Arnold Kling  

What would Scott Sumner Say?

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What I'm Reading... Anti-Child Labor or Anti-Marke...

Patricia Minczeski writes on the WSJ blog,


U.S. wages as measured in the Labor Department's employment report have been largely stagnant over the past few months, despite improvements in the job market. In fact, many industries saw more wage growth during the recession than during the recovery.

I imagine that Scott Sumner would suggest looking at causality the other way. That is, wages rose too much during the recession, causing unemployment. The slowdown in wage growth, combined with easier monetary policy and higher prices, is what has produced the recovery.

In fact, if writers had basic literacy in economics, they would understand that one should not be rooting for wage growth when there is high unemployment. When there is excess supply of labor, raising its cost does not help.


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COMMENTS (7 to date)
effem writes:

Couldn't one also say that corporate profits rose too much thus reducing the amount available to be spent on labor? Frankly that seems more plausible - we have record corporate profits as a % of GDP yet a struggling labor class.

Ironman writes:

You might want to take a closer look at *who* it is who's now finding work. This is really a story about inflation and deflation as the drivers of the relative value of particular wages to employers....

Dave writes:

"In fact, many industries saw more wage growth during the recession than during the recovery."

Might this translate to:

"Many industries laid off workers with lower productivity and hence lower wages during the recession, raising the average wage as reflected by the wages of the remaining workers"?

caveat bettor writes:

Arnold: Thanks for blogging for two! I hope you get to take a blogging sabbatical, and someone as worthy steps up to help mitigate the hole that you will leave in the blogging manifold.

Mr. Econotarian writes:

Wages are meaningless. Take home total compensation is what we need to be measuring first, and secondly cost per employee (which includes additional costs due to various regulations such as workers comp, unemployment insurance premiums, etc.)

Because of the increasing cost of health care, a great deal of total compensation increase is going into non-wage compensation.

Scott Sumner writes:

Yes, that's pretty much what I'd say. But just so no one misunderstand me, I am claiming that lower wages for any given level of NGDP can boost the recovery. I would never make an unconditional claim that falling wages are good. For instance, wages may fall because of a downward spiral in NGDP, as in the 1930s. But monetary policy that stimulates NGDP growth, combined with wage moderation, does help recovery.

Libfree writes:

@scott
Did you stop blogging so arnold would do posts for you?

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