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When wage inflation works for you




This article is an on-site version of Martin Sandbo’s Free Lunch Handout. Participation here Get our newsletter sent straight to your inbox every Thursday

Happy 2023 and welcome back to Free Lunch. I hope all readers had a comfortable break.

in a last column Before the break, central banks cautioned against seeing rapid wage growth as necessarily an inflationary risk that warrants tighter monetary policy to curb jobs and income growth. It could instead reflect a more competitive labor market – more competitive for workers, ie. If more workers are shifting from worse-paying to better-paying jobs, wage acceleration is an equally welcome indicator of labor redistribution toward more productive activities. (After all, the employers to whom workers move can only pay these higher wages if productivity justifies it.)

I can refer to it just by scrolling in the column, so here I’d like to give more credence to the recent excellent research indicating that this is exactly what is happening, at least in the United States. Last month David Autor of the Massachusetts Institute of Technology presented his findings with Arindrajit Dube and Annie McGrew from US population survey data — you can watch his presentation for yourself. here. I want to highlight four of the most telling graphs from ship surface.

First, wage growth has been much stronger for the lowest paid since the start of the pandemic, sharply reversing decades of rising wage inequality:


This latest wage pressure is broad-based: it has occurred between professions, between young and old, among those with less and more education, and in favor of minorities.

Second, even though inflation has risen, low-income earners still see real wage growth:

(This is true even for a period shorter than just the last 12 months.)

Third, people are moving between jobs much faster than they did before the pandemic:

Job mobility has increased particularly among young workers with little formal education; For example, these people are more likely to have previously been stuck in bad, poorly paid jobs.

Fourth, by far the largest acceleration in wage growth is among those who change jobs rather than those who stay:

Note that the graph shows two separate things: that wage growth is always higher for job changers, and that this advantage over remainders has nearly doubled in size in today’s strong labor market.

This should make us rethink the standard story we’re told about a seriously “narrow” job market. For example, common indicators of a high temperature may not be what we think. In particular, higher vacancy rates may not be a sign that excessive demand is putting upward pressure on prices, but rather reflect a larger number of lower-paid workers (particularly lower-paid workers). After all, the more workers move, the more you can expect employers to look for new employees. We should therefore expect a higher vacancy rate for any given case than the total demand. (In fact, alternative measures of job vacancies indicates that the US labor market is less “tight” than it appears by a conventional measure.)

More importantly, if increased job mobility leads to higher productivity–as Autor and his colleagues say in theory–then the current labor dynamics should expand the economy’s productive capacity. That would be a force for minimumNot higher rates – thus a reason for central banks to relax rather than tighten monetary policy.


However, this speculation is underscored by the fact that, as of now, it is difficult to quantify the productivity increase in numbers (contrary to what happened early in the pandemic). As the latest New York Times a story Turns out, many companies find that overstaffing temporarily lowers productivity because more time needs to be devoted to training.

But the key word here is “temporary”. Look at output per hour worked in the United States in the chart below: It fell in the first two quarters of 2022. But that drop came after a spike in the early pandemic that lasted for more than a year. (Productivity rose again in the third quarter of 2022 on an entire private-sector basis, but fell further for non-financial firms.)

Line chart of US production per hour worked, 2012 = 100 showing US productivity holding up well during the pandemic

So, examine how productivity has behaved over the entirety of the pandemic, including lockdown and recovery. Taking into account available data for the past three years, from the third quarter of 2019 to the third quarter of 2022, non-farm business output per hour worked grew by 1.6 percent annually (1.3 for the non-financial corporate sector). This was about the same rate of productivity growth as in the previous three years, and faster than the average rate in the previous 12 years (a period that included the previous big crisis). So productivity remains at or above the pre-pandemic trend. Considering all the turmoil over the past three years, this is a solid record.

I met Dube, one of the researchers, to hear more. (The Free Lunch Show previously worked on minimum wage And supplements of the epidemic era in the United States unemployment payments.) He said their interpretation of the data was in fact that workers were moving from lower-productivity jobs to higher ones, but wondered if we should expect it to show up in the overall productivity data amid “all the background noise” of closings and reopenings. There may also be “growing pains” related to hiring and training, he noted: “In the meantime, new workers may not be as productive in the short term.”

