PeakTrader.com

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PeakTrader said...

The chart reflects:

1. More skilled labor is needed in the U.S.. So, more college is needed.

2. U.S. jobs increasingly require more skills. So, more college is needed.

Without government subsidies, the quantity and quality of skilled workers would be much less.

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Legal immigrants are also subsidizing the economy and government (for positive upsides):

Why the Economy Is a Lot Stronger Than You Think
FEBRUARY 13, 2006

Most of the workers who immigrate to the U.S. each year have at least a high school diploma, while about a third have a college education or better.

Since it costs, on average, roughly $100,000 to provide 12 years of elementary and secondary education, and another $100,000 to pay for a college degree, immigrants are providing a subsidy of at least $50 billion annually to the U.S. economy in free human capital.

Alternatively, valuing their contribution to the economy by the total wages they expect to earn during their lifetime would put the value of the human capital of new immigrants closer to $200 billion per year.

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PeakTrader said...

It could mean slow economic growth instead of inflation.

How many more years will it take to reach full employment?

There's little inflation pressure both on the consumption and production sides.

On the consumption side, the U.S. still imports more than it exports and domestic demand remains weak.

On the production side, productivity is high and input costs remain low (labor is two-thirds of input costs):

Output or inflation is a function of technology (or productivity) on labor, capital, raw materials, land, energy, etc..

U.S. Productivity Rose 2.6% In Q4, Labor Costs Fell 0.6%
3/3/2011

Productivity increased by 2.6 percent in the fourth quarter...reflected a modest acceleration from the downwardly revised 2.3 percent increase seen in the third quarter.

Unit labor costs fell by 0.6 percent in the fourth quarter...Labor costs were down 0.1 percent year-over-year.

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Benjamin said...

Peak Trader-

Great numbers. I have been pointing our for two years we have falling unit labor costs. How do you get inflation with falling unit labor costs?

Commodities are just not as important as they used to be. We use less and less compared to GDP. Oil use to GDP output has been falling for decades.

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PeakTrader said...

In the U.S., the future seems to be more natural gas for households and firms to keep the oil flowing for transportation:

Oil companies bet future is natural gas
November 10, 2010

In the United States and Europe, natural gas is primarily used to heat homes. About three in five American homes use it for heat.

And more and more power plants are using it to generate power. Natural gas is used to generate 23percent of electricity in the U.S., up from 16 percent a decade ago.

Natural gas is used in small amounts for transportation in the U.S., mostly for city buses and garbage trucks.

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morganovich said...

peak-

productivity numbers are a function of inflation.

if you understate inflation, you overstate productivity.

you cannot use that figure the way you are trying to.

i also question your figure that labor is 2/3 of input costs. that sounds extremely high to me.

where are you getting that number?

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PeakTrader said...

Morganovich, you're making an assumption that's not supported by anything.

The quantity and quality of units produced increased with fewer jobs. Here's one example:

U.S. Manufacturing: Output vs. Jobs Since 1975
Jan 24, 2011

"Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%...the average American manufacturer is over three times more productive today than they were in 1975."

Also, I may add, after the Creative-Destruction process in the early 2000s, U.S. firms, particularly high-tech firms, produced more output with fewer inputs (e.g. instead of increasing inputs faster than output), which is disinflationary.

Labor Productivity and Costs
BLS

"In the U.S. nonfarm business sector, labor cost represents more than sixty percent of the value of output produced."

Over the 1995-00 bubble, inflation averaged 2.5%, and over the 2002-07 bubble, inflation averaged 2.9%.

However, in the late '90s, commodity prices fell to low levels (e.g. oil $10 a barrel and gold $250 an ounce).

So, there were more powerful factors that influenced the general price level.

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morganovich said...

peak

i think it is you who are making unsupported assumptions.

the figures you cite are based on nominal output, not units.

understate inflation in such a case and it will look like productivity.

you then cite a bunch of inflation numbers based on the flawed BLS methodology that was designed to avoid showing inflation.

your whole case is based on circular logic.

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PeakTrader said...

Morganovich, I'm not claiming the aggregate data are wrong and I'm right.

The only flaw is incomplete data, e.g. 5% of the puzzle is missing, but that wouldn't significantly change the picture.

It's easier to change the pictures of segments of the economy than the picture of the macroeconomy (including the general price level).