Monthly Archives: July 2015

Excited about an upcoming raise? Don’t be

By Matt O’Brien

Wage Inflation

One day, American workers will get a raise. Today, though, wasn’t that day.

After months of wages maybe, possibly, don’t-jinx-it, starting to rise, any momentum disappeared on Friday. The Employment Cost Index rose at its slowest pace since records began in 1982, just 0.2 percent. In the past year, the ECI is only up an anemic 2 percent, down from the 2.6 percent it was three months ago. And it’s the same story no matter what wage measures you look at. Average hourly earnings are also up 2 percent the past 12 months, after zigging and zagging around that level for basically six years now. There’s just no wage pressure at all, even though unemployment is a relatively healthy 5.3 percent.

Emphasis, though, on the word “relatively.” As economists Danny Blanchflower and Andrew Levin point out, the jobs picture isn’t quite as rosy as the unemployment rate says it is, since there’s still so much “shadow unemployment.” Those are people who either want full-time work but can only find part-time jobs, or want to work but have given up looking for now. And it turns out that they put significant downward pressure on wages, too. In other words, it isn’t a mystery why wages haven’t started to rise like they normally do when unemployment get this low, because unemployment isn’t really as low as it looks.

The upshot is that interest rates will probably stay at zero for awhile longer. That’s despite the fact that the Federal Reserve has not-so-subtly been hinting that it’d like to start raising rates sooner rather than later, so it can do so gradually. It was enough that, reading between the lines, markets thought we were two good jobs reports away from the Fed lifting off in September. And it …read more


Italy is the most likely country to leave the euro

By Matt O’Brien

No joke: Italian comedian Beppe Grillo is the leader of the second-most popular political party (Laura Lezza/Getty Images)

What do you call a country that has grown 4.6 percent—in total—since it joined the euro 16 years ago? Well, probably the one most likely to leave the common currency. Or Italy, for short.

It’s hard to say what went wrong with Italy, because nothing ever went right. It grew 4 percent its first year or so in the euro, but almost not at all in the 15 years since. Now, that’s not to say that it’s been flat the whole time. It hasn’t. It got as much as 14 percent bigger as it was when it joined the euro, before the 2008 recession and 2011 double-dip erased most of that progress. But unlike, say, Greece, there was never much of a boom. There has only been a bust. The result, though, has been the same. As you can see below, Greece and Italy have both grown a meager 4.6 percent the past 16 years, although they took drastically different paths to get there.

2300 (69)

Part of it is that Italy, as the IMF points out, has real structural problems. It’s hard to start a business, hard to expand one, and hard to fire people, which makes employers wary about hiring them in the first place. That’s led to a small business dystopia, where nobody can achieve the kind of economies of scale that would make them more productive. But, at the same time, Italy had these problems even before it had the euro, and it still managed to grow back then. So part of the problem is the euro itself. It’s too expensive for Italian exporters, and too restrictive for the government that’s had …read more