Is it time for wage increases?

[TheBigShort]

Simple question...let's say inflation was running above target at say 5%. Would you be as eager to seek wage cuts to reduce inflation?

I wouldn't be in favour of wage cuts, but I would be in favour of moderate wage increases less than the inflation rate if it could be shown that inflation was in an upward trend and going higher.
This is not about a workers revolt to grab a bigger slice of the pie than what is due. This is about a monetary policy adopted by the ECB that uses our currency in an asset buying program to induce inflation to the eurozone economies.
It hasnt worked in Japan or the US. It is a money printing scheme that directs a bigger share of our currency into the hands of bankers and financiers. Its time to try something different. That is, governments need to start spending. This will increase labour market participation and put a demand on labour and in turn increase wages - creating an inflationary effect.

 

[Firefly]

I wouldn't be in favour of wage cuts, but I would be in favour of moderate wage increases less than the inflation rate if it could be shown that inflation was in an upward trend and going higher.

Let me get this straight, you are saying that in the current environment with low / no inflation you would increase wages as a means to raise inflation but if inflation was higher than planned you would keep raising wages albeit at a lower rate than inflation?

This is not about a workers revolt to grab a bigger slice of the pie than what is due.

Can you please explain what you mean by "what is due"?

This is about a monetary policy adopted by the ECB that uses our currency in an asset buying program to induce inflation to the eurozone economies.
It hasnt worked in Japan or the US. It is a money printing scheme that directs a bigger share of our currency into the hands of bankers and financiers. Its time to try something different. That is, governments need to start spending. This will increase labour market participation and put a demand on labour and in turn increase wages - creating an inflationary effect.

I think there is an argument indeed for increased government spending but surely this would be better achieved by building infrastructure projects such as roads and schools thereby getting more people working than simply giving those already working just more money?

 

[Firefly]

Yes, I agree, the more a person earns, the more inclined he may be to borrow over and above what is financially sound.

But you said wages had nothing to do with debt, but now you are saying it does!

But that doesn't mean a bank should lend the money does it? The banks are the self-proclaimed expert , the regulator is there to ensure a responsible approach to borrowing and lending.Private debt got out of hand, not because of wages, but because of irresponsible banking and lack of regulation. When someone on minimum wage can borrow 10 times income for a mortgage, its not their wages that is leading to unsuitable debt, its wreckless borrowing and lending.

The banks are there to make a profit. Bank managers up and down the country lent like crazy to book a quick profit we all know that. As for the regulation you would need to look at what all the countless public servants in the Dept of Finance and Central Bank were doing for the 8 years between 2000 - 2008. I don't see any of them being held accountable either.

 

[Firefly]

I wouldn't be in favour of wage cuts, but I would be in favour of moderate wage increases less than the inflation rate if it could be shown that inflation was in an upward trend and going higher.

I'm sorry I have to quote this again! You are saying that in the current environment with low/no inflation you would raise wages to raise inflation but if inflation was shown to be in an upward trend and going higher, you would carry-on raising wages!!

 

[TheBigShort]

But you said wages had nothing to do with debt, but now you are saying it does!

No I am not. I am saying a person who earns more may be inclined to want to borrow more. But if a bank doesnt lend the money then that person cannot fall into debt, can they? It doesn't matter how much I earn if its 10k, 100k or 1m, if I apply for a loan of 0.50c and the bank says no, then I cannot fall into 0.50c debt with the bank. Alternatively if I earn 10k and apply for a 20m loan to buy a hotel in New York and the bank says yes, then im in debt to 20m. It both cases (as extreme as they are) my wage had nothing to do with the debt level but rather idiotic bankers.
In the real world, the banks in their capacity as expert financiers, should evaluate a persons ability to repay a loan based on their income.
If incomes arent rising, private debt levels shouldn't increase.

all the countless public servants in the Dept of Finance and Central Bank were doing for the 8 years between 2000 - 2008. I don't see any of them being held accountable either.

True, I referenced that in my previous post.

I'm sorry I have to quote this again! You are saying that in the current environment with low/no inflation you would raise wages to raise inflation but if inflation was shown to be in an upward trend and going higher, you would carry-on raising wages!!

