Tuesday, February 21, 2012

menzie flies high






Markups, Competitiveness, and the Bush Tax Cuts and Deficits
The Administration released the annual Economic Report of the President on Friday. Many topics were covered, but here I’ll remark upon a few issues, motivated by several graphs.
First is price markup over unit labor cost. The interesting trend since 2001 has been the rise in this variable.
erp20121.gif
" From this graph, one would be hard pressed to find American business in terrible shape. Productivity has increased, labor compensation growth has been modest, so that it’s obvious where profits have come from. "


"This also means (to me) that there is substantial space for rising wages to be absorbed without a commensurate wage-price spiral.....rapid productivity growth combined with slow compensation growth has improved American competitiveness. Nominal dollar depreciation over that period emphasized that improvement."


erp20122.gif