

Aluplast’s workers are not covered by collective bargaining and negotiate individually. Mr Seitz said overall salary packages — including wages — had increased on average by more than 2 per cent in 2016.

IG Metall, Germany’s largest union, which represents metal and industrial production workers — many of whom work for export-driven companies — last year agreed a 4.8 per cent pay deal spread over 21 months and worth 2.7 per cent a year.

But the last time that happened in Germany was in 2011. Last year nominal wages rose by 2.3 per cent despite unemployment falling close to post-reunification lows.

Central bank policymakers suggest that German nominal wages need to grow at least 3 per cent annually to reflect the ECB inflation target of just under 2 per cent and a further 1 per cent in productivity gains.

Higher wages would also be in Germany’s interests as by improving the overall eurozone economy, it would make it easier for theEuropean Central Bankto bring an end to its era of ultra-low interest rates — something that German savers have long complained about.

The International Monetary Fund has warnedhigher wage growthin Germany is needed to sustain theeurozone recoveryby increasing the country’s purchasing power and making other countries’ companies more competitive.

The recruitment problems at the likes of Aluplast would seem to make Germany a ripe environment for sought-after workers to demand blockbuster pay increases. In fact the country is struggling to break out of a long period of moderate wage inflation — something of consequence beyond the wallets of its workers.

“We are fighting to hire workers,” he said. “We are collaborating with four training schools in the area. We even went to Greece and Spain and hired about 30 people from there. It is amazing what you have to do to find the right people.”

Aluplast, his manufacturing company, is thriving but Mr Seitz is struggling to add to its German workforce. Unemployment in prosperous Karlsruhe, where the plastics maker employs 600, is just 3.1 per cent.

Germany’s booming economy has given Dirk Seitz a headache.

German wage growth low as workers look beyond pay packets

will read. my guess is that they get causation backwards, low productivity firms have higher debt levels as they can't rely on equity

"...Tight credit conditions and balance-sheet vulnerabilities could be responsible for as much as one-third of the productivity slowdown in advanced economies following the 2008 global financial crisis, according to an International Monetary Fund research paper by Gee Hee Hong, Romain Duval and Yannick Timmer. This slowdown has swept across nations like Japan, the U.S. and France.....The IMF paper shows firms whose balance sheets were saddled by debt saw a larger slowdown in total factor productivity growth—which accounts for effects of inputs like capital and labor—than their more financially fit counterparts...."

On the negative side, very high levels of corporate debt could once again undermine firms’ ability to invest in the event of another crisis or credit crunch. The risks of a corporate debt pileup are evident in the case of oil drillers, who were initially attracted to the bond market by ultralow interest rates. The oil-price plunge, however, spurred a wave of defaults among smaller oil and gas drillers.

That hasn’t happened yet: U.S productivity growth was zero in the first quarter, according to the latest Labor Department figures.

The study has cross-cutting implications for the future of productivity growth. On the positive side, companies no longer have much trouble getting credit, as U.S. corporate debt is ballooning to levels higher than those just before the 2008 financial crisis. That could, in turn, help productivity, if it makes it easier for firms to finance R&D and workforce training.

The lackluster productivity was worse in countries where credit conditions tightened more right after the collapse of Lehman Brothers in September 2008.

These firms were more likely to cut back on investment like research and development, hurting productivity.

The IMF paper shows firms whose balance sheets were saddled by debt saw a larger slowdown in total factor productivity growth—which accounts for effects of inputs like capital and labor—than their more financially fit counterparts.

Firms often raise worker productivity by investing in new buildings, equipment, software and research. Firms that rely on the financial markets may not have been able to fund such investment when credit became scarce after the crisis.

Tight credit conditions and balance-sheet vulnerabilities could be responsible for as much as one-third of the productivity slowdown in advanced economies following the 2008 global financial crisis, according to an International Monetary Fund research paper by Gee Hee Hong, Romain Duval and Yannick Timmer. This slowdown has swept across nations like Japan, the U.S. and France.

Productivity is how much a worker can produce per hour and is the main source of rising standards of living. Its growth has slowed sharply around the world since the financial crisis. Because what employers can pay is closely linked to how much workers produce, this weak growth is a reason for slow wage gains.

Economists have long been puzzling over why productivity has downshifted over the past decade, often blaming waning technological innovation for the pullback. Research, though, points to an overlooked culprit: the shortage of credit to many companies that followed the financial crisis.

One More Reason for the Productivity Slowdown? Credit Conditions

Sarah Chaney, "One More Reason for the Productivity Slowdown? Credit Conditions,"Wall Street Journal, June 12, 2017, https://blogs.wsj.com/economics/2017/06/12/one-more-reason-for-the-productivity-slowdown-credit-conditions/

James Pethokoukis, "A techno-optimist take on automation and jobs," American Enterprise Institute, June 9, 2017, https://www.aei.org/economics/a-techno-optimist-take-on-automation-and-jobs/

A techno-optimist take on automation and jobs

Reason writer Ronald Bailey outlines a strong case that fears about technological unemployment are overblown. For instance: He adds needed context to the recent finding by MIT economist Daron Acemoğlu and Boston University economist Pascual Restrepo that each additional industrial robot in the United States results in 5.6 American workers losing their jobs.

But even taking the high-end estimate, job loss due to robots was has been just 670,000 since 1990 while “last year some 62.5 million Americans were hired in new jobs, while 60.1 million either quit or were laid off from old ones, according the Bureau of Labor Statistics.” I would add that total nonfarm employment over that span has increased by nearly 40 million.

And Bailey on the basic economics that shock stories often miss:

When businesses automate to boost productivity, they can cut their prices, thus increasing the demand for their products, which in turn requires more workers. Furthermore, the lower prices allow consumers to take the money they save and spend it on other goods or services, and this increased demand creates more jobs in those other industries. New products and services create new markets and new demands, and the result is more new jobs.

Pessimists also fail to appreciate our inability to imagine what future jobs look like, a failing that stems from our inability to imagine future technology and its uses. Bailey cites research from economist Michael Mandel that in the decade since the advent of the smartphone, the “app economy” now supports nearly two million jobs.

Let me end with this bit from Bailey that quotes economist David Autor:

Imagine a time-traveling economist from our day meeting with Thomas Edison, Henry Ford, and John D. Rockefeller at the turn of the 20th century. She informs these titans that in 2017, only 14 percent of American workers will be employed in agriculture, mining, construction, and manufacturing, down from around 70 percent in 1900. Then the economist asks the trio, “What do you think the other 56 percent of workers are going to do?”

They wouldn’t know the answer. And as we look ahead now to the end of the 21st century, we can’t predict what jobs workers will be doing then either. But that’s no reason to assume those jobs won’t exist.

“I can’t tell you what people are going to do for work 100 years from now,” Autor said last year, “but the future doesn’t hinge on my imagination.”

(For more on the issues surrounding automation, a relatively recent piece from the Richmond Fed is worth reading. It looks at things through the lens of how driverless vehicles might affect truck drivers.)

Sarah O'Connor, Employment rate passes 2007 peak in developed world, says OECD, Financial Times, June 13, 2017, https://www.ft.com/content/2aa8db88-4f68-11e7-a1f2-db19572361bb

John Evans, general secretary of the Trade Union Advisory Committee to the OECD, said this was a significant shift in outlook for the organisation. “That recognition now has to be translated into recommendations to strengthen bargaining and social dialogue at the country level,” he said. “Too often the IMF and OECD’s recommendations in the past have decentralised and weakened bargaining systems.”

The OECD has also reassessed its policy advice to member countries on how to improve their labour markets, becoming more supportive of trade unions, especially when collective bargaining is centralised. “Labour market adjustment to structural change is likely to proceed more smoothly and leave fewer workers behind if trade unions or other forms of worker representation allow workers’ interests to be taken more fully into account,” the report said.

There was good news too: most countries narrowed their gender pay gaps and better integrated disadvantaged groups such as the disabled into the labour market. European countries faced with fiscal problems, such as Spain and Greece, experienced a fall in most of their labour market metrics, while Germany, Israel and Poland managed to improve most of theirs.

The OECD has developed a new framework to assess the quality, inclusiveness and resilience of labour markets. This includes metrics such as the proportion of people on less than half the median income, gender employment gaps, and whether jobs put people under strain. According to these measures, labour market insecurity and low income rates increased in many OECD countries between 2006 and 2015.

About a third of this polarisation was owing to the destruction of factory jobs and their replacement with lower-skilled service sector roles. The rest was because of polarisation within industries. The OECD attributed this more to the development of new technologies than to globalisation, though it said the two trends were difficult to disentangle.

The organisation’s research showed that labour markets had been “hollowed out” across the developed world, with fewer roles in the middle of the jobs ladder and more at the top and bottom. The share of employment in “middle-skilled” jobs fell 9.5 percentage points between 1995 and 2015 in the OECD area, while the share of high and low-skilled jobs rose 7.6 and 1.9 percentage points respectively.

This wave of discontent has prompted soul-searching at the OECD, made up of 35 of the world’s wealthiest nations. “The populist backlash against globalisation challenges the policy advice offered by international organisations like the OECD, which have long emphasised the benefits of global integration,” the report said.

“While the job gap is closing, many people do not feel the benefits as they are facing stagnant wages and no career prospect: we need an inclusive labour market that reconnects the benefits of our economic model with those who work in it,” said Angel Gurría, OECD secretary-general.

The report highlighted what the OECD called a “paradoxical” moment for the developed world: employment is rising but so is workers’ anger about globalisation and inequality.

The annual jobs report from the Organisation for Economic Co-operation and Development, published on Tuesday, revealed that the employment rate for people aged 15-74 in the OECD area reached 61 per cent last year. This took it above the peak of 60.8 per cent at the end of 2007, just before the global recession pushed millions out of work.

The number of people in work in the developed world has surpassed pre-crisis levels, but the newly created jobs are more polarising and insecure than those that were destroyed.

Employment rate passes 2007 peak in developed world, says OECD

Seems like good news to me, chart from report not article

Matches our findings for the US (and doesn't account for comp shift)"...The organisation’s research showed that labour markets had been “hollowed out” across the developed world, with fewer roles in the middle of the jobs ladder and more at the top and bottom.The share of employment in “middle-skilled” jobs fell 9.5 percentage points between 1995 and 2015 in the OECD area, while the share of high and low-skilled jobs rose 7.6 and 1.9 percentage points respectively...."