Tight labor markets have raised concerns about the role of labor costs in persistently high inflation readings. Policymakers are paying particular attention to nonhousing services inflation, which is considered most closely linked to wages. Analysis shows that higher labor costs are passed along to customers in the form of higher nonhousing services prices, however the effect on overall inflation is very small. Labor-cost growth has no meaningful effect on goods or housing services inflation. Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE inflation.
It would be interesting to see the analysis done further back. Going back to 1983 doesn’t include the inflationary periods from the 70s and late 40s and early 50s. The 70s was claimed to be a labor cost driven inflationary period, but the early 50s were considered a supply shortage and profit growth inflationary period. 1983 is basically two years after the 70s inflation finally ended.
The author might get more of a “it depends” answer if they included the 70s.
Good point. The conclusions drawn from this data won’t apply to all situations. Then again, the further you go back the less the economy of the time resembles that which we live in today… Regardless I think it’s good to see some hard data rebutting the claims of (the recent spike in) inflation being caused by wage gains. The “Nobody wants to work anymore” sentiment.
Do you listen to Planet Money? They’ve got a recent episode that talks about wage vs profit driven inflation. It’s kinda interesting to hear about how even economists aren’t immune to just repeating the standard line without looking at the data. The tide is starting to turn on opinions about this last round of inflation, and the researcher they interview draws direct lines to the post-WW2 economy.
I mostly listen to Bloomberg’s finance podcasts. Stephanomics, Odd Lots, etc. Really good content there. I think Planet Money has lost its way a little with in-depth analysis.
FWIW I’m not so sure I believe if economists who in the current day primarily focus on depressing wages as a way to break the inflationary spiral are doing so entirely objectively. A large number of these economists are in the employ of companies who benefit from capital vs labor, and would they argue against their own interests?
If this makes me sound like far left wing, I am not really. But I am also not blind to conscious and unconscious bias in commentary.