Dollars and Jens
Wednesday, March 01, 2006
Returns to labor
Personal Income from Compensation of Employees — basically, returns to labor, minus certain benefits — were up 0.8% from December to January, for an annualized rate of 9.9% (or, logarithmically, 9.4%). I'm a bit skeptical of the inflationist/Phillip's Curve/NAIRU model of inflation, but I've recently seen some graphs that suggest a pretty close relationship between wage inflation and unemployment, and changes in the unemployment rate and GDP growth, which more or less imply accelerating inflation for growth rates above 3% and decelerating inflation below that. If you assume inflation will largely come in from labor costs, the one-month change would seem to pull the inflation rate toward the 6-7% range, but if you include more than the last two months in an average, you're looking at compensation growth in the 6% range, and possible a bit less, suggesting more like 3% inflation.
There are probably better indicators for this sort of thing.