Friday, August 4, 2017

Plenty of world labor supply putting pressures on worker wages

Some policy makers fret that the output gap - the percentage of un-utilized output in the U.S. economy - is shrinking fast. This is debatable since the economy’s output potential isn’t a fixed number but depends on speed of growth, which influences the economy’s flexibility. Business can adapt much better to slow growth, as proven in this recovery.

Also, capacity is sensitive to wages and prices. Higher pay attracts new workers who otherwise are comfortable drawing welfare, unemployment and disability benefits. By the same token, high selling prices can make otherwise obsolete machinery profitable to utilize in times of increased demand for their output and rising prices. In any event, the current overall operating rate remains muted and definitely below the levels that in the past have initiated capital spending surges.

More important, in today’s world, supplies of labor and productivity capacity need to be considered on a global basis. By all accounts, such supplies are ample and will remain so, barring all-out protectionist wars and tariff walls in advanced countries that could drastically chop imports.

via bloomberg