You have quoted a figure of 5% inflation without any reference to whether that is an increasing or decreasing rate of inflation. You have made no reference as to the cause of this inflation, wages? Oil? Insurance costs? Food? Or a combination of various factors.
If the cause is wages, then reducing the rate of wage increases will bring down the inflation rate. If the cause of inflation is other than wages then wage increases will need to stay apace with the inflation rate.
Regardless of all that, the situation today is that the ECB, using our currency, is trying to induce inflation through asset buying program.
I would suggest trying something different, like inducing wage increases.

 

[Firefly]

No I am not. I am saying a person who earns more may be inclined to want to borrow more. But if a bank doesnt lend the money then that person cannot fall into debt, can they? It doesn't matter how much I earn if its 10k, 100k or 1m, if I apply for a loan of 0.50c and the bank says no, then I cannot fall into 0.50c debt with the bank. Alternatively if I earn 10k and apply for a 20m loan to buy a hotel in New York and the bank says yes, then im in debt to 20m. It both cases (as extreme as they are) my wage had nothing to do with the debt level but rather idiotic bankers.
In the real world, the banks in their capacity as expert financiers, should evaluate a persons ability to repay a loan based on their income.

The Central Bank has put the brakes on mortgage lending. It is now a multiple of earnings. Most people in this country would like to buy a house and those on higher incomes tend to buy more expensive houses in desirable locations, so you cannot say that wages are not a factor in the level of debt people take on.

If incomes arent rising, private debt levels shouldn't increase.

I agree, if my income was going to fall why would I take on debt? But the opposite would also hold true, if incomes are rising people will upgrade their car, move to a better house etc.




Back to my first question:

I suppose the first question is do we need to raise inflation in Ireland? Perhaps you could provide evidence of this requirement?

You provided a table from the CSO but that doesn't back up the claim that we need more inflation in Ireland.

You also stated:

The quickest and fairest way to stoke inflation into developed economies is through increased wages.

Again, why is it fair, per se, to increase everyone's wages?

This is not about a workers revolt to grab a bigger slice of the pie than what is due.

Again, can you please explain what you mean by "what is due"?

 

[TheBigShort]

The Central Bank has put the brakes on mortgage lending. It is now a multiple of earnings. Most people in this country would like to buy a house and those on higher incomes tend to buy more expensive houses in desirable locations, so you cannot say that wages are not a factor in the level of debt people take on.



I agree, if my income was going to fall why would I take on debt? But the opposite would also hold true, if incomes are rising people will upgrade their car, move to a better house etc.




Back to my first question:

I suppose the first question is do we need to raise inflation in Ireland? Perhaps you could provide evidence of this requirement?

You provided a table from the CSO but that doesn't back up the claim that we need more inflation in Ireland.

You also stated:



Again, why is it fair, per se, to increase everyone's wages?




Again, can you please explain what you mean by "what is due"?

Im talking about levels of debt. If I earn €50k maybe the bank will lend me €150k. (3 x income). If I earn 200k maybe the bank will lend me 600k - again three times earnings. So in that regard wages come into it. But my debt level is 3 times income in both scenarios, the debt level stays the same. But if the bank decides to lend me another 100k on top of all, regardless of whether I earn 50k or 200k then my level of debt will increase.

I already stated that it is not me that has decided we need inflation. The ECB, through its QE program has decided eurozone countries need inflation. My view is, that wage increases are a better method of inducing inflation than an asser buying program.

I never said it was fair to increase everybody's wages. I said the quickest and fairest way to stoke inflation is through wage increases. There is a difference. If government increases minimum wage to €10 an hour that represents a wage increase for workers on that wage, with most likely, subsequent knock ons for other low paid workers. It does not mean a worker on a high salary, say €150,000 will benefit from that increase, although it can't be ruled out.

"What is due", is a turn of phrase. Some workers believe they are due or entitled or deserve more money, some others would argue differently. One thing we know is that if you offer your services or skills through labour you are due something.

Can I ask you a question?

Assuming some inflation is the desired outcome for eurozone economies, do you think a QE asset buying program administered by the ECB is preferable to a capital spending program on infrastructure that may lead to job creation and in turn pressure on wages?

