By Zdravka Todorova Post #1 Large businesses manage inflationary pressures by implementing high-tech improvements to reduce costs and maintain profits. Working households cannot cut costs by adding more high-tech consumption, and are constrained by social systems of provision. Households are stuck coping with structural inflationary pressures and shocks. Recognizing the fundamental differences between working households and large businesses is important for a better price-stability policy.
Businesses Cutting Costs During the pandemic, key companies with market power could maintain prices and generate windfall profits (Weber and Wasner 2023). Those high prices persisted after the pandemic and affected the costs of other businesses and households. Workers' share of corporate-sector income has not recovered since the pandemic recession (EPI). However, pricing is not the only method to manage inflation. Now, large businesses seek to implement cost reductions through high-tech implementations. Industries and businesses that produce such implementations, particularly automation technology, are seen as having investment potential (Morgan Stanley, 2022). Businesses that can utilize such technology, seek to increase labor productivity (output per worker), direct labor, and ultimately become less dependent on workers. In that way, companies can maintain profits even if they reduce mark-ups over costs, as part of their pricing strategy. They can keep market shares and goodwill, especially amidst inflation-weary consumers. Further, they build resiliency for potential labor shortages, that tend to affect smaller businesses and lower tech production. Expansion of semiconductors in production and in end-use goods means greater demand for semiconductors in wider areas (Semiconductor Industry Association 2023). To accommodate that expansion in production, businesses want to secure access to a trained and available labor force. Educational resources and public higher education will be redirected toward that end, focusing on producing more associate degrees in engineering technology, to facilitate the transition to even more capital-intensive production. By adopting more labor-augmenting and labor-saving technology, businesses seek less dependency on workers and their labor supply. Further, through their daily activities and labor, people provide the data companies use in pricing, sales, production operations, and machine learning for future automation. At the same time working households are more dependent on high-tech capital-intensive production and consumption. When households add new technology required for their daily activities – they undertake new costs and get exposed to inflationary pressures. This is the opposite of large companies, who implement technology to cut costs and preserve profits even under inflationary pressures. Some of those inflationary pressures could become structurally built-into a system that increasingly depends on continuous capacity expansion in semiconductor production and consumption. Additional structural inflationary pressures come out of wars, reoccurring environmental disruptions, and related supply shortages (Semenova 2023). To what extent high-footprint high-tech mega sites would contribute to, or alleviate those inflationary effects, is an open question. The issue is that there are more uncertainties about inflation in the system and a growing divergence in the ability to cope with those structural pressures. Households’ Difficulties in Cutting Costs Working households can’t manage inflation by cutting costs like large business enterprises do. For one, the adoption of high-tech appliances increases their cost commitments and future dependence. Buying more and more new tech devices contributes to household cost commitments, even if the unit price of electronic consumer goods decreases. There are new categories of expenditures. Products cannot be repaired, they need replacement, additional upgrades, and the purchase of an increasing number of related products. This increases households’ dependence on large producers and capital. The proliferation of high-tech in all spheres of households’ lives and the planned obsolescence in the production and consumption of those goods and services exposes households to price shocks and shortages. These have to do with centralized production in high-tech, problems of capacity, as well as any negative effects of continuously expanding capacity for semiconductor production. In addition, household costs can’t be easily cut. There are living needs and related financial obligations that are impossible or difficult to cut. Housing, transportation, food, insurance and pensions, healthcare, and care are major budget items (Meyers, Paulin, and Thiel, BLS, 2022). These are affected by inflationary pressures, the particular composition and needs of households, as well as by the established systems of provisioning of goods and services. Further, some costs of services that are highly demanded by households, cannot be cut. For example, the cost for two-child households exceeded the annual average rent payments, even as the inflation of center-based child care is lower than the overall inflation rate. The average annual wage of a childcare center worker in the USA is in the magnitude of $ 28,520 and this exceeds the wages of some care workers. Care workers are underpaid. We also cringe at the prospect of “decreasing costs” through high-tech automation in the childcare “industry.” Childcare costs are rising for households and there is not enough supply. From households’ point of view, cutting their childcare costs means unpaid household care, which in itself needs support, as it means not working for pay. Reducing households' costs on social services requires expanding transfer income programs. Households’ Institutional Constraints Households face institutional constraints in the ways that care, health, housing, transportation, food, and other necessary goods and services, and financial commitments are organized. The cumulative effects of these institutional arrangements contribute to inequities and financial fragility of households over time and limit many households’ abilities to cope with inflationary pressures. Sectors of vital importance to households and their financial obligations and wealth are characterized by historical inequities. They are structured by employment, social group position, and geographical location. For example, household wealth-building is tied to homeownership, which still bears the historical imprints of segregation and redlining (CET and ThinkTV). Healthcare insurance is largely tied to employment. Societal care arrangements lag behind the pressures of paid work and depend on unsupported unpaid household labor. These institutional arrangements constrain some households more than others during inflationary pressures. In addition, households face higher or lower costs for goods and services, depending on the availability of public goods, quality of housing, and access to infrastructure. The organization of transportation and food production places constraints on households, who have to adjust their budgets and time to fit into the established systems of provision. It is not that households can readily switch methods of mobility and obtaining nutrition to control their costs. Autonomy is going to decrease further with the wider implementation of high-tech consumption. We are still to see the impacts of building more mega-sites for fabricating semiconductors, batteries, electric cars, and other high-tech production as part of deals offered by localities to subsidized businesses. How would those developments affect local resources, access to necessities and social services, environment, and costs to households? Institutional arrangements mixed with accelerated technological change are serious constraints to households’ ability to manage inflation. Price-stability policies should focus on removing these institutional constraints and on preventing and addressing the impacts of technological change and the expansion of big business. People, not Widgets In price-stability policy, aggregate demand is an extremely broad variable, and the interest rate is a very narrow tool. The differences between large businesses and working households seem lost. It is time to implement price stability policies that address broader concerns of lives. But, wait, perhaps business cost efficiencies from high-tech implementations would trickle down to alleviate price pressures in the sectors vital for households. Even as innovations bring benefits, hopes for curtailing inflation through technological implementations such as AI, are misplaced. A business strategy of increasing labor productivity is one thing – the macroeconomy - including the effects on households, is another matter. Technology-driven cost reduction addresses inflation from the point of view of large business concerns. Let us not forget that on the other side of the economic balance sheet of high-tech-led cost-control are households’ balance sheets and lives. Labor displacement through automation and the direction of time is a real problem ahead. Expectations for high-tech “deflationary” effects on business costs are expectations for managing labor more akin to machines. Similarly, when inflation is approached with monetary policy of interest rate management, people are assumed to be widgets. Given the institutional constraints and inequities, there is no “soft landing” for everybody in contractionary times of higher interest rates. Yet, interest rate cuts are insufficient to address structural and institutional factors of inflation. Much has been made of demand-related inflationary pressures due to government transfers to households. Aggregate demand expanded after the pandemic and some households built a bit more savings. Those transfers added transitory flexibility to households’ budgets, which are still needed by many. When we recognize households' labor contribution in the form of care, these transfers can be understood also as supporting future aggregate supply. The economy is supported by unpaid household labor, including, but not limited to child care. We can think of the expansion of government transfers during the pandemic as payments for some of that labor. As to labor shortages, these are largely problems of working conditions and wages. The disadvantage of small businesses and their competitiveness are issues for industrial and regional policies. Commitment to full employment and access to public goods and assets are even more important with rapid technological advancements and their vast implementation in production and business. Forward-looking policies include a job guarantee federal program with locally designed public service jobs (see Tcherneva 2021) at living wages. This creates a floor for working conditions and is complementary to expanded public services. A job guarantee program is important also because it supports valuable non-market activities, the environment, local needs, and democratic participation (Todorova 2022). These are future-oriented policies that will grant more choice to households when it comes to dealing with structurally produced inflationary factors and increasingly centralized business production. How to Cite this Blog Todorova, Zdravka. (March 2024). “Managing Inflation in the High-Tech Economy: Vital Differences between Large Business and Working Households.” Econ Notes & Knots, Blog # 1, www.ztodorova.net References CET and ThinkTV. “Redlining: Mapping Inequality in Dayton & Springfield.” Distributed nationally by American Public Television. https://www.pbs.org/video/racial-wealth-gap-uvackn/ Child Care Aware of America. 2024. “Annual Price of Care (2022)”. https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care-2022/#PriceofCare Economic Policy Institute. Nominal Wage Tracker. https://www.epi.org/nominal-wage-tracker/#chart3 Gould, Elise, Zane Mokhiber and Katherine DeCourcy. 2024. What Constitutes a Living Wage? A Guide to using EPI’s Family Budget Calculator,” Economic Policy Institute, January 31, 2024. https://www.epi.org/publication/epis-family-budget-calculator/ Landivar, Liana Christin, Nikki L. Graf, and Giorleny Altamirano Rayo. 2023. “Childcare Prices in Local Areas.” Women’s Bureau, U.S. Department of Labor. Issue Brief, January 2023. https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf Meyers, Shane, Geoffrey D. Paulin, and Kristen Thiel. 2023. “Consumer Expenditures in 2022.” Bureau of Labor Statistics Reports # 1107. https://www.bls.gov/opub/reports/consumer-expenditures/2022/home.htm Morgan Stanley. 2022, Sept 21. Research. “How Technology Can Guard against the Impacts of Inflation”. https://www.morganstanley.com/ideas/technology-and-inflation-businesses Semenova, Alla. 2023. “Too Hot to Handle: Why Climate Change Means that Inflation won’t Boil over?” Monetary Institute Blog, # 83, June 12, 2023. https://medium.com/@monetarypolicyinstitute/too-hot-to-handle-why-climate-change-means-inflation-wont-boil-over-9574b480156c Semiconductor Industry Association. 2023. “State of the US Semiconductor Industry 2023.” https://www.semiconductors.org/wp-content/uploads/2023/07/SIA_State-of-Industry-Report_2023_Final_072723.pdf Tcherneva, Pavlina. 2020. The Case for Job Guarantee. Cambridge: Polity. Todorova, Zdravka. 2022. “Care, Job Guarantee, and Revisiting ‘Socialization of Investment’: Insights from Institutional Economics.” PKES Working Paper 2216. https://postkeynesian.net/working-papers/2216/ Weber, Isabella M., and Evan Wasner. “Sellers’ Inflation, Profits and Conflict: Why Can Large Firms Hike Prices in an Emergency?” Review of Keynesian Economics 11, no. 2 (April 14, 2023): 183–213. https://doi.org/10.4337/roke.2023.02.05. Ziady, Hanah. July 12, 2023. “How AI’s Astonishing Productivity Gains Could Help Curb Inflation.” CNN Business. https://www.cnn.com/2023/07/12/economy/ai-productivity-curb-inflation Comments are closed.
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Zdravka Todorova
I research, teach, and write about systems, processes, and relations of economic lives. Archives
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