Economic discussion, why low unemployment hasn't brought inflation?

[edhopper]

Okay all you Economic pros and armchair alike. The conventional model is unemployment this low will bring both inflation and a problem finding workers. I think the general rule is for 5% unemployment.
But that has not happened. I suspect there are several reasons. Wage stagflation and high profits means employers can absorb wage increases fairly easily. Employed but under-employed means workers still take part times jobs. Productivity gains means they don't need to find more workers. Some of the employed are self employed in the "Gig Economy". The unemployment rate doesn't reflect those who have left the job market.

Some or all of these, plus other factors.

Love to hear from others more versed in Economics than me.

[AJT]

1. I would guess, although I know nothing about economics,

that low wages play a factor. There is no real push for higher prices by higher wages. Interest rates are also very low.

[ritapria]

3. I believe you are right

Small wage increases translates into less inflationary pressure - and a hollowed out middle class .50% of Americans living paycheck to paycheck in the richest country on Earth .

[at140]

2. The answer for your question was revealed in late 1970's

by a German economist appearing on the Rukeyser TV show.
He predicted, that days of high inflation are over.
We were in the midst of very high inflation in late 1970's, so no one believed him.
But looking back he was absolutely correct.

His reasoning was that manufacturing capacity in Asia was growing so fast,
it will impossible to have shortages of manufactured goods. And even the professional services
such as accounting, medical etc were growing fast in Asia.
Therefore high inflation in the future is highly improbable because the supply will exceed the demand.

Actually world is operating at only 75% of manufacturing capacity.
Therefore any increase in demand through higher job numbers will have no problem with supply.

[edhopper]

6. That is very interesting

hadn't considered how much the Global impact was.

[Farmer-Rick]

4. Well, the key to that theory that low unemployment leads to inflation is

That workers demand higher wages. There are a handful of unions that are fighting for higher wages but they were mostly in manufactoring. The US has encouraged outsourcing our manufacturing to foreign countries and has had a war on unions for dacades. So, there have been very few demands for higher wages. The filthy rich has so humbled and subjugated workers, demands for better pay are looked on as subversive.

We are now a nation of sales clerks with minimum wage and few benefits. You do not see sales clerks marching for better wages.

[unblock]

5. many reasons

first, fewer unions these days, and those that are around have less power.

second, being employed doesn't mean being fully employed. a lot of people have jobs but can't get as many hours as they like. this means there's still some slack in the labor market.

third, people are entering the labor market and also not leaving the labor market (retirement? what's that?). more labor supply means less upward pressure on wages.

fourth, automation. we're competing with robots. if labor is too expensive, businesses automate more. governments actually encourage this with various tax incentives.

fifth, offshoring. although this isn't as bad as it used to be, we're still competing against overseas labor more than we did in the past because it's much easier for businesses to shift work abroad.

[Bucky]

7. Read this editorial. Middle class job growth *IS* inflationary. We don't have that.

https://www.epi.org/publication/one-in-nine-u-s-workers-are-paid-wages-that-can-leave-them-in-poverty-even-when-working-full-time/

One in nine U.S. workers are paid wages that can leave them in poverty, even when working full time

Over the past 30 years, large shares of U.S. workers have had jobs that have paid wages so low that, even with full-time, year-round employment, their earnings would still fall below federal poverty guideline for their family size. Figure A shows the share of workers overall, and the shares of men and women workers, who have been paid poverty-level wages since 1986—the first year for which Census microdata allow for this calculation. A poverty-level wage is an hourly wage that would leave a full-time, full-year worker below the federal poverty guideline for their family size if they are the sole earner in the family.

In 1986, 17.3 percent of workers overall (more than one in six U.S. workers) were paid poverty wages, including nearly one in four (23.2 percent of) women workers. By 2017, the share of all workers earning poverty wages had fallen to 11.4 percent. This is a significant decline from the 1995 peak of 17.6 percent, yet it still means that more than one in nine workers are being paid too little to escape poverty for their family size.

I teach economics. My opinion is that a preponderance of the excess spending money represented by rock bottom unemployment numbers is being absorbed into the real estate and rental markets. Along with education costs and health insurance rising radically, housing costs increases aren't leaving enough income to push prices for smaller items in the consumer sector upwards.

Unlike food, gas, luxuries, or accessories, money spent on housing, college, or insurance doesn't really contribute to inflation because it goes to the investor class -- people who put their money into financial instruments instead of spending it on more consumer goods.

[edhopper]

8. Thank you

I was thinking that the way inflation is measured might not reflect what is happening.