So we must watch how the productivity data evolves. But there is at least reason for optimism. and – in my own view at least – similar room for caution on central bank tightening. “The usual story about how a wage-price spiral can take hold is that inflation expectations change and workers negotiate wage increases,” Dobie noted. But the rest of the work, he says, “didn’t [had] Unusually high wage growth. It’s all driven by job switching.” This “limits the scope for inflationary pressures” from the wage increases that have already been observed, says Dube.

To reiterate, these results are for the US economy only. While most of Europe also shows historically high job vacancy rates, I didn’t find timely data on job-to-job moves to see if that rate had risen as well (Free Lunch readers, send me any pointers). So even if this benign view of wage growth holds true for the US, it’s not so clear-cut for Europe. Doby points out that stronger minimum wage laws mean Europe has fewer low-paying jobs driving his team’s results in the US. “Another reason this happened more often in the US is that we pursued what seemed paradoxical at the time to be a worse way to help” — letting people lose their jobs and pay unemployment benefits rather than protect labor relationships with vacation payments.


Other readings

  • Over the Christmas holidays, I noticed a number of sometimes surprising pieces that in various ways reflected the biggest economic and political issues of the year that just ended. Start with the wonderfully weird way he is Cinderella reflects protectionist industrial policy: Charles Perrault, who wrote The Fairy Tale of the Girl with the Glass Slipper, was also responsible for equipping the Palace of Versailles – including the Hall of Mirrors – and setting up a national glass factory, ensuring that at a time of economic nationalism (we would say today “resettlement”) it was furnished Sun King’s most exquisite ballroom with locally sourced products.

  • Meanwhile, the global automakers Calmly cut ties with china.

  • My colleague Jemima Kelly, who has always seen the crypto bubble for what it is, writes about it What the Sunnah taught us in coding.

  • Tales from Coal, or rather Factory Earth: How European Manufacturers adapt With energy prices rising, how a The chocolate maker uses robots To manage labor shortage.

  • China’s shift in Covid-19 policy may have an unexpected reason: how is the zero Covid approach exacerbating inequality.

  • Vladimir Putin, a history lover, somehow never mentions Nicholas I, the dead tsar is the most similar.

news figures

  • International Monetary Fund to caution A third of the global economy will suffer from recession this year.

  • The ‘moderate premium’ that drove up UK borrowing costs after September’s ‘mini’ budget has largely disappeared from gold yields – but not from mortgage rates, Chris Giles Find.

  • GermanAnd the French And the Spanish Inflation is slowing more than expected. From He thought?

Line chart of fixed rate mortgage rates (all loan-to-value) and OIS rates (%) showing that mortgage costs are decoupled from the underlying money market rates

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Heralds the return of a new normal | financial times





This article is an on-site version of The Week Ahead newsletter. Participation here Get our newsletter sent straight to your inbox every Sunday

Hello, and welcome to the first full work week of the new year.

How are your events going in 2023? Amid the economic gloom and ongoing conflict in Ukraine, there are signs that things are returning to normal. The Golden Globe Awards are back this week at their Los Angeles home, after interruptions over a lack of diversity led to the event’s cancellation last year. Looking ahead, world leaders, business leaders and economic thinkers will begin arriving in the Swiss resort of Davos on Sunday for the following week’s World Economic Forum.

The next seven days also see the official start of the fourth quarter earnings season, starting with Wall Street banks and British retailers. This will of course remind us that we are far from returning to normal for the global economy – more details below.


For the UK, normal for now means a large-scale industrial move. Ambulance workers and driving instructors stage more strikes this week, while the strike closes ballots for teaching unions in England and Wales.

At least normal life has been restored in Congress. Focus can now focus on the economic challenges this year will bring – more on upcoming data announcements this week below.

Japanese Prime Minister Fumio Kishida will tour the capitals of the G7 countries this week, to consult with his counterparts to agree on topics for this year’s summit in May, something he has made a major item on his political agenda this year. Kishida personally convened the summit in his hometown of Hiroshima.

Can things search? Yes, if you are in Cornwall. Monday promises to be a historic day for the uk boycott – at least according to the Virgin Orbit press release – with the launch of the first space satellite from mainland Britain. It is perhaps best described as a classic British eccentric as nine satellites will be launched into orbit using a rocket launched from a re-purposed Boeing 747, which is due to take off from Newquay airport on Monday night. He certainly shows a degree of creativity and should at least boost British morale.

Thanks to those who responded to the alternative guide last week for next year and for your comments about our regular newsletter. Send me an email to or by clicking reply if you received this via email (see subscription details here).


