Eppur Si Muove, or, How Not to Explain Stagnant Real Wages

Lately the old-timers here at Cato ’s Center for Monetary and Financial Alternatives — which is to say, Jim Dorn and I — have been talking a lot about the Phillips Curve, which seems to be playing a part in monetary policy discussions today almost as big as the one it played in the 1970s. And you can bet that, because both Jim and I actually remember what happened in the 70s, and afterwards, neither of us has a good word to say about the concept, except as a very reduced-form means for describing very transient relationships.Because Jim has a CMFAPolicy Briefing on Phillips Curve reasoning in the works, I won ’t belabor here his — and my — general objections to it. My main concern is to draw attention to a current example of that reasoning at work, in the shape of a recentNew York Times op-ed by Jared Bernstein, entitled“Why Real Wages Still Aren’t Rising.”Noting that, despite the low and still falling U.S. unemployment rate, real wage rates for workers in factories and the service industries have been stagnant for several years. Mr. Bernstein finds this stagnancy puzzling: According to the BLS, he writes, as of this June money “wages” (presumably meaning hourly wage rates) grew at an annual rate of 2.7 percent, whereas “looking at the historical link between wages and unemployment, wage growth should have been rising about a percentage point faster.” The “historical link” to which Mr. Bernstein refers is based partly on the Phillips Curve — a ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs