DA - Wage Inflation - Michigan 7 2023 BFHGR

Wages DA
Top Shelf
1NC --- Shell (JG)
A --- The Fed is controlling a wage price spiral now— wage growth, job opening, and labor market metrics prove
Greene 6-26-23 (Megan Greene, 6-26-2023, Megan Greene is Global Chief Economist for the Kroll Institute."2023: Surprising Economic Resilience," https://www.kroll.com/en/insights/publications/2023-surprising-economic-resilience //AP)
The global economic outlook has improved significantly since the beginning of the year, for completely different reasons in different regions. The labor market remains particularly strong in the U.S. despite aggressive rate hikes; a mild winter mitigated the impact of the energy shock on Europe; and China managed its sudden abandonment of Zero COVID successfully.
Our last outlook in December 2022 forecasted a recession in the U.S. by the middle of this year. We still expect a recession, but not until the end of the year or the beginning of 2024. The U.S. economy has held up shockingly well in the face of over 500 basis points of rate hikes in just over a year. Part of this is policy driven: the Inflation Reduction Act (IRA), Bipartisan Infrastructure Law and CHIPS and Science Act have fuelled significant manufacturing construction spending after years of underinvestment. Consumption, which accounts for just over two-thirds of U.S. GDP growth, has remained robust thanks to a significant cash cushion among U.S. households and the strength of the labor market. The labor market has remained robust in part owing to labor hoarding—firms are reticent to lay off workers given how difficult recruitment has been since the pandemic. We do not have a good way to measure labor hoarding, therefore there is no easy way to identify inflection points. As corporate profits dwindle in a tighter rate environment, firms might capitulate and let workers go. A sudden deterioration in the labor market is likely to impact consumption even more than the state of household bank accounts, and we expect this will be the trigger for the recession.
There had been concerns that financial instability in March would cause a downturn, but they seem to have mostly blown over so far. Consumer and business confidence have held up well since the banking wobbles. The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) shows that lending standards have tightened since March, but they have been tightening since last year. On the margin, financial instability will weigh mildly on loan extension in the U.S.—but we do not expect a significant credit crunch.
The U.S. labor market has remained very tight, but there are signs it is slowly easing. Wage growth is decelerating and job openings and the quits rate are slowly falling. This suggests the Fed does not need to worry about a wage/price spiral. Nevertheless, inflation has remained stubbornly above the Fed’s target of an average of 2% and the path for the stickiest part of inflation—core services inflation ex-shelter—has been bumpy. The Fed held rates at 5.25% at its meeting in June, but a majority of Federal Open Market Committee (FOMC) officials expect the Fed will hike rates twice more this year. The Fed will base its rate path on the data, but we believe the Fed’s work in leaning against inflation is not done. It will likely hike rates by another 50 basis points in the second half of the year before keeping rates steady through the end of 2023. We expect gradual rate cuts in early 2024 as it becomes clear the U.S. is in recession.
B --- Jobs guarantee leads to a wage price spiral when the market combats the resulting inflation.
Pilkington ’14 [Philip Pilkington; 03-21-2014; “The Job Guarantee, Wage-Price Inflation and Alternative Solutions”; Fixing the Economists; Irish economist working in investment finance; https://fixingtheeconomists.wordpress.com/2014/03/21/the-job-guarantee-wage-price-inflation-and-alternative-solutions/ \\pairie]
When the economy is at full employment, however, the JG could increase tendencies toward wage-price spirals. The fear associated with being laid off would be reduced and that would buttress worker bargaining power by just that much more. This certainly adds to the risk of a wage-price spiral. But again, it doesn’t increase the risk all that much. After all, at full employment workers really don’t fear the sack all that much anyway.
The real risk of a wage-price spiral is always and everywhere when exogenous factors increase prices. The two that come to mind are (i) substantial currency depreciations and (ii) increases in input costs, such as oil or other commodities. Wage-price spirals then tend to kick in as workers and capitalists try to use their market power to distribute the resulting inflation. Workers try to fob the price increases onto capitalists through wage hikes, while capitalists try to fob it onto workers and competing capitalists through price increases.
