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The labor shortage is the catalyst for sustained inflation

warrenbisch.medium.com

11–20 of 59 posts

Re: The labor shortage is the catalyst for sustained inflation

#11
post #2

This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value. It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems. Not an economist.

makes sense but automation is hard, it doesn't fall from the sky like manna.

Reality is that automating the easiest jobs is the hardest (old Minsky observation) and most essential services you can't substitute fall into that category. No robot plumber or roof tiler in the near future.

Article is right to point out that the pandemic together with the anti-migration stance and isolationism is going to push the cost of labour as well as goods.

Re: The labor shortage is the catalyst for sustained inflation

#12
post #2

This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value. It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems. Not an economist.

Or labor assisted by machines: if businesses start to repatriate factories, one can expect them to take the opportunity to automate plants like never before. There would be few but highly paid jobs. There must be a business case for bringing manufacturing jobs home, or I've missed something.

Well the business case as of late is that the global supply chain isn’t as resilient as previously believed, with all of the disruption seen during covid. Primarily with surgical masks and medical equipment at first, but now with nearly every good experiencing disruptions of some sort.

Re: The labor shortage is the catalyst for sustained inflation

#13
post #2

This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value. It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems. Not an economist.

This argument never sat well with me. Businesses buy machines, AI, and other automation systems to improve their standing. They do this regardless of the price of labor (unless labor gets really cheap but this is broadly not true in the US or EU). Investing in such assets give them an advantage. The problem is when everybody does this. Then its no longer an advantage but a necessity. There's probably something to be…

Yes but it is a supply demand. If putting in the automation infrastructure is going to cost be $500,000 and $100,000 a year to maintain it then as long as I can keep an employee for $30,000 a year that probably doesn't scale. Whereas if the cost of the employee moves to $50,000 or $60,000 a year it becomes more advisable and prudent to do so.

Re: The labor shortage is the catalyst for sustained inflation

#14
>During his presidency, Trump tightened the enforcement of immigration from Mexico for two reasons: protecting American jobs, and national security. [...] Without immigrants, industries such as agriculture and hospitality fall apart at their seams. This is yet another isolationist policy, and it asserts an extreme pressure on the supply of workers willing to take minimum-wage jobs.

Yes, Trump did that, but he hasn't been President for a while.

https://www.cnn.com/2021/08/12/politics/us-mexico-border-mig...

>(CNN)The Biden administration is facing a "serious challenge" at the US southern border, Homeland Security Secretary Alejandro Mayorkas said Thursday, saying the US has encountered an "unprecedented" number of migrants illegally crossing the border.

>During a news conference in Brownsville, Texas, Mayorkas stressed the sharp increase of migrants arriving at the US-Mexico border, many of whom are fleeing deteriorating conditions in their home countries.

>In July, US Customs and Border Protection apprehended 212,672 people, up from June and amid some of the hottest summer weeks -- when arrests usually dip -- and of those, 95,788 individuals were expelled. Twenty-seven percent had previously tried to cross the border, Mayorkas said, acknowledging that a Trump-era policy that allows border authorities to turn migrants away has contributed to people trying to cross the border multiple times. July marks the highest monthly number of migrants detained at the US-Mexico border in two decades.

Adding 116,884 immigrants a month will solve a labor shortage pretty fast.

Re: The labor shortage is the catalyst for sustained inflation

#16
post #2

This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value. It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems. Not an economist.

This argument never sat well with me. Businesses buy machines, AI, and other automation systems to improve their standing. They do this regardless of the price of labor (unless labor gets really cheap but this is broadly not true in the US or EU). Investing in such assets give them an advantage. The problem is when everybody does this. Then its no longer an advantage but a necessity. There's probably something to be…

> businesses will look to technology to augment and/or replace labor whenever they can

But a big part of "can" is whether or not the solution using technology is cheaper than the solution without it. And a big part of that is the cost of human labor. If human labor is more costly, it is more likely that a technology solution that allow more value to be produced with the same human labor will be cost effective. Conversely, if human labor is cheap, plenty of technology solutions that would allow more value to be produced with that labor simply don't make business sense--you'd be spending more for the same output.

So while it's true that businesses are always looking for uses for technology, regardless of the current labor market, whether or not they actually end up implementing them does depend in large measure on the current labor market.

Re: The labor shortage is the catalyst for sustained inflation

#17
post #2

This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value. It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems. Not an economist.

> This could be via AI, or other automation systems.

All of which require chips that even companies like Toyota can't get enough of to maintain their production goals. When Toyota says, "Yeah, this chip shortage sucks, we're going to be 40% lower in monthly production," you know it's not just a few people suffering gaming GPU shortages.

Re: The labor shortage is the catalyst for sustained inflation

#18
post #2

This article does not address the basic economic premise of the substition effect, by which consumers will search for cheaper goods of equivalent value. It would strike me that with massive labor shortages, many businesses will look to technology to replace labor. This could be via AI, or other automation systems. Not an economist.

Many of the things that haven't been automated are unsolved challenges. I'm sure restaurants would love it if you could fully automate their cleaning, answering the phone, or fixing the broken milkshake machine, but we only have partial solutions to those sorts of activities.

Which means that if consumers do get pushed to alternatives, it might be getting a frozen pizza instead of a restaurant pizza.

Re: The labor shortage is the catalyst for sustained inflation

#19
as always the real elephant in the room is that inflation is not bad per se, except for those whose wages don't grow as much as the inflation. And wages for low earners will rise. Thus, we are not really talking about inflation but more concretely about redistribution of wealth, only this time the low earners are getting more from the pie. Not the ones with the capital or the ones who don't work (anymore).

As for America, this can only be good imo because the inequality has long been way too high. Nonetheless, I don't agree that America will see long and sustained inflation and there are things that will stay too expensive even with rising wages (e.g. healthcare) so these effects will probably be short-lived unless the government policies will change something more substantly (and with the new stimulus packages coming, it could happen).

Re: The labor shortage is the catalyst for sustained inflation

#20
I don't know this author, but the arguments that increasing wages will cause inflation, independent of their economic accuracy, are also perfectly tuned messaging for a specific group, the owners of businesses (and the high-level managers). That could be coincidence, but if the beneficiaries are paying attention - and that group is very sophisticated politically - it's probably not.

Openly opposing wage increases for workers is political suicide, especially given the context of decades of flat wages and income inequality, and of the pandemic and essential workers, and given that it displays brazen greed and self-interest at the expense of the rest of the country.

But if they convince enough people - not everyone - that wage increases cause inflation, while they also stoke fear of it (remember during the Great Recession, fear of inflation was a tactic against Obama's policies), they can reduce the wages paid and keep more profit. It takes convincing people not directly affected by the issue, such as white collar workers who are already highly paid (ironically) and retirees, which IMHO is easy and often done. It also takes convincing people directly affected that their own wage increase somehow harms them, or that they should sacrifice for the country; that's harder, but as we've seen, many people vote against their economic self-interest and even risk theirs and their family's lives for political movements. Remember, they don't need to convince everyone, just enough people.

If inflation risks significant harm, and if wage increases are a significant factor (which I don't believe), I think suppressing wages is the last thing we should consider, if we consider it at all.

Imagine if they said, 'SV company pricing is causing inflation' or 'wages in SV are causing inflation'.

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