Why aren’t wages moving in lockstep with the improved employment picture?

If you’ve taken a look at September’s U.S. unemployment figure – 3.5% — you’re seeing the lowest level of unemployment in over 50 years. And for particular subgroups of the population, they’re enjoying their lowest employment percentages ever — at least since records have been kept.

It’s definitely something to cheer about. But at the same time, it’s become increasingly evident that wage growth isn’t happening in tandem with lower unemployment.  And that includes industrial wages as well.

In fact, September results show the first dip in wages – albeit slight – in the past two years.

What gives?

According to Zheng Liu and Sylvain Leduc, two economics researchers at the Federal Reserve Bank of San Francisco, the cause of stagnating wages in an otherwise robust economy can be laid at the doorstep of automation.

According to Liu and Leduc, as certain tasks move more toward automation, employees are losing bargaining power within their organizations. When people fear that they could lose their jobs to a robot or a machine, there’s a hesitation to ask for higher wages as that might hasten the eventuality.

The net result is a widening gap between productivity and pay.

But does this situation apply across all of industry? Perhaps not. Last year, manufacturing expert and Forbes magazine contributing writer Jim Vinoski noted that “huge swaths of industry remain decidedly low-tech and heavily manual.”

The reason? Complexity, volume and margins are often barriers to the implementation of automation in many applications.  Just because something can be automated doesn’t mean that there’s a compelling economic argument to do so – particularly if the production volumes aren’t in the league of “mass manufacturing.”

Jobs in engineering and R&D are even less likely to become automated. After all, probably the single most important attribute of employees in these positions is the ability to “think outside the box” – something artificial intelligence hasn’t come anywhere close to replicating (at least not yet).

What are your thoughts about automation and how it will affect employment and wage growth? Please share your perspectives with other readers.

Move over, energy costs … Here come higher food prices.

Higher food prices like higher energy pricesIf it seems as if food prices have been increasing at a faster clip in recent months, you’re not dreaming.

Despite an overall inflation rate that seems low (although the federal government’s controversial exclusion of certain key components like gasoline makes its stats suspicious at best), we now have solid evidence that worldwide food cost increases are happening across the board.

Here’s a list of some of the most dramatic cost increases for key foodstuffs recorded since May 2010:

 Coconut oil: +134%
 Corn/maize: +111%
 Wheat: +75%
 Coffee: +70%
 Sugar: +55%
 Soybeans: +45%
 Palm oil: +42%
 Orange juice: +35%
 Beef and pork: +20%

Considering that this represents a time period of just a little over a year, these increases are some the largest recorded in decades.

What caused it to happen? Poor weather and bad harvests are two of the reasons. But high demand from developing countries – particularly China – is another important factor.

“This is a pretty sustainable increase … A number of factors have been building over time in terms of the commodity increase: world economic growth, rising crude oil prices, increased Chinese import demand have all conspired,” is how Bill Lapp, president of commodity analytical company Advanced Economic Solutions, puts it.

Unfortunately, the problem promises to persist, since many of the items above are ingredients that go into other prepared food items. Initially, packaged food makers that had locked in purchases for some items over certain time periods were able to delay delay passing on cost increases because of those hedges. But the bulk of those contracts have run their course by now.

So, even if commodity prices don’t go any higher, we’re likely to see the ripple effects in pass-along price increases all throughout the “food chain” in the months to come.

This isn’t news anyone wants to hear, considering how fragile (non-existent?) the economic recovery is here in the U.S. and in many other countries as well.

The sober truth is, high food costs coupled with increased energy prices have a chokehold on the world economy that is more consequential than many would care to admit.

Fasten your seatbelts, folks. We may be in for yet another wild ride on the economic roller-coaster …

Pew Chronicles the Public’s Knowledge of Current Events: A Mile Wide and an Inch Deep

NewsIQ Research from the Pew Research CenterAll right, folks. Are you prepared to be depressed?

The Pew Research Center for People and the Press has just published the results of its annual News IQ survey in which it asks members of the U.S. public a baker’s dozen questions about current events.

A total of ~1,000 people were surveyed by the Pew Research Center in mid-November. The multiple choice survey covered a mix of political, economic and business issues and included the questions shown below. (The percentages refer to how many answered each multiple choice question correctly).

 The company running the oil well that exploded in the Gulf of Mexico (BP) … 88% answered correctly
 The U.S. deficit compared to the 1990s (larger) … 77% correct
 The political party that won the 2010 midterm elections (Republicans) … 75% correct
 The international trade balance (U.S. buys more than it sells) … 64% correct
 The current U.S. unemployment rate (10%) … 53% correct

 The political party that will control the House of Representatives in 2011 (Republicans) … 46% correct
 The state of Indian/Pakistani relations (unfriendly) … 41% correct
 The category on which the U.S. Government spends the most dollars (defense) … 39% correct
 The name of the new Speaker of the House (John Boehner) … 38% correct
 The name of Google’s mobile phone software (Android) … 26% correct

 The amount of TARP loans repaid (more than 50%) … 16% correct
 The name of the new Prime Minister of Great Britain (David Cameron) … 15% correct
 The current U.S. annual inflation rate (1%) … 14% correct

The percentage of respondents who answered all questions correctly was … fewer than 1%. Ten questions? … just 6% answered correctly. Eight of the questions? … only 22%.

On average, respondents answered just five of the 13 questions correctly. Even college graduates scored relatively weak, with an average of just seven questions answered correctly.

The public appears to be best informed on basic economic issues such as the unemployment rate and the budget deficit, while nine in ten respondents correctly identified BP as the corporate culprit in the Gulf of Mexico oil spill event. Not surprisingly, these were among the biggest news stories of the past several quarterly news cycles.

The worst scores were recorded on the TARP program and the current inflation rate, which fewer than one in five respondents answered correctly (about the same as the David Cameron/UK question which people could be forgiven for answering incorrectly).

You can view detailed results from the survey, including breakouts by age, gender, race and political party affiliation. Not wishing to step into a thicket by editorializing on these differences, I’ll leave it to you to see for yourself by clicking through to the Pew findings on your own.

Pew concludes that while Americans are aware of “basic facts” regarding current events, they struggle with getting a good handle on the specifics.

Might this be a byproduct of how people are consuming news these days? After all, there’s far less reliance on newspapers or news magazine articles … and more emphasis on “headline news” and short sound bites.

That’s the sort of recipe that results in people knowing the gist of a story without gaining any particular depth of understanding beyond the headlines.

Now that you’ve seen the correct answers to the questions, you won’t be able to test yourself against the public at large, so I’ve kind of spoiled the fun. But a little honesty here: how well do you think you would have scored?