I share my counter arguments with supporting evidence in charts below for your reference, and am interested in seeing your rebuttals to my counter arguments if you agree with the reasons and conclusions mentioned in this article.
(A) “a drop in real labor earnings”
The reality is that
(1) a rise not drop in both real and nominal labor earnings.
(2) a stagnant in YoY % change in real labor earnings
(3) a drop(still positive) in YoY % change in nominal labor earnings.
(4) inflation, wage-push inflation and YoY % change in nominal labor earnings are correlated.
The definitions and color lines in the chart are:
(a1) real labor earnings(blue dash line) = (total wage/payroll)/price level
(a2) YoY % change in real labor earnings(blue line)
(a3) nominal labor earnings(black dash line) = total wage/payroll
(a4) YoY % change in nominal labor earnings(black line)
(a5) inflation(grey line) = YoY % change in price level
(a6) wage-push inflation(red line) = YoY % change in the ratio of total wage over RGDP
(B) “demographic developments over the last 35 years have driven falling real interest
rates, inflation and wages” “Put simply, the ratio of those of working age rose sharply relative to the dependent young (since the birth rate was falling) and to the old (since the population was still growing fast and longevity was slower to increase as much)”
The reality is that the 16-34 age curve(not lower dependency ratio) has driven falling YoY % change in nominal labor earnings, inflation and wage-push inflation. The reason is that young workers have higher YoY % change in salary increase than old workers’ YoY % change(not necessary the total amount of salary increase). Baby boomers are born between 1946-1964 and belong to the 16-34 age group between 1962-1980. After the peak in 1980, the ratio of 16-34 age group over total population starts falling along with falling YoY % change in nominal labor earnings and wage-push inflation.
The definitions and color lines are as follows:
(b1) 16-34 age curve in employment level(black line)= 16-34 age employment level/civilian employment level (b2) 16-34 age curve in labor force(green line) = 16-34 age labor force/civilian labor force
(b3) 16-34 age curve in population(yellow line) = 16-34 age population/total population
(b4) inflation(grey line) = YoY % change in price level
(b5) wage-push inflation(red line) = YoY % change in ratio total wage/RGDP
(b6) production-pull inflation(blue line) = YoY % change in ratio GDP/total wage
(1) inflation = wage-push inflation + production-pull inflation + hybrid effect(= wage-push inflation*production-pull inflation). P=(Wage/Q)*(GDP/Wage), thus %P = %(Wage/Q) + %(GDP/Wage) + %(Wage/Q)*%(GDP/Wage)
(2) production-pull inflation is in a bounded range of +/- 3% in past. Wage-push inflation and YoY % change in nominal labor earnings are correlated to 16-34 age curves as shown in the chart.
(C) “why real interest rates will rise thanks to ageing, and then why wages and inflation will rise”
The reality is that wages/inflation/real interest rates will not rise if the ratio of young worker(16-34 ages) population over total employment level is not significantly rising. Ageing has caused more old workers staying in the job(beyond 34 year old and still working) in the employment. This does not improve the young worker population ratio, thus it will not improve YoY % change in nominal labor earnings, inflation or wage_push inflation. Thus the real interest rates will not rise if inflation is low.
(D) “The debt-equity swaps that have been under way in China’s banking sector for quite a while now are a step in the right direction.”
Authors, are you kidding? You really do not understand China’s political economy. Debt is the money that companies owe to bond owners. Now if you swap debt to equity, then bond owners become shareholders of the companies and you owe money to yourselves. Debt-equity swap is a way of debt default. There are huge debts in China’s companies (both private and SOE) that can no longer pay back to bond owners. It is a step that China government confiscates the debts.