ONLINE PRICE SHOPPING AND GLOBAL LABOR POOLS CONTRIBUTE TO LOWER INFLATION

 In blog
I was interested in looking into why inflation stayed so low in the US in the face of low rates and low unemployment.  I’ve heard people ponder that a global labor pool and online shopping may be impacting inflation to some degree. Therefore, I wanted to survey the economic literature to get data to support or deny this thesis. Note, this is pretty boring stuff and should be consumed early after at least two cups of coffee.

Papers

  • Combining the two points here, the Adobe DPI inflation rate – adjusted for new goods – is more than 3 percentage points per year lower than the CPI inflation rate for the same categories from 2014–2017.
  • Essentially, comparison shopping effects the price of goods available online and offline. Methodologies the BLS uses to calculate the inflation rate may be missing some key data.
  • Conclusion: Inflation may be much lower because of antiquated methods of collecting price data.
  • In particular, we show how online prices can be used to construct daily price indexes in multiple countries and to avoid measurement biases that distort evidence of price stickiness and international relative prices.
  • Conclusion: You may be able to track inflation in real time.
  • A Primer on the state of the global labor market.
  • “Over the next five years there will be an estimated 213 million new labor market entrants – 200 million in developing countries alone. This raises the issue of youth unemployment. Already, the youth unemployment rate exceeds 12 percent in developing countries – more than three times the unemployment rate for adults. Regionally, the highest youth unemployment rates are found in the Middle East and North Africa regions, where nearly one in three young people in the labor force are unable to find work. Young women, in particular, are struggling to find work in these regions, with unemployment rates approaching 45 percent.”
  • Conclusion: The global labor market is much looser than the US labor market.

NAIRU Only Exist in Theory

  • Joe Lavorgna says NAIRU works in theory but not in reality.
  • I’m more conditioned to think that Global Labor markets matter more for inflation pressure that domestic labor markets.
  • To test this, we would need to look at wages by industry, comparing easily outsourced jobs to non exportable jobs and see if one is rising faster than the other.

Thoughts

Also, since you can now hire a programmer anywhere in the world rather than in your zip code, domestic unemployment may be less important than global unemployment.  Try out fiverr.com or upwork.com for an illustration. See what I mean in the crude illustrations below.  Now this isn’t true for truly local labor (cab drivers, uber drivers, waiters, cooks, and hairstylists), but jobs with no need for geographic proximity (manufacturing, call centers, programmers), it is.   I’ll try to add to this post as I come across more data and research on the subject.

Crude Illustrations

In the old world, the labor supply was much smaller and local, so you were hiring along a steeper wage curve.

Local Labor Pool

Drawing of Old World Local Labor Pool

 

In the new world, the labor supply is large and global, so you are hiring along a flat wage curve.

Drawing on Global Labor Pool

New World Global Labor Pool

Illustrations are the copyright of Jonathan Liggett, 2018. 😉
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