In an alien and unpredictable turn, the government’s efforts to flood the economy with borrowed dollars have achieved some extraordinary impacts. See Shrinkflation and SB 959 (December 2021). Inflation has worsened even since December. Over the last decade, advocates and news outlets have pushed for increases in the minimum wage. In some instances, such as Florida, a constitutional amendment has been the path to increasing wages. There was little discussion of supply and demand in these wage increases and pandemic relief efforts. What is the impact of rising wages? Might it be rising prices that counteract the purported employee benefit of the increased wage?
The economy operates on the fundamentals of supply and demand. When there is less of something, it is likely to have an increased value. As supply increases, the demand will likely adjust, and in all instances, there will be some point at which price and supply meet in what economists refer to as “equilibrium,” which merely means that the marketplace demand has met that going price. Whether a market economy or some form of controlled (purportedly) market, supply and demand will be persistent and pernicious. There is no magic about the equilibrium point, and it may shift as either supply or demand is adjusted by internal or external forces. There are a host of students in constant study of these forces, economists, and they are challenged to help us all make sense of the impacts.
In the pandemic, the government did more than pour borrowed dollars into the economy (increase supply). It also altered the enforcement of contracts, precluding some of those who had made contracts from enforcing their rights. The Center for Disease Control established an eviction moratorium in the name of public health. The argument was, essentially, that with a contagion upon us eviction would potentially drive large numbers into close quarters in shelters or otherwise (living with family or others), and the spread would be empowered. Remember, in the early days, we were assured that our efforts at distancing and masking would “flatten the curve” and end this thing.
Thus, there were stories in the news of individuals who quit paying their rent. Landlords were largely powerless to take any action to remove such a tenant. See The Supreme Court Strikes Down the CDC's Second Eviction Moratorium (ABA, September 2021). Some who did not pay that rent instead allegedly spent those dollars elsewhere. The Daily Mail reported a tenant purchasing boats instead of paying rent. Back in 2020, Time warned that eviction moratoriums were hurting small landlords and that this might impact future housing availability (hint, it mentioned the supply of rental housing).
The Washington Post recently reported that “rents are up more than 30 percent in some cities, forcing millions to find another place to live.” It notes that across the country increases have ranged from 14% to 40%. Economists anticipate that these increases, while not necessarily permanent, are unlikely to decrease in the near term due to the nature of real estate investing and financing.
These rising rents are seen by that publication as “a driving force in inflation.” However, it may be a fair question to wonder if these rents are a force or an effect (hint, they are almost certainly both). The article provides anecdotal examples of renters who have experienced significant rent increases. Notably, one of those examples is a mother of two who earns that $15.00 per hour that has been so touted in recent years. She complains that rent and food consume virtually her entire earnings. The $15.00 minimum wage it seems is perhaps not the panacea promised.
Possibly, the rent increases are being referred to as “force” rather than “effect” because “economists say there is a lag of 9 to 12 months before rising rents show up in inflation measures.” Thus, these increases (14%-40%) are purportedly not currently being felt as effects; thus, the overall inflation rate today is perhaps worse than we even yet realize? That is sobering indeed in light of the reports that the effect we are feeling is already the worst we have experienced in 40 years. One may wonder how much worse inflation can get? Perhaps the right answer is to borrow a few trillion more dollars and send out some additional checks to increase the money supply? (sarcasm, sorry).
That is one approach. The government is reportedly “reallocating” (I love euphemisms) what it sees as “unused funds from its $46.5 billion Emergency Rental Assistance program” to assist people with paying these increased rents and high utilities in urban centers. Thus, the government reacts to the impact of an oversupply of money by injecting more money. Potentially, this helps some consumers in the short term with meeting their existing lease obligations but may drive further inflation in the rental market as those current leases expire.
Not all of the challenge is in terms of rent. There are other government actions that have striven to constrain the rights of people to contract. Some localities have imposed rent controls, restricting the rate that a property owner may charge for rent. Imagine for a moment a similar government talent control that limited how much someone could be paid to play basketball or to sing songs or to act in movies. Some note that landlords have responded to such artificial limitations by increasing charges for amenities (trash pick up, exercise facilities, etc.), or by charging tenants fines. Thus, they have increased revenue despite artificial caps on “rent.” The same effect has been seen in other efforts, such as legislative constraints on university tuition that led to a parade of other fees and costs.
The story stresses that life is unfair. The phrase for this is usually something like “inequity” or “inequalities.” The economic critics stress that low interest rates have benefitted homeowners and that renters have suffered increasing costs and expenses. They are cited by the Post attesting to the pervasive nature of rent challenges (“1 in 4 renters, spend more than half of their monthly income on rent”). Thus, the author concludes “for too many Americans, housing is unaffordable.” And they concede that the issue is on the supply side of the equation.
