You’ve heard of the Great Resignation right? Of shortages of truck drivers and restaurant workers in the US and Europe putting dampers on the Great Reopening and raising hawkish howls that we’re about to see wages spiral? Thought so.
But have you heard of Lying Flat? If not (and we hadn’t till a few days ago), then you ought to.
A big question for economists and markets right now is whether the current bout of high inflation is a temporary phenomenon or a harbinger of something more permanent. And to really know if price pressures will prove more durable, the single most important thing we need to understand is whether there’s been a fundamental change in the dynamic between labour and capital.
Hawks warn that shortages augur a return to the dreaded wage-price spiral witnessed in the US and parts of Europe in the 1970s, where workers’ demands for higher wages triggered price rises, which in turn fed into further wage demands. Fed Chair Paul Volcker successfully (but painfully) killed this dynamic by hiking interest rates 10 percentage points, to north of 20 per cent, in the early 1980s.
In the decades since, it has been plain sailing on the inflation front. Now, however, with post-pandemic inflation lingering, central bankers (and the financiers that follow them) are watching labour market dynamics much more closely than they have been at any time since the Volcker era. The Bank of England, for instance, featured this chart in its latest Monetary Policy Report:
What’s garnering far less attention in Threadneedle Street and at the Fed than the Great Resignation, but may turn out to be far more important, is a phenomenon that’s emerged in China.
It began back in April with a Baidu post by 26-year-old Luo Huazhong, going by the username of Kind-Hearted Traveller, on why he had chosen to reject the rat race that has come to characterise the lives of many young Chinese. Translation below courtesy of Quartz:
I haven’t been working for two years, I have just been hanging around and I don’t see anything wrong with this. Pressure mainly comes from comparisons with your peers and the values of the older generation. These pressures keep popping up . . . But, we don’t have to abide by these (norms). I can live like Diogenes and sleep inside a wooden bucket, enjoying sunshine. I can live like Heraclitus in a cave, thinking about the “logos.” Since this land has never had a school of thought that upholds human subjectivity, I can develop one on my own. Lying down is my philosophical movement. Only through lying flat can humans become the measure of all things.
The post struck a chord and was shared tens of thousands of times across Chinese social media, creating a movement that has come to be known as Tang Ping, or Lying Flat. Lying Flat has now become popular enough that last month China’s president Xi Jinping condemned the movement in one of the CCP’s official journals.
If a rebuke from Xi is not enough to stem the movement, then hiking wages might be. As Qin Liwen, a freelance writer, pointed out in an episode of her ‘Poking with Chopsticks’ podcast, the reason the movement has gained momentum is that millennials no longer believe they can earn enough money to provide security for themselves and their parents, who — as only children — they are largely responsible for:
The mentality is that if I could earn more money, I would do it. You know, you acquire security and safety for your own family or for yourself. If they are paid more they still work their tails off without protesting because they still feel that they have a grip on their lives. This is very Chinese. In Europe, you cannot understand that because I see people in Europe who would rather have three months of holiday and give up a lot of salary. In China this is not the case. In China, you need the money to go to care for your parents. There is no functioning health insurance . . .
. . . everybody wanted more money. So if their salary keeps on rising, people will still strive for it. But that is not the case. That’s why they lose direction.
Qin also notes that, while the number of participants shouldn’t be exaggerated — there are many young people willing to remain on the “hamster wheel” — the movement does reflect a broader “dimming of hope”.
Maybe Lying Flat will eventually fall flat in the face of clampdowns. We’re no experts in the social dynamics of Chinese society (and if you are, we’d welcome your thoughts in the comments section). But we think policymakers in the US and Europe ought to pay as much attention to China’s millennials as they are the worker shortages in their own labour markets.
Since the mid-1980s, the country’s opening up and economic development has, together with globalisation, been one of the most important drivers of inflation dynamics the world over. It’s been a prime contributor to the Great Moderation that has enabled the central bankers that followed Volcker to keep a lid on price pressures with relative ease. And while cheap Chinese labour has been far from the only factor keeping a lid on Western workers’ wages, with more than 800m people of working age there, it is a factor in explaining why decades of low unemployment has failed to deliver pay growth.
Wages in China have already risen fast over the past decade. Yet Lying Flat signals the pace we’ve seen is nowhere near fast enough to meet the wants and needs of younger people. Twenty to 40 year olds make up just shy of 30 per cent of China’s population of 1.4bn people, with their importance for the labour market set to grow substantially as the one-child policy triggers vast demographic change and shrinks the working age population in the coming decades.
If those millennials succeed in getting the better terms and conditions they desire, Lying Flat, not the Great Resignation, may be the big thing that finally gets global wages — and prices — to rise in a more enduring fashion.