Wages and the ECB monetary policy

Discussions on wage dynamics in the Euro Area. The momentum is now higher (2%) but not sufficient to push core inflation on the upside. The enigma is not solved yet. That’s the analysis of this NY Times article.

Nevertheless, the example comparing France and Germany in the article is not totally convincing. There is still a lot to understand on the labor market.

Workers may finally be getting a bigger piece of the economic pie — at least in Europe. Just don’t ask why, or whether it will last.

In the decade since the financial crisis, much of the global economy has recovered and is back on stable footing. Companies are reporting record profits, unemployment levels are plummeting and overall global growth is back on track.

Wages in most developed countries, however, have barely budged.

Read the article here. nyti.ms/2mI1Hnv

The French Labor Market Reform

The French government has made its first proposals to reform the labor market. Its main idea is that competitive conditions have dramatically changed and it’s impossible to have a law that can solve all the issues.
For the government a “one size fits all” law cannot exist anymore on the labor market. The main reason is that companies face now very different environments that lead to a very specific framework for each of them. Therefore it can be efficient to commit to rules at companies’ level. These specificities are globalization which can be a very different constraint from one sector to another one, technological shocks with very different speed of adjustment depending on the type of activity, regulation can be very different between firms and sectors,  companies’ size from the very large company to a very small one is also an issue and specificities associated with different sectors can have an impact on companies’ behavior.

In other words, competition is not a uniform framework Continue reading

Three Graphs on the German Labor Market

The number of unemployed has slightly increased in August (1 000). Compared to August 2013 this number has decreased by -45 000.
Employment is on a positive trend. During the last 3 months (May – July) it was up by 0.9% at annual rate. But surveys this summer have cast a doubt on such a momentum for the coming months. Continue reading

USA – The risk of rising inflation is limited

Investors and economists are now very attentive to the US labor market momentum. Its profile is expected to give information on the future of inflation and on the reaction of the Federal Reserve.
Since April 2014 the number of new jobs is 260 000 on average each month. It’s a pretty strong number. This new situation is expected to create new pressures on inflation that will force the Fed to change its monetary policy. Until now this equation doesn’t work. Wages momentum is not stronger in the recent past. (see here a description of the US labor market with June figures)
Inflation momentum will not come from the labor market directly even if there are a large number of new jobs. Two charts will convince you Continue reading

The Japanese Economy after the increase of the VAT Rate

The VAT increase on April the 1st has had a strong and negative impact on the Japanese economy. The inflation rate spiked to 3.4%, households’ purchasing power dropped dramatically and retail sales collapsed. On the manufacturing production side, the decline was significant.
These are mechanical effects of the higher VAT rate and this is a negative and persistent shock for the economy. In 1997 with already a VAT shock, the retail sales profile was the same than now and showed strong persistence. The impact was not only perceived in April but all along the year. Loss in purchasing power (see chart below) will not be reduced spontaneously and it is the trigger of this persistence. Continue reading

Video – The Second Machine Age – Thoughts on New Technologies


After the publication of their book, the Second Machine Age,  Andrew McAfee and Erik Brynjolfsson give an interview on their thoughts on the acceleration of technical progress and its impact on the economy, on the labor market and on education.

The first industrial revolution was an automation of physical tasks (steam machine). It helped to reduce physical efforts.The current industrial revolution is a cognitive revolution where due to rapid acquisition and accumulation of information, the machine can decide in place of men.

This will change dramatically the forms of labor. The two authors say that the change will  probably go faster than what we imagine. We will have to be reactive and proactive.

For information, visit their dedicated website http://www.secondmachineage.com/

Figures were revised on the French Labor Market

Last week I was surprised by the number of registered people at Pôle Emploi the labor French Agency. The number of registered dropped by 50 000 in August and it was perceived as too much with regard to the economic situation. (see here for my analysis)

Today the minister of labor has published a press release saying that there was a mistake in the number. Instead of -50 000 the number was comprised between -22 000 and – 29 000. The main reason is the following: someone who is already at Pôle Emploi has to check his registration every month. Five days before the last day to register, Pôle Emploi sends a SMS  to those who are late. There was a problem with the SMS and a large number of people did not receive the message.
There were too many radiations.

Is the number totally wrong or not? That’s the important question.
In my analysis mentioned above I said that there were two parts in the figure.
One reflects lower separation rate from companies. But the recovery is not perceived as strong enough to start hiring. I said that it was a very positive part of the figure as it means that companies start thinking differently about their activity and the labor market. This part of the analysis is unchanged and that’s good news for the French economy. It shows a change in behavior due to better prospects.
The other part of the figure is linked to radiations. The lack of precision for August implies that I will wait until September figures to make a new analysis.

What is puzzling with this publication is the fact that everyone has perceived that something was wrong even at the ministry of labor. There was a warning on the first page of the publication. But the figure was published. And once it is published it is considered as true.
Then if there was a doubt at the ministry why was it published? The other question is to know at what moment of the procedure it has been said that it was not worrisome to publish such a figure on which there is doubt. The press release doesn’t say anything on that but that’s probably the most fascinating part of the story.