Economic data

Expect the Consumer Price Index (CPI) and other inflation data over the coming days from the US, China, Japan, Australia, Brazil and Mexico.

The British Retail Consortium updates its monthly survey of UK high street sales on Tuesday, while on Friday the Office for National Statistics publishes its monthly GDP estimate to give an idea of ​​where the country stands in terms of recession.

Monetary policy this week comes from the Bank of Korea, which is expected to raise its benchmark interest rate by another 25 basis points to 3.50 percent on Friday.


Who likes high interest rates? Banks, that is. That will become evident this week when several of Wall Street’s largest lenders reported fourth-quarter numbers on Friday.

These companies profited from Fed tightening by raising loan rates more than deposits. Analysts estimate c. B. Morgan ChaseAnd American bankAnd Citigroup And Wells Fargo to report collective net interest income for the final three months of 2022 at nearly $60 billion, up 30 percent year-over-year, according to consensus data compiled by Bloomberg. The concern is that this revenue-raising party cannot continue and net interest margins have peaked.


The flip side of rising interest rates is the problem of high inflation, which brings me to the other topic on the corporate calendar this week: retailers.

Increased exit prices may seem like a good thing for retail traders. Not when inflation reaches double digits, it isn’t. We’ll find out exactly how bad it was over the Christmas period – or indeed whether stocking up to watch the World Cup provided any kind of boost – via trading updates from British street and online brands this week.

Consumer spending could of course be better than expected next one showed last week. Games Workshopwhich announces first-half results on Tuesday, is generating a lot of excitement (and not just Ben Dungeons & Dragons nerdy teens) about growth opportunities due to the sharp rise in role-playing games during the pandemic. Investors (as well as teens) expectations have been raised even more recently for a fantasy game product Amazon TV and Movie Deal.

Major economic reports and company reports

Below is a complete list of what to expect in terms of company reports and economic data this week.


  • Germany, monthly industrial production data

  • Mexico, December Consumer Price Index Inflation (CPI) data

  • US monthly consumer credit numbers

  • results: Tata Advisory Services Q3


  • The World Bank releases the winter edition of its Global Economic Prospects, its biannual World Economic Outlook

  • France, Monthly Industrial Production Figures

  • United Kingdom, Office for National Statistics Publishing Interactive maps For data from the 2021 Census of England and Wales down to local authority and community level

  • UK consumer spending data, Barclaycard

  • UK Retail Controller, British Retail Consortium- KPMG

  • UK Jobs Report, Employment and Employment Consortium-KPMG

  • United States, ex-brother Coinbase Production Manager, Nikhil Wahidue to be sentenced today after guilt in September Insider trading fees

  • results: Games Workshop H1, Robert Walters Q4 Trading Update


  • Italy, Monthly Retail Sales Figures

  • Mexico, industrial production data for November

  • United kingdom, Heathrow Monthly traffic figures for December

  • results: bars circulation update, fireexpo Q4 production report, Grafton circulation update, Jaguar Land Rover sales update, JD Sports christmas trading statement, Page group Q4 Trading Update, Sainsbury’s trading statement Q3, Tops Tiles Trading Statement Q1


  • China, data on China’s inflation rate, consumer price index and producer prices for December, in addition to trade balance data for December

  • France, December CPI and the Harmonized Index of Consumer Prices (HICP) inflation rate data

  • Germany, Unemployment Claims Numbers

  • India, CPI inflation data for December

  • Japan, trade balance data for November (AM local time)

  • US inflation data, consumer price index for December

  • results: Asus circulation update, Retail Express Q1, Hafords Q3 Trading Update, John Wood Fiscal year trading update, Marks and Spencer christmas trading update, n brown trading statement Q3, persimmon circulation update, Tesco Q3 and Christmas trading update, TSMC Q4, whitcool Q3 Trading Update


  • France, the final monthly inflation rate in the consumer price index and industrial production figures

  • Germany, Rapid Annual GDP Numbers

  • South Korea, monetary policy committee rate setting meeting

  • UK, November GDP estimates and Goods Trade Balance figures

  • results: American bank Q4, Bank of New York Mellon Q4, Black stone Q4, Citigroup Q4, Delta Airlines Q4, DFS Furniture h1 trading statement, c. B. Morgan Chase Q4, Taylor Wimby trading update, United Health Group Q4, Wells Fargo Q4

world events

Finally, here’s a rundown of other events and milestones this week.



  • Japan, a public holiday on Old Age Day, celebrates those who turn 20 in the 12 months to April 1 this year.