It is in such an environment that a JG could prove to greatly increase the tendency toward wage-price spirals. Such spirals are always a sort of battle fought between workers and capitalists and the more confident and self-assured both sides are, the more they will feel ready to duke it out. A JG program would greatly increase worker confidence and in doing so would add fuel to the fire under circumstances conducive to a wage-price inflation.
C --- Wage price spiral decimates the economy
Shukla 6-26-23 (Shivam Shukla, 6-26-2023, Shivam Sukla is a News Editor at Moneycontrol "US stocks face downside risk amid frothy markets, may see a boil-the-frog recession: JP Morgan," Moneycontrol, https://www.moneycontrol.com/news/business/markets/us-stocks-face-downside-risk-amid-frothy-markets-may-see-a-boil-the-frog-recession-jp-morgan-10859551.html // AP)
The big worry for all central banks is a wage-price spiral, where both wages and prices move up in lockstep, forcing rates to move ever higher. That eventually compresses corporate pricing power and hurts profit margins, while banks pull back on lending, tightening credit conditions, Kasman adds. “And that eventually is what kills the economy.”
Uniqueness
2NC --- Uniq Wall
Wage growth is slowing --- will reach normal levels of growth in the next few months --- based on REDUCED competition for hiring
Henney 6/8/23
(Megan, “Wage growth slowing sharply in US, Indeed says,” pg online @ https://www.foxbusiness.com/economy/wage-growth-is-slowing-rapidly-us-indeed-says //um-ef)
U.S. wage growth has slowed sharply over the past year and is on pace to return to pre-pandemic levels by early 2024, according to new data from career site Indeed. The wage tracker – based on salaries for job advertisements listed on Indeed – showed that salaries were up 5.3% in May compared with the same time one year ago. That is a marked drop from January 2022, when wages were up about 9.3%, suggesting that employers are facing less competition for new hires. Based on the current trajectory, wage growth will likely return to its pre-pandemic range of about 3% to 4% late this year or early in 2024.
Multiple gauges show wage growth is slowing now
Tanzi 6/7/23
(Alexandre, “Wage Growth Is Slowing Sharply in US Job Postings, Indeed Says,” pg online @ https://www.bloomberg.com/news/articles/2023-06-07/wage-growth-is-slowing-sharply-in-indeed-s-us-job-postings#xj4y7vzkg //um-ef)
Wage growth in US job postings has been softening for more than a year now, and at the current rate it could return to pre-pandemic levels by early 2024, according to Indeed Hiring Lab. Advertised wages rose 5.3% in May from a year earlier, a marked decline from the peak of 9.3% in January 2022, according to Indeed’s wage tracker. The slowdown has been broad-based across industries, but it’s been particularly pronounced in low-wage sectors — for the type of positions that saw the biggest gains as the economy recovered from the pandemic. At its current rate of deceleration, wage growth would return to its 2019 average of 3.1% late this year or early in 2024, according to Indeed. Among the sectors that are seeing a sharp pullback is the software industry, which has been through waves of layoffs in recent months following a hiring spree at the height of the pandemic. According to Indeed data, job postings in that sector dropped by almost 60% over the past year, and advertised wage growth is now less than half of what it was last November. Other data have been showing a pullback in earnings growth. The Atlanta Fed’s wage growth tracker dropped to 6.1% in April after peaking at 6.7% in June last year. Indeed’s measure uses a similar approach to the Atlanta Fed gauge, although it tracks types of positions rather than individuals. Indeed says its tracker has been leading other measures by several months in the past.
Wages are slowing --- that’s critical to control inflation
Shumway 6/8/23
(Emillie, “After ‘two years of exuberance,’ wage growth is slowing,” pg online @ https://www.hrdive.com/news/wage-growth-is-slowing/652378/ //um-ef)
As Bunker noted, however, that unprecedented growth may be coming to an end. While that news may be discouraging for job seekers, Bunker points out that slowing wage growth may be key to controlling inflation. Christopher Waller, a member of the Federal Reserve’s Board of Governors, talked about the connection between wage growth and inflation during a February speech at the Arkansas State University Agribusiness Conference. “For employers, the very strong labor market makes it hard to find and retain workers. One effect of this tightness is seen in wages and other compensation, which ultimately show up in the prices that consumers pay for goods and services,” Waller said. “For example, last year the Employment Cost Index, which tracks movements in labor costs, including both wages and benefits, increased over 5 percent, the highest rate since 1984. We want to see wages grow but at a pace that is consistent with our goal of stable prices.”
