While I was away in Atlanta, Tyler asked, "How sticky are wages today?" His doubts:
Keep in mind that unemployment rates today are disproportionately
concentrated in low-income and low-education workers. Haven't we been
told, for years, that these same individuals are seeing some mix of
stagnant and eroding wages? That they are experiencing downward
mobility? That the real value of health care benefits has been falling
and that more and more jobs don't offer health care benefits at all?
Doesn't that mean...um...their wages aren't so sticky downwards? And thus Keynesian economics is not the final story?
The obvious responses:
1. The erosion we've been told about for years is supposed to have taken years to happen. Three or four decades, actually. Even staunch Keynesians probably think that the labor market could right itself over such a long timespan.
2. This erosion took place alongside positive inflation, year after year. It's perfectly consistent with complete nominal rigidity. Consider: Between January 1978 and January 2008, the CPI (set to equal 100 for 1982-4) rose from 62.5 to 211.1 - enough to reduce constant nominal wages by over 75% in real terms. Tyler mentions the real-nominal stickiness distinction later in the post, but it doesn't enter into his analysis.