  • Mexico, President Andrés Manuel López Obrador hosts the North Summit with counterparts from the United States and Canada at the National Palace in Mexico City. The event will conclude on Wednesday with a bilateral meeting between López Obrador and Canadian Prime Minister Justin Trudeau.

  • The UK and members of the Public Services and Commercial Services Union of the Rural Payments Agency and the DVLA in Swansea will be locked in an ongoing dispute over salaries, pensions, job security and redundancy terms. Separately, the NASUWT teachers’ union is closing a voting strike among members working in schools and Year 6 colleges in England and Wales, recommending that they vote in favor of the pay strike.

  • United Kingdom The first orbital launch from mainland Britain is set to take place from Cornwall Airport in Newquay, where Virgin Orbit is using a repurposed Boeing 747 to launch a rocket carrying nine satellites into space.


  • Sweden, Bank of England Governor Andrew Bailey chairs a panel discussion on central bank independence and potential future risks at an event Hosted by the Swedish Riksbank.

  • United States, the 80th Golden Globe Awards returns after a year off. The Los Angeles ceremony in particular took place in 2022 amid a boycott by actors and media companies over the lack of diversity in the Hollywood Foreign Press Association membership.



  • European Union President Ursula von der Leyen is leading the European Commission’s visit to Sweden to discuss the country’s priorities during the bloc’s presidency, which began this month.

  • The UK, NHS England publishes figures for November and December, along with quarterly waiting time data for A&E attendance and emergency admissions.

  • UK Other rail strikes over wages, this time by TSSA union members at Rail for London Infrastructure, operator of London’s new Elizabeth Line service.


  • Czech Republic, the first two-day elections to determine the country’s next president and head of state. Incumbent President Milos Zeman will not be able to run again after serving two five-year terms, but former Prime Minister Andrej Babić has confirmed his candidacy.

  • The UK and the National Education Union are closing a wage strike among some 300,000 teachers and support staff in England and Wales.

  • The United States, the Trump Organization is due to be sentenced after the ex-president’s real estate firm indicted in December on tax fraud charges.

  • US and Japanese Prime Minister Fumio Kishida meets with US President Joe Biden at the White House, wrapping up a week of visits to five G7 countries to build consensus on the economic group’s annual summit this year, which Japan will host in May.



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Pakistan Seeks Help Reconstructing $16 Billion From Floods At UN Conference By Reuters





© Reuters. FILE PHOTO: A displaced girl holds a water bottle she has filled from floodwaters stranding them, while her family takes refuge in a camp in Sehwan, Pakistan September 30, 2022. REUTERS/Akhtar Soomro/File Photo

Written by Emma Farge and Gabrielle Tetro-Farber

GENEVA (Reuters) – Pakistan and the United Nations will hold a major conference in Geneva on Monday aimed at galvanizing support for the country’s rebuilding after devastating floods, in what is expected to be a major test case for who pays for climate disasters.

Record monsoon rains and melting glaciers last September displaced about 8 million people and killed at least 1,700 in a disaster blamed on climate change.

Most of the waters have now receded, but the reconstruction work, estimated at about $16.3 billion, to rebuild millions of homes and thousands of kilometers of roads and railways is just beginning, and millions more may slip into poverty.


Islamabad, whose delegation is headed by Prime Minister Shehbaz Sharif, will present a “framework” for recovery at the conference at which UN Secretary-General Antonio Guterres and French President Emmanuel Macron are scheduled to speak.

Guterres, who visited Pakistan last September, had described the devastation in the country as a “climatic massacre”.

“This is a pivotal moment for the international community to stand with Pakistan and commit to a resilient and inclusive recovery from these devastating floods,” said Knut Ostby, Pakistan Representative for UNDP in Pakistan.

Additional financing is critical for Pakistan amid growing concerns about its ability to pay for imports such as energy and food and to meet sovereign debt obligations abroad.

However, it is not at all clear where the reconstruction funds will come from, particularly given the difficulties of raising funds for the emergency humanitarian phase of the response which is about half funded, according to UN data.


At the COP27 meeting in Egypt in November, Pakistan was at the forefront of efforts that led to the creation of a “loss and damage” fund to cover climate-related devastation for countries that contribute less to global warming than rich nations.

However, it is not yet known if Pakistan, which has an economy of $350 billion, will be eligible to benefit from this future financing.

Organizers say about 250 people are expected to attend the event, including high-ranking government officials, private donors and international financial institutions.

