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Monday, April 13, 2015

The Filipino Worker is Due for a Raise

The Filipino worker is due for a raise.  Although gains in the minimum wage for the National Capital Region (NCR - Top of the Range) have outpaced inflation since 1998, the gains have not kept up with productivity growth.  If wages had kept up with productivity growth, wages would have been around 27% higher as of 2013, or Php 592 per day versus the actual rate of Php 466 per day.  This means that the gains in productivity are being captured by the employers and has been leading to increasing income inequality.


Thursday, April 2, 2015

Great Depression vs. Great Recession GDP Growth Rates

For the past few days, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.






Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By 2014, the US economy is only 23% larger, in nominal terms, than the bottom in 2009, averaging only 4.19% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 12% larger than the bottom in 2009, averaging only 2.2% growth every year since 2009.







The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.






Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"


Given this very sluggish recovery with no end in sight, it is no wonder that Ben Bernanke, who is only 60, said that he doesn't expect the price of money (interest rates) to rise in to its long-term average of around 4 percent in his lifetime.