10-Year Treasury at 2.91%.
Sock Puppet Watch...

Tim Duy: Is the Long-Term Challenge Upon Us?

Tim writes:

Rising NAIRU?: [T]he long term challenge may already be upon us.  David Altig puzzles over the implications of a shifting Beveridge curve.... He... hones in on the possibility of a skills mismatch:

Now I realize that a few anecdotes don't make facts, but I have been in more than a few conversations with businesspeople who have claimed that the productivity gains realized in the United States throughout the recession and early recovery reflect upgrades in business processes—bundled with a necessary upgrade in the skill set of the workers who will implement those processes. This dynamic suggests that the shift in required skills has been concentrated within individual industries and businesses, not across sectors or geographic areas that would be captured by our most straightforward measures of structural change.

To be honest, I hear this complaint too, but have trouble swallowing it.  I believed it in the mid and late 1990's, but now?  The eight million people dropped into unemployment are all unemployable?   Firms are willing to lose profits than do the unthinkable, on the job training, actually invest in their employees?  I also have heard the opposite story, of overeducated temporary Census workers desperate for employment, completing assignments in a fraction of the expected time, not realizing that their productivity would only be rewarded with a shorter stint of employment.   And if we are experiencing all these magical productivity gains and a shortfall of workers, then wages should be rising quite smartly.  But from one of the articles cited by Altig:

Here in this suburb of Cleveland, supervisors at Ben Venue Laboratories, a contract drug maker for pharmaceutical companies, have reviewed 3,600 job applications this year and found only 47 people to hire at $13 to $15 an hour, or about $31,000 a year.

You get what you pay for.  To put this into perspective, the average national wage for Wal-Mart was $11.24/hour in 2009.  I would hope, however, that Ben Venue Laboratories pays better benefits. I would really appreciate a good story that explained why we should be happy about high productivity growth if real wage growth is not surging.  The lack of the latter makes me question the reality of the former.... [I]f a skills mismatch is really a problem, then the solution is to ramp up activity until labor shortages raise wages and force employers to reach deeper into the barrel and in turn bring more people into the labor force to gain those missing skills.  Better to do it sooner than later.  If the productivity gains are real, the wage gains should not be inflationary.  This was the story of the 1990s. Otherwise, policymakers sit and wait as the potential structural rigidities deepen, thereby ensuring a higher NAIRU in the future.  And, driven by fear of inflation, this appears to be exactly what policymakers intend to do.