Monday , March 8 2021
Home / John Cochrane - Grumpy Economist / The wages of stimulus

The wages of stimulus

Summary:
 Discussing stimulus, a colleague passed along a factoid -- wages and salaries, he said,  are running billion a month or 0 billion a year below where they should be. If the "stimulus" were to aim entirely to replace all lost wages due to the pandemic, that would stop at 0 billion, not .9 trillion. ...

Topics:
John H. Cochrane considers the following as important: ,

This could be interesting, too:

John H. Cochrane writes GoodFellows interview with Ayaan Hrsi Ali

John H. Cochrane writes What about work or starve?

John H. Cochrane writes Europe productivity — and US too

John H. Cochrane writes The puzzle of Europe

 

The wages of stimulus

Discussing stimulus, a colleague passed along a factoid -- wages and salaries, he said,  are running $20 billion a month or $240 billion a year below where they should be. If the "stimulus" were to aim entirely to replace all lost wages due to the pandemic, that would stop at $240 billion, not $1.9 trillion. (My colleague is usually a pro-stimulus type.) I forgot to get the source, so I tried to recreate it. Here are some documented numbers, total compensation of employees, wage and salaries. 

Feb 2019 $9,228

Feb 2020 $9,659

Dec 2020 $9,675

These are billions at an annual rate. Actually, by these numbers Dec 2020 is already above Feb 2020! That doesn't account for inflation, or missing growth. If we want to entitle ourselves to the trend, wages should have gone up $430 billion. Ok, still less than $1.9 trillion. (My snarky comment: trends are earned slowly, not laws of nature. Trends in wages come from higher productivity, expanding businesses, greater labor force participation, lower unemployment.) 

One can argue for federal payments as insurance. Some people are definitely hurting, and some others are doing better. But the case for an overall "aggregate demand" shortfall seems weak. It is not always 1933. 


John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

Leave a Reply

Your email address will not be published. Required fields are marked *