Inflation is decreasing and price reductions will prevent a wage-price spiral now
Brusuelas 6/13/23
(Joseph, Chief Economist and Principal, RSM US LLP, A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions, “Inflation relief in the pipeline as food, gas and service prices ease,” pg online @ https://realeconomy.rsmus.com/inflation-relief-in-the-pipeline-as-food-gas-and-service-prices-ease/ //um-ef)
Top-line U.S. inflation is moving back toward levels where it is appropriate for the Federal Reserve to pause in its efforts to restore price stability. With underlying inflation hovering around 3% and 4%, the Fed is well positioned to keep its policy rate steady this week with the confidence that top-line inflation and drivers of core pricing are likely to ease notably in the coming months. Inflation increased by 0.1% on a monthly basis in May and was up by 4% on a year-ago basis while core inflation advanced at a 0.4% rate on the month and by 5.3% from a year ago. Excluding food, energy and shelter, inflation increased by 0.3% monthly in May and was up by 3.4% from a year ago. The decline in overall inflation in May was driven by a 3.6% drop in energy costs, which have now fallen by 11.7% from a year ago, and by a 5.6% decline in gasoline prices, which are down by 19.7% over the past year. The policy-sensitive service inflation excluding housing, or the so-called super-core metric, increased by 4.6% on an annual basis. Perhaps more encouraging is the near-term progress in the service sector. While service sector inflation, which comprises 61.5% of the index, advanced by 6.3% from a year ago, the monthly increase was 0.2% and the three-month average increase was 2.6% . That implies that there is relief in the inflation pipeline in the area of the economy where inflation is stickiest and closely associated with wage demands. If policymakers concerned with risk of a wage-price spiral were looking for relief, it is staring at them inside the data.
Wages are up and inflation is controlled now
Stone 23
(Chad Stone, , PhD in Economics from Yale Chief Economist at the Center on Budget and Policy Priorities“Amid Signs of Economic Improvement, an Overly Aggressive Fed Could Trigger a Recession,” Center on Budget and Policy Priorities, 02-24-2023, https://www.cbpp.org/research/economy/amid-signs-of-economic-improvement-an-overly-aggressive-fed-could-trigger-a)
Namely, inflation and wage growth came down significantly in the second half of the year, and job growth, while still strong, cooled over that period as well. Inflation expectations — what the public and financial markets believe will happen to inflation over the next couple of years — indicate that people (and financial markets) believe inflation will continue to fall, which is key to reducing upward pressure on nominal wages that could trigger more inflation.[1]
Wage growth is slowing and inflation is cooling and not embedded in the economy
Baker ‘22
(Dean, Center for Economic and Policy Research, “Inflation Fears and Strong Labor Markets,” Review of European Economic Policy, Volume 57, 2022 · Number 4 · pp. 267–268 · JEL: E31, E52, pg online @ https://www.intereconomics.eu/contents/year/2022/number/4/article/inflation-fears-and-strong-labor-markets.html //um-ef)
This is not just speculation. While the inflation rate has been rising through the first half of 2022, wage growth has actually slowed sharply. The annualized rate of wage growth at the end of 2021 was over 6.0%. In the most recent data, it was just 4.4% using three-month averages. If we just annualized the rate from June alone, it was 3.8%. This is only slightly higher than the 3.4% rate in 2019, when inflation was comfortably below the Fed’s 2% target. The wage data are erratic, so we have to view the exact numbers with some caution, but the direction of change is clear. Wage growth is slowing, not speeding up. We cannot have a wage-price spiral like in the 1970s if wage growth is getting slower, not faster. This is not a good story for real wages (more in a moment), but it means that we are not on the cusp of double-digit inflation. We can also say that inflationary expectations do not seem to be getting embedded in the economy. The breakeven rate of inflation between inflation indexed Treasury bonds and regular Treasury bonds has been falling in recent months. It is now just over 2.3% for 10-year Treasury bonds. Similarly, consumer surveys show expectations of inflation are falling. The wage-price spiral story clearly does not fit the data. Instead, the United States is seeing inflation driven by the same factors as the European Union and the rest of the world. Soaring prices for oil and gas, due to concerns about supply following Russia’s invasion of Ukraine, is a huge part of the story. Similarly, the price of wheat and other agricultural commodities jumped after the invasion. We have also seen shortages of a wide range of products, from apparel to household furnishings and appliances, as a result of supply-chain problems caused by the COVID-19 pandemic. However, we are finally working through many of these problems. Non-car inventories are more than 25% above their pre-pandemic level. The price of wheat has fallen back to its pre-invasion level and oil prices are now back below $100 a barrel, sending gas prices tumbling in the last month. Even used car prices, which had risen by almost 50% since the start of the pandemic, are now headed downward. For these reasons, it is virtually certain that inflation will be much slower in the second half of 2022 and 2023 than it has been over the last year. This means that even if wages increase in a 3% to 4% range, workers will be able to see a healthy pace of real wage growth.
