More than