Economic Analysis

The labour market and productivity are both supply side constructs and have an impact on the long term growth path of the economy.

Here are two stories from the New York Times: One is a personal story and the other a data story.

Basically as labour markets get tight (or as unemployment declines) wages tend to increase.  Unfortunately they are not.  Not just in the US but also in some other European countries.

The articles put it down to skills and the decline of unions.  Skills are shifting from the middle to the low and high end.  This is a structural problem. Its no wonder Singapore always emphasizes skills upgrading. At the end of the day we should expect inequality to increase. Partly also due to the gig economy.

The other is a scary story from the UK - productivity growth has declined - which means long term growth will decline.  Here is the full report from the The Office for Budget responsibility. But if you don't want to read that, watch this video they posted on twitter.

Here are a couple of articles from the New York Times.  The China piece is about using PPP versus nominal exchange rates to compare economic size - an issue which IMHO does not deserve the kind of attention it seems to be getting in 'policy circles'.  The average person does not care about size - they care about the amount of money in their pocket.

The India piece is more intriguing.  It compares the downturn in the US and some European countries to the deindustrialization of India in the 18th and 19th centuries (the background academic piece on the deindustrialization in India is here).  Although the NYT article mentions Italy and France and some southern European countries.  The argument probably also applies to Spain which we discussed recently.  France and Italy have been in the news lately because they have been lagging on reforms.  Generally the story goes something like this ... Agriculture is not a huge contributor to the economy anymore in terms of its share of output and employment (and as we discussed earlier, it is highly subsidized and distorted). Manufacturing in Europe has been hit by China - Germany is really the only country which still does manufacturing really well. Meanwhile, Europeans now acknowledge that Lisbon Agenda has been a failure - so in essence, Europe has not managed to catch up to the US in IT.  So really there are no productive outlets available.  Add to this the poor business environment and the inflexibilities in the labour market - and you are going to get stagnation. It's no wonder all the money went to construction and real estate (and therefore Finance) during the boom.  It still is - look at the UK - the economy is on an upturn, but in the last couple of years a lot of money has gone back into real estate because interest rates are low. Of course the British government likes to pretend that this is because there is a shortage of housing. There may be, but real estate is still driving London, and London is driving the rest of Britain. Sure there is some IT happening in London but not nearly as much as the Brits would like or have us believe - the problem it appears, is a shortage of venture capital - for that, they need to head to America.