I wrote this paragraph two days ago:
Employers also may give workers raises at a slower rate; this is called “wage compression.” If it is hard to cut wages, wait and make sure the worker really deserves a pay increase. Wages will lag productivity, but the net result is fewer situations where a direct wage cut is necessary.
The implication of course is that low unemployment, and a stable macroeconomy, will mean that wages lag behind productivity. Here is my earlier post on wage compression.
Tyler,
The major reason to increase the wage of an existing worker is to prevent him from leaving for a new employer. As the employee traces his trajectory over a learning curve, his productivity increases and a higher wage can be both justified and necessary. However, part of the learning curve driven productivity enhancement is general and part is specific to the given employer. Since only the general part is useful to a potential competing employer, the wage need only track the general part of productivity increase.
Regards, Don
hat makes you say wages didn’t lag, spencer?
This is just another example of Open Borders (goods and people) ravaging the lives of mainstream Americans and TC trying to rationalize it.
Since Bush took office, we have had the first “recovery” with rising poverty, declining health insurance, declining labor force participation, declining median incomes, etc.
Of course, corporate profits have reached record levels (by several measures) and the top 1%, 0.1%, and 0.01% are doing rather well.
As long as the Goldman Sachs bonus pool is $16+ billion, can anything really be wrong?
Folks,
The reality is that the labor market is slack. The “low” unemployment rates masks relatively poor job prospects for most workers. Rather than rising unemployment, we have declining or flat (not normal in an upturn) labor force participation. See “Fed May Be Questioning Labor-Market Tightness† (http://blogs.wsj.com/economics/2007/07/06/fed-may-be-questioning-labor-market-tightness/) for some details.
If employers really were holding down wages in a strong job market we would expect to see rising turnover. A quick check shows that is not the case. See “Economic Activity: Labor Turnover† (http://www.clevelandfed.org/research/trends/2007/0107/03ecoact_122906.cfm) for some data.
Open Borders don’t come free. Indeed, they are very expensive†¦
“Open Borders don’t come free. Indeed, they are very expensive†¦”
May be to you. To TC and myself, fat and happy goverment bureaucrats
we are, it is all gravy.
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