Khalil Hashmi, Pakistan’s ambassador to the United Nations in Geneva, said Islamabad was willing to pay about half of the bill but hoped to get donor support for the rest. “We will work to mobilize international support through various means,” he said. “We look forward to working with our partners.”

An International Monetary Fund delegation will meet Pakistan’s finance minister on the sidelines of the conference, a spokesman for the bank said on Sunday, as Pakistan struggles to restart its bailout programme.


The International Monetary Fund has not yet approved the release of $1.1 billion that was due to be disbursed in November last year, leaving Pakistan with only enough foreign exchange reserves to cover one month’s imports.

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Will the data reveal that US inflation has cooled again?





Did US consumer price growth slow again in December?

Investors and economists are betting that the Fed’s aggressive monetary campaign will cause consumer price growth to slow again in December.

On Thursday, the Bureau of Labor Statistics will release consumer price index data for the previous month. Market participants surveyed by Refinitiv expected prices to have risen 6.6 percent year-on-year in December, down from a 7.1 percent increase in November. This marks the slowest pace since October 2021. Consumer prices are expected to remain flat on a monthly basis compared to an increase of 0.1 percent in November.

John Hill, a strategist at Barclays, said the decline is expected to be partly driven by lower energy prices, which included gasoline, which fell 13 percent in December.

The core CPI, which excludes the volatile food and energy components, is expected to rise 5.7 percent year-on-year, up from 6 percent in November.


These moves will come at the end of the year in which the Federal Reserve raised interest rates from near zero to a range of 4.25 to 4.5 percent. The effects of the historical pace of increases have been rather sluggish: inflation peaked in June, but continued to rise above 8 percent through September.

December inflation data will be an important piece of information for the Fed’s two-day meeting starting on January 31 and could help determine whether the central bank raises interest rates by 0.5 percentage point, matching last month’s increase, or slowing the pace of increases further. . Kate Duguid

What will the industrial production data reveal about the manufacturing sector in Europe?

The past year was difficult for many European manufacturers and conditions are unlikely to improve much in November, when industrial production was expected to suffer its second consecutive monthly decline.

The energy crisis triggered by Russia’s invasion of Ukraine, combined with continued disruption to global supply chains and weak economic growth, has made 2022 a difficult year for many industrial clusters in Europe.

Economists polled by Reuters expect industrial production in the euro zone to have fallen 0.2 percent when those figures are released on Friday. Earlier in the week, national figures for Germany, France and Italy — the bloc’s three largest economies — were also expected to reveal slight contractions in industrial production.


The gloomy outlook for the German industrial sector was underlined last week, when factory orders data for November revealed a much larger-than-expected decline of 5.3 percent from the previous month.

However, economists believe that it will take some time before a sharp drop in demand affects production due to the large backlog of orders since the outbreak of the coronavirus pandemic in 2020. Underlining this, sales volumes in German manufacturing remained high in November, rising 2.1 per cent.

“Weak demand is likely to have a weak effect on production,” said Ralf Solven, an economist at Germany’s Commerzbank. “After all, most industrial companies have a large number of orders backlog, which they can now solve.” Martin Arnold

Did the British economy shrink more?

The British economy is expected to continue to struggle at the end of last year under the pressure of high inflation and rising borrowing costs.

Economists polled by Reuters expected the UK’s gross domestic product to have fallen 0.3 percent between October and November, when the data is released on Friday.


Sandra Horsfield, an economist at Investec, noted that the British economy has been on a downward trend since May 2022, when inflation began to rise. The government provided aid to households and businesses facing a cost-of-living crisis, which may have boosted the economy in November.

A reversal of the National Insurance hike that took effect in April 2022 from November onward, which left after-tax paychecks somewhat higher than they were in October, should also support consumers’ ability to spend. Moreover, power generation appears to have rebounded somewhat after weakness in October, as higher-than-normal wind speeds should have fueled industrial production.

But Horsfield said these factors and other government aid absorbed only part of the blow.

Add to that the constraining effect on higher interest rate activity, and the likelihood is that GDP will trend lower for some time – particularly as it spreads [industrial] “The strikes cause some additional disruption,” Horsfield said.

The economy contracted in the third quarter of 2022 and the November data will provide more information about the final quarter. Many economists expect the UK to have already entered a recession that will last for most of 2023.


“The bright side of this particular cloud is that we expect it to help dampen price pressures,” Horsfield said. Valentina Romy

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