Morning Noah,

Observations and comments

I am getting more recruiters than ever trying to poach me than ever. (Skilled blue collar... college not required). Just had one hit me up with $45 per hour with guaranteed OT and generous Per Diem as an opening bid.

My company in general is always looking for skilled technicians. Pays well, still always looking.

My daughter is going to school for mechatronics. She will be right hand of our robot overlords.

Brother in law owns fast food restaurant. Business booming. Struggling to find workers. Average wage has gone up $3 in last 6 months. He is investing in tech to reduce labor as well. Digital terminals, headsets, etc... quite high capital costs, but allows him to reduce worker per shift.

Have a great day.

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Jun 13, 2021Liked by Noah Smith

My ex is Chinese. In 2005 we spent a month there and I noticed that they used an amazing amount of labor. At restaurants there would be three hosts to greet you and at least two waiters at the table. At department stores there was one person to take your money and another to hand write a receipt. Workers on retail floors had a lot of latitude to negotiate price.

I got a haircut at an upscale salon in a fashionable area and *five* people worked on my (very short and simple) hair. There was one person to do a dry wash, another to do a wet wash, another to dry my hair, another to do the actual cutting, and a final one for me to pay.

Total cost? $6

I remember asking someone about why there wasn’t more technology at the point of sale and he said it was bad side they had so many people it was cheaper just to hire another body.

Of course, that was almost 16 years ago and I imagine there’s a lot more technology in use these days, but maybe not?

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>1) Full employment.

This is what bothered my about your post on why people don't like inflation. You showed evidence that in the short run, inflation hurts real wages, but with very little emphasis on the fact that in the medium to long term, a tight labor market helps productivity and bargaining power and raises real wages much more they had been temporarily lowered.

The people who advocate for lower inflation often don't realize that for the $100 they might be getting now, they will be paying thousands over the next decade as they are put in competition with hoards of unemployed or underemployed people in a loose labor market and end up in unproductive jobs where they can't earn much.

I'm not an economist but reading blogs like this one over the past decade made me suspect that the damage from the low inflation period post global financial crises was of almost unfathomable magnitude. This long and painful shitty labor market caused by overly tight money stunted the western world emboldening foes like Russia and China. The labor market became a zero sum game that pit workers against each other, fueling anti immigrant sentiment, racism, ageism, and boosting right wing populism.

When the "inflation hurts worker" narrative takes hold, it abets the people at central banks that want to run a disastrously loose labor market. There seems to still be many of them at the ECB and BIS.

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Ordering on a smartphone does not significantly increase restaurant productivity. Have you ever worked in a restaurant?

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Does anyone see how this might be related to the whole "secular stagnation" premise -- that perhaps the low-inflation regime which imposed an unnecessarily "cold" economy and relentless unemployment also contributed to slower productivity growth?

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Seems like a safe bet: all things equal, increasing wages leads to more use of capital, which raises productivity. A complementary (and obvious) factor is that the cost of capital is relatively low, and is expected to stay low for a while. Less obvious, the cost of technology / capital has become less fixed (“Everything as a Service”) and use cases have proliferated across more parts of more production functions. Net, looks like sustainable strong wage growth in the U.S. for the next several quarters. Good.

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What’s the specific causative mechanism whereby Britain’s 17th century focus on foreign trade was translating into labor scarcity?

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Great article buddy!

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Nicely organized & presented Noah! I would just add that with necessity being the mother of invention, your cycle is more aptly a triad of, WORKER-POWER<->TECHNOLOGY<->INNOVATION; and the virtuous cycle might also be better stated as a 'vicious cycle', 'stoic cycle', or 'heuristic cycle' ~

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I can see how rising wages might encourage automation but, in most cases, decreasing price of the automating technology is likely to be the dominant driver. And I can't quite see how this is an accelerating process. Specific new technologies typically have very narrow effects while wages largely depend on the broader labour market as people can change industry.

I can’t think of a single inventor that was motivated by the prevailing high wage rates. Nor have major employers typically been the developers of the automating technology that their workers are ultimately replaced with. Refusing to do so is a common way for old companies to fail, while newcomers adopt new methods. The impulse to save labour (it’s called work for a reason) and to tinker, improve and discover seem much more relevant.

Technology itself may be an accelerating process (at least locally) but that’s a different story.

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I think Noah is probably correct that increased wages should increase capital investments in labor reducing technology. But I can postulate some negatives for such a scenario.

One, we might imagine that increased wages for workers will decrease educational motivation for some workers. Understanding some math, physics, chemistry, and biology requires real effort. If higher wages for uneducated work reduces the premium afforded to educated workers the net result would be a dumbing down of the population in an era where more fundamental knowledge is a key factor in productivity growth.

Two, higher wages and the postulated increase in capital investment in productivity increasing technology significantly favors large firms over small businesses. Large firms have the scale and access to capital to experiment with various technological approaches and then to deploy favored technologies across their firms. The danger with this is when the resulting business consolidation leads to increased rent seeking.

In my view the greatest factor in increasing productivity is through scientific research and development. The impact of changes in how you order at restaurants is trivial compared with something like CRISPR. I'm not sure I see any link between higher wages for things like food service and more funding for science.

Meanwhile we have been dumbing down college degrees allowing more students to graduate from college without knowing any calculus.

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The labor replacement theory of growth has always been the one that was the most intuitive to me, and probably the one I wanted to be true.

Hopefully, we will be getting this push at the same time that energy technology continues to push down prices through solar, wind and improved battery technology. Then later economists can debate which one was more important.

As an aside, Ryan Avent highlighted an empirical paper some years ago how low skilled immigrants increased productivity by increasing labor specialization, but the same paper noted that the increased labor supply was associated with decreased capital investment

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