Labor increases of 4% are nothing to worry about, but that is not where labor costs are or are going. Take a look at real union negotiations like Deere.
We continue to overlook the impact of the first week Biden War on Energy actions that took 13.1MM bbl/day crude oil production to less than 10MM bbl/day in 90 days thereby destroying American energy independence which meant there was no excess American crude in the global market to influence pricing.
We lost energy independence and the global markets lost pricing discipline.
What happened? Crude went up and gasoline doubled.
Gasoline is baked into every good and product made and transported in America and in every family budget. It is pervasive. This was a huge inflation cause and it is still happening.
There is not a single monetary or fiscal policy action that can combat the inflationary impact of that single bad policy week except to reverse it and that cannot happen with Brandon in the White House.
Here is an explanation as to what happened at Deere.
Agree that the increase in energy prices has an effect, but labor costs have an outsize effect. You cannot hedge your labor costs. You can hedge your energy costs and turn them from variable to fixed costs. You can also use economies of scale and scope to buffer the increase in energy costs, but it is more difficult to do with labor costs. McDonald's has seen not only labor costs increase, but raw material prices increase and costs of production increase. It's no wonder their dining rooms remain closed, and drive ups open
I agree that companies like SW Airlines can hedge against the rate of increase of their fuel costs, but the average person driving cross country cannot and the Uber driver cannot.
Labor as a % of COGS for any product or service varies with the nature of the product or service.
In general, labor costs are going up "gradually, then suddenly."
It is a death spiral -- labor complains that inflation is eating their wages, labor gets a wage increase, inflation is higher because of increased labor wages, inflation kills the value of the wage gains, and then labor complains that inflation is eating their wages.
This is neither transitory nor easily fixed. It will not be fixed by this admin.
Part of what is going on with labor costs is that the pay of people who are skilled but not academically credentialed is being normalized upward relative to the pay of people who are credentialed but not all that skilled, at least in anything that needs doing, whose pay is being normalized relatively downward.
Another great blog post. Well played.
Labor increases of 4% are nothing to worry about, but that is not where labor costs are or are going. Take a look at real union negotiations like Deere.
We continue to overlook the impact of the first week Biden War on Energy actions that took 13.1MM bbl/day crude oil production to less than 10MM bbl/day in 90 days thereby destroying American energy independence which meant there was no excess American crude in the global market to influence pricing.
We lost energy independence and the global markets lost pricing discipline.
What happened? Crude went up and gasoline doubled.
Gasoline is baked into every good and product made and transported in America and in every family budget. It is pervasive. This was a huge inflation cause and it is still happening.
There is not a single monetary or fiscal policy action that can combat the inflationary impact of that single bad policy week except to reverse it and that cannot happen with Brandon in the White House.
Here is an explanation as to what happened at Deere.
https://themusingsofthebigredcar.com/the-power-shift-workers-of-the-world-unite-inflation/
JLM
www.themusingsofthebigredcar.com
Agree that the increase in energy prices has an effect, but labor costs have an outsize effect. You cannot hedge your labor costs. You can hedge your energy costs and turn them from variable to fixed costs. You can also use economies of scale and scope to buffer the increase in energy costs, but it is more difficult to do with labor costs. McDonald's has seen not only labor costs increase, but raw material prices increase and costs of production increase. It's no wonder their dining rooms remain closed, and drive ups open
I agree that companies like SW Airlines can hedge against the rate of increase of their fuel costs, but the average person driving cross country cannot and the Uber driver cannot.
Labor as a % of COGS for any product or service varies with the nature of the product or service.
In general, labor costs are going up "gradually, then suddenly."
It is a death spiral -- labor complains that inflation is eating their wages, labor gets a wage increase, inflation is higher because of increased labor wages, inflation kills the value of the wage gains, and then labor complains that inflation is eating their wages.
This is neither transitory nor easily fixed. It will not be fixed by this admin.
JLM
www.themusingsofthebigredcar.com
Part of what is going on with labor costs is that the pay of people who are skilled but not academically credentialed is being normalized upward relative to the pay of people who are credentialed but not all that skilled, at least in anything that needs doing, whose pay is being normalized relatively downward.