However, it may be too much emphasis is afforded the distinction between homeownership and renting. Consider that the cost of ownership is also reportedly increasing. For the first time since a cost ownership index was created in 2014, the price of a home in Atlanta has increased to a point of "not affordable, according to WSBTV.com. This index compares median home price to median income, and currently that calculation in Atlanta indicates "potential buyers would be paying 30.8% of their pre-tax income on housing." This impact may further frustrate the market as buyers are encouraged instead to remain in the rental market, contributing to a diminished supply and keeping prices high.
The Post cites people who could pay increased rent, but are reluctant to do so. They see this as an untoward imposition on their livelihood or lifestyle. Others note that landlords are evicting again and that it may be common in places to see personal belongings removed from an apartment and stacked in a parking area or on a sidewalk. Evictions, it seems, are back. Still others are reportedly opting for a less tethered future of nomadic search for something better or even taking up residence in their automobile for the time being. In short, people are losing housing through choice or imperative. The economists suggest that as supply increases, the prices will perhaps become more manageable, but the eventual remediation is not of particular use to those impacted today. That was likewise true for the landlords left holding the bag by the CDC back in 2020.
And that ignores two critical points. First, the real estate is less elastic (slower to respond). While that additional housing supply is being produced the worker wages are likely to increase such that high rents are accommodated (somewhat at least). Those wages will be driven by the housing shortage and prices, and the “highest inflation in 40 years,” according to the Associated Press. There will be those who, as they persistently do, will suggest that this should then be countered with more government spending (borrowing), regulation (rent controls), and mandates (perhaps if a $15.00 per hour minimum did not fix everything, then a $20.00 wage would?).
There are arguments for and against inflation. There are arguments for and against artificial government controls of the marketplace through mandated wages, artificial price constraints, and other manipulations. But, the point here today is with the workplace; Statler and Waldorf persistently remind me this philosophy blog is really about workers' compensation.
The challenge with all of this is that real people will face real challenges in the marketplace. And that is going to invariably impact the workplace. Payroll costs will be impacted whether by the market or some new minimum wage imperative, as will the expenses that are related thereto such as general taxes, unemployment taxes, and the cost of workers’ compensation insurance premiums.
As mentioned recently, American labor finds itself in competition with foreign labor as a natural consequence of cost competition. See Friends, Romans, countrymen (March 2022). Furthermore, workers everywhere are in competition with automation, robotics, and artificial intelligence. See More on Robots, AI, and Job Displacement (May 2017). As the price of labor rises, the producer's eye may be inescapably drawn to alternatives like foreign production, robotics, or AI.
Motivated manufacturers have offshored many jobs because of the comparative low cost of labor. It is important in this regard that American labor comes with a variety of add-on expenses for taxes, social security, safety, workers’ compensation, and more that much foreign labor is free of. It is important too that the cost advantage of offshoring is now being impacted by the soaring cost of transportation, affording American labor some additional attractiveness at least in the near term.
But, it is critical that the business invests in manufacturing and in locating its production. Pivoting to a new location in reaction to such costs may involve significant expense, just as a pivot might do so for us personally. See It Isn’t Maybe So Simple (March 2022). Despite soaring transportation costs, the alternative cost of labor may prevent any significant return of jobs. In this pandemic, perhaps we have learned some lessons about the "supply chain," and the reliability of production. Perhaps there will be some return of manufacturing (PPE, microchips, etc.) to address our challenges and tribulations of the last two years, despite the associated labor cost?
In the end, the fact is that our lack of stability is bringing inflationary effects. Inflation itself is inflationary, as the market seeks some equilibrium between the cost of manufacturing or producing goods and services and the customer’s ability to afford the production. It is extremely complex, involving the local and national policies of various nation-states, economies, and leaders. There will be appreciable challenges for the American workforce as these uncertain times persist through the challenges of Putin, pandemic (or endemic), inflation, various government actions, inactions, reactions, and more.
The solutions are unlikely to be easy to implement, simple to understand, or free from other unintended or underappreciated consequences. But, the solutions will invariably come, and the market will likely remain challenged for years to come. Through that time, workers will be challenged with inequity as will be employers. There will be sufficient hurdles and pitfalls for us all as we navigate individually and collectively through the recovery from the Great Pandemic. It will be a tough time for the wage earner of course, and perhaps more so for those who find themselves on more fixed retirement incomes.
Perhaps those who steer our progress will remember Newton's Third Law, and will strive to understand the intended, unintended, near, and delayed impacts of actions?
