Justin Lahart

speaker

1,185 appearances 22 recordings 1 series first heard Jul 2017 last heard Dec 2024

Justin Lahart’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · Worker Pay Is Rising, But Their Piece of the Pie Is Shrinking · 8 Feb 2023 podcast

But let's say the workers demand a 10% pay increase.

Then the owner will need to increase prices by about 7% to protect profit margins, right?

And that equals more inflation.

I guess maybe in individual companies, but it's really, really hard to pin down productivity in general in the economy.

It's always been really difficult.

And since the pandemic started, the productivity numbers have been swinging around like crazy.

I calculated the biggest swings over the last three years that we've seen in over 70 years.

So generally speaking, right, but there are some wrinkles here.

So this idea that wage growth in excess of productivity is going to lead to

higher inflation is kind of predicated on the idea that labor's share of income is unchanging.

And that just hasn't been true.

To the contrary, labor's share of the economy has been falling since at least 2000.

And a lot of economists would argue even longer than that, right?

So there's been a shrinking share of the pie.

Now, the only way that workers' slice of the pie is going to get bigger is if their wages go up in excess of inflation and productivity.

The problem here could be that by trying to counter wage growth and contain inflation, instead, the Fed could be dooming American workers to never getting back that larger share of the economy that they used to enjoy.

I don't know that it's being talked about just yet.

I think at this point, with inflation still well above the 2% that the Fed is targeting, I think that what could happen is as inflation continues to cool and we get to a point where you're saying, oh, yeah, it looks like it's going down to 2%.

Oh, look, wage growth is really high, right?

Then that is going to be kind of a front and center question for the Federal Reserve.

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