Links
2NC --- Link Wall (JG)
Plan’s increase in the minimum wage causes wage inflation and collapses small businesses
Earle ‘18
(“'Federal Jobs Guarantee' Idea Is Costly, Misguided, And Increasingly Popular With Democrats,” pg online @ https://www.investors.com/politics/commentary/federal-jobs-guarantee-democrats/ //um-ef)
Wage Inflation Another issue is the wage, which several plans recommend should be (or average) $15 per hour. With the increasing focus on "living wages," it will not be long before program directors discover that $15 per hour goes far further in Alabama than Hawaii, and the tendency will be to equalize cost-of-living disparities up, further increasing already massive costs. Two other factors: both the CBPP and LEI plans fail to account for the potential disruption to existing businesses — mostly small businesses, the engine of economic growth in the United States — which will inevitably occur when workers earning less than $15 per hour leave their private sector jobs for higher-paying employment with job guarantee placement. At present, more than 40 million Americans earn less than the proposed guarantee wage of $15 per hour, which could trigger a major shift of the U.S. workforce away from private employment, on to public rolls. It would also effectively force small businesses to compete directly against the federal government on the labor market.
Increase strikes means that every external shock would cause a wage price spiral---historical correlations prove.
Pilkington ’14 [Philip Pilkington; 03-22-2014; “More on the Job Guarantee and Wage Price Inflation”; Fixing the Economists; Irish economist working in investment finance; https://fixingtheeconomists.wordpress.com/2014/03/21/the-job-guarantee-wage-price-inflation-and-alternative-solutions/ \\pairie]
What I was really saying is that a JG program, as it provided continuous full employment, would lead to a sharp increase in worker bargaining power. If an external shock — like an oil price shock or a substantial currency devaluation — caused inflation to bounce workers may then try to push the costs of the inflation onto capitalists through increases in wages. The capitalists may then try to push these costs back onto the workers and other capitalists by raising prices. So, the causality runs,
JG Program => Tight Labour Markets => Increased Worker Bargaining Power => Potential Tinderbox Scenario Where a Wage-Price Spiral May Occur
Now, Neil Wilson said that I have no evidence that this would happen. Well, as with all applied economics I can never prove this beyond a shadow of a doubt. I am engaged in crystal ball-gazing to some extent here. But I can show historical correlations that imply that the mechanisms that I outline have the potential to do what I say that they might do.
First, let’s look at the relationship between labour markets and unemployment. As Nate Silver has shown there is a strong negative correlation between the unemployment rate and support for unions. You can see this in the regression plot posted below.
For those not use to reading regression plots, the closer the dots (observations) bundle around the line the more correlation there is between the two variables. An upward-sloping line indicates positive correlation while a downward-sloping line indicates negative correlation.
What the graph shows is that the higher unemployment is, the lower is support for unions. Conversely we can say that the lower unemployment then the higher the support for unions. So, if the JG program wipes out unemployment altogether we can say that there is a good chance that support for unions goes up. This is the increase in worker bargaining power that I outlined in the causal argument above.
But what about the theory that increased worker bargaining power leads to a potential for wage-price inflation? Well, first we must ask: how would this occur? The answer to that question is simple: workers would engage in strikes to try to get pay hikes. Do we have evidence to support this? Of course we do! Matias Vernengo has laid the 

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