 

[Purple]

This is an absurd discussion.
I just don't know where to start but I don't know how anyone can think wage increases can be a good thing for the economy in a country which is a tiny percentage of a single market (and single currency), which exports so much of what it produces and imports so much of what it consumes. If we were a closed economy like North Korea or communist Russia it might make sense but for us it's crazy.

 

[Firefly]

Im talking about levels of debt. If I earn €50k maybe the bank will lend me €150k. (3 x income). If I earn 200k maybe the bank will lend me 600k - again three times earnings. So in that regard wages come into it. But my debt level is 3 times income in both scenarios, the debt level stays the same.

Yes, in your example, both borrow 3 times their income so the ratio stays the same. However, the second person borrows €450k more, so how do you stand over the statement below?

Personal debt is at an all time high. But it has nothing to do with wages.

 

[Firefly]

Can I ask you a question?

Assuming some inflation is the desired outcome for eurozone economies, do you think a QE asset buying program administered by the ECB is preferable to a capital spending program on infrastructure that may lead to job creation and in turn pressure on wages?

To be honest, I am not an economist and I therefore do not posses the knowledge or skills to offer an informed opinion. There are other things to take into account such as the national debts of the countries involved which could make the latter option difficult. Take Ireland, how can we borrow for investment purposes when are currently borrowing for consumption? In the same way, would I borrow for a new house if the only way I could pay for my weekly shop at Aldi was using a credit card and only making the minimum monthly payments? I think I would clear my credit card bill first, then build up savings and maybe then borrow to invest.

The effectiveness of QE can be argued and again I am not informed on the matter. My gut though tells me it is wrong as it makes people who save worse off.

 

[Purple]

Yes, in your example, both borrow 3 times their income so the ratio stays the same. However, the second person borrows €450k more, so how do you stand over the statement below?

God bless your energy.

 

[Firefly]

You have quoted a figure of 5% inflation without any reference to whether that is an increasing or decreasing rate of inflation.

Let's say inflation is increasing and is currently runing at 5%

You have made no reference as to the cause of this inflation, wages? Oil? Insurance costs? Food? Or a combination of various factors.

Neither have you on why inflation is needed other than to reference the inflation targets of the EU. Have they even suggested raising wages?

If the cause is wages, then reducing the rate of wage increases will bring down the inflation rate.

With respect, that's not what I asked. I asked:
Simple question...let's say inflation was running above target at say 5%. Would you be as eager to seek wage cuts to reduce inflation?

 

[TheBigShort]

This is an absurd discussion.
I just don't know where to start but I don't know how anyone can think wage increases can be a good thing for the economy in a country which is a tiny percentage of a single market (and single currency), which exports so much of what it produces and imports so much of what it consumes. If we were a closed economy like North Korea or communist Russia it might make sense but for us it's crazy.

Good God, you think wage increases are bad thing? And you base that on the fact that we are a small open economy!
Wage increases should not be considered on the basis of whether our economy is opened or closed, it should be considered on the basis of whether an economy is growing or not. All the indicators are pointing to reasonable sustained growth for Ireland over the next few years, and in the context of a near decade of wage stagnation, the prospect of wage increases should firmly be on the cards.
The minimum wage was introduced in 2000 and co-incided with growth levels in this country never previously seen. The minimum wage increased in order was to attract workers from abroad into the economy. The period 2000-2008 saw net migration to the country. The period 2009-2011 saw net immigration, also saw an attempt to cut the minimum wage.
Wage growth is a good thing for an economy, for the people living there, and for productive businesses trying to attract workers into that economy.
Of course, it needs to be managed, and not get out of control, but to say wage growth is a bad thing for an economy is bizarre and completely devoid of any understanding of how an economy works.

 

[Purple]

Good God, you think wage increases are bad thing? And you base that on the fact that we are a small open economy!

Yes, that’s it in a nutshell; we are a small open economy which already has very high wages, very high tax rates and have slipped way down the list for competitiveness. Wage increases are the last thing we need.

Wage increases should not be considered on the basis of whether our economy is opened or closed, it should be considered on the basis of whether an economy is growing or not. All the indicators are pointing to reasonable sustained growth for Ireland over the next few years, and in the context of a near decade of wage stagnation, the prospect of wage increases should firmly be on the cards.

Ok, so more pro-cyclical economic policies. Sure, that’s just what we need in a fast growing economy. Maybe a few tax breaks, more borrowing and unsustainable increases in public spending. Sure that’s never caused any problems in the past.

The minimum wage was introduced in 2000 and co-incided with growth levels in this country never previously seen. The minimum wage increased in order was to attract workers from abroad into the economy. The period 2000-2008 saw net migration to the country. The period 2009-2011 saw net immigration, also saw an attempt to cut the minimum wage.

The colour of my stool changes at exactly the same times. Since no cause an effect, merely coincidence, is required I propose that my excretions were the cause of these changes in migratory patterns.

Wage growth is a good thing for an economy, for the people living there, and for productive businesses trying to attract workers into that economy.

No it’s not. Value is what’s attractive, not price.

O say wage growth is a bad thing for an economy is bizarre and completely devoid of any understanding of how an economy works.

Productivity increases are the only thing that creates wealth. This is not a command economy, that’s where you are making your mistake.

 

[TheBigShort]

Yes, in your example, both borrow 3 times their income so the ratio stays the same. However, the second person borrows €450k more, so how do you stand over the statement below?

I don't stand over it, not in numeric terms anyway. My point was debt as a percentage of income. In numeric amounts you would be correct in relating higher debt amounts with wages.

Take Ireland, how can we borrow for investment purposes when are currently borrowing for consumption?

Its a fair point, and due to fiscal treaties and deficit spending limits Ireland cannot do this.
But the ECB has embarked on a money printing asset buying program, that in my understanding, it has no mandate to do either.
Alternatively, when Mario Draghi, announces another €60bn program of asset buying he is basically buying financial assets in the form of government bonds (driving negative yields), issuing ECB bonds at 0% facilitating corporate share buy-backs (driving stock prices) and facilitating vulture 'investment' funds to buy large tranches of property in major capital cities ( driving property prices and rents).
None of this offers any real input into generating productivity in eurozone economies. The concept is to create a 'wealth effect' inducing consumers to borrow and spend on the back of perceived wealth creation.
Alternatively, that €60bn program could be used to lend to governments cheaply to initiate capital spending programs. Creating real employment, real income, real wage increases, real debt burden reduction.

 

[Purple]

But the ECB has embarked on a money printing asset buying program, that in my understanding, it has no mandate to do either.
Alternatively, when Mario Draghi, announces another €60bn program of asset buying he is basically buying financial assets in the form of government bonds (driving negative yields), issuing ECB bonds at 0% facilitating corporate share buy-backs (driving stock prices) and facilitating vulture 'investment' funds to buy large tranches of property in major capital cities ( driving property prices and rents).
None of this offers any real input into generating productivity in eurozone economies. The concept is to create a 'wealth effect' inducing consumers to borrow and spend on the back of perceived wealth creation.
Alternatively, that €60bn program could be used to lend to governments cheaply to initiate capital spending programs. Creating real employment, real income, real wage increases, real debt burden reduction.

Fair points but I'd rather see no borrowing at all.

 

[TheBigShort]

Neither have yoeon why inflation is needed other than to reference the inflation targets of the EU. Have they even suggested raising wages?

https://www.theguardian.com/busines...b013613fffb49a#block-57d16664e4b013613fffb49a

And this report from RTE about US Federal reserve thinking
http://m.rte.ie/news/business/2016/0907/814967-us-federal-reserve-be/

 

[Purple]

https://www.theguardian.com/busines...b013613fffb49a#block-57d16664e4b013613fffb49a

And this report from RTE about US Federal reserve thinking
http://m.rte.ie/news/business/2016/0907/814967-us-federal-reserve-be/

Yea, in Germany and the USA. that has nothing to do with a tiny open economy; apples and oranges.

 

[TheBigShort]

Yea, in Germany and the USA. that has nothing to do with a tiny open economy; apples and oranges.

Yeh, tiny open economies should not have wage growth. They are there to service the needs of the big consuming nations only. One day, with some luck, the Irish workforce can look forward to wages and conditions as good as China!
You really do aspire to great things.

 

[TheBigShort]

and have slipped way down the list for competitiveness

Source please.