Wages Going Up for Good: Catch-Up and Blowback

May 25, 2023

by Charles Hugh Smith Of Two Minds

Blowback has its own dynamics, as we’ll learn in the decade ahead.

One of the most durable expectations in the financial sphere is that inflation will drop sharply in a recession and the Federal Reserve will lower interest rates back to near-zero. There is a good reason to doubt this: rising wages. Yes, we all hear about the millions of human workers who will shortly be replaced by AI–wonderful for corporate profits!–but few pundits bother looking at long cycles in interest rates and inflation, and even fewer pay any attention to the absurdly extreme asymmetry of labor and capital.

As I’ve often noted here, labor’s share of the economy has fallen for 45 years. Only recently did it reverse slightly. It’s not yet clear if this was a brief false-breakout ot a change in trend, but there are good reasons to expect a secular, cyclical reversal that lasts years or even a decade.

In other words, a decade in which labor / wages gain at the expense of capital.