wages stagnant while unemployment at its lowest level

Supply is affected by two dimensions….investment in capital and labour…this is first year economics. The cost of capital is interest (lending rates). When we invest in capital or labor we increase supply. The balance is between adding capital (long term, it will take months to order/build a new machine) and labor (short term, I can hire another guy next week) vs what I can sell my widgets for. Here enters two more dimensions…efficiency and time. We have tweaked our existing capital to get maximum output and have now hit the wall using all the labour in the market. One of two scenarios are going to play out now. 1) Investment in new capital (because interest rates are so low) but few assets are available so the few go to the highest bidder (prices will go up/ inflation) or 2) there will be more jobs than potential employees so we will see rising wages / signing bonuses and foreign workers competing for jobs.

The opportunity for government to invest in infrastructure (crumbling bridges, roads and ancient subways) at historic low interest rates for the last decade will soon be gone.

Here comes the prophecy…take heart, wages will soon be going up.

http://www.cbc.ca/news/business/inflation-canada-outlook-1.4167888?cmp=news-digests-canada-and-world-morning

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