Bryan Caplan  

An 84-Word Reply to Arnold

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Huemer at TEDx... Bryan and Scott respond, sort ...
Arnold says:
I challenge any supporter of the sticky-wage story (Bryan? Scott?) to write a 500-word essay explaining how this graph does not contradict their view. If employment fluctuations consisted of movements along an aggregate labor demand schedule, then employment should be at an all-time high right now.
Quick answer: My view is not that unemployment is caused by sudden spikes in real wages.  My view, rather, is that whatever causes unemployment, lower real wages would restore full employment.

You don't need to have any particular view about the relative importance of supply and demand factors in agricultural markets to blame farm surpluses on price floors.  And you don't need to have any particular view about the importance of supply and demand factors in labor markets to blame unemployment on sticky wages.
 


COMMENTS (12 to date)
effem writes:

"lower real wages would restore full employment."

Why? I presume because profits will increase. If not, please let me know why.

If it is due to profit maximizing behavior then there is an issue because corporate profits are at record highs and yet hiring is still sluggish.

Rick Hull writes:

effem,

Basic supply/demand for labor. If the cost of a given labor unit goes down, businesses can afford to employ more of them, ceteris paribus.

effem writes:

Rick,
Corporate profits are at record highs. Corporations are better positioned to afford labor now than at any time in history. Your argument doesn't make sense to me.

That's like saying if you give Bill Gates another $1m he's likely to consume more based on basic "supply/demand" for goods. I don't buy it.

Phil B. writes:

I believe you need to look at where the unemployment is and what sectors such as housing and construction and manufacturing. Unemployment is high among low-skilled workers and much lower compared to high skilled workers. Alot of these corporations outsource the low-skilled work resulting in lower costs and employ high-skilled workers at home. The education system is broke we need to see returns through education.

But as Bryan said I agree that wages have to decrease to get back to full-unemployment. Wages would definitely need to decrease for low-skilled workers.

Jonathan writes:

effem,

There is no unemployment in sector that make historic profit.
There is unemployment is sector that make historic loss.

All wage must not go down. Only those from sector where there is unemployment (construction for exemple).

Fralupo writes:

Bryan, do you believe there is a wage low enough that it would be profitable to bring back blacksmiths and slide-rule makers?

Glen Smith writes:

I know that wages paid to those employed in certain fields will tend to increase as unemployment in the field grows.

effem writes:

Jonathon,
I'm quite sure that's not true. I know quite a few businesses at record profit levels with far fewer employees than 4 years ago and no plans to hire.

Jonathan writes:

effem,
Yes, and there is a name for it, a gain in productivity.
Which is by no means a proof of higher unemployment in a sector.

ChrisA writes:

I think this is best approached using a Laffer curve type approach. For sure, if wages asked by the unemployed were infinite, there would be no employment. If wages demanded were zero there would be no unemployment. But what does the shape of the curve look like? If the curve is very shallow with regard to wages then diving close to zero, you would need very large decreases in wages to make a substantial difference to employment, in which case Bryan could be technically correct, but with little implications for real economies.

Floccina writes:

To back Bryan up, employment is high in petroleum producing areas and in farming areas. This shows that higher prices relative to prevailing wages produces more employment.

Floccina writes:

BTW I think that if you make and sell a 2000 sqft home in Florida for $50,000 that there would be a market for such homes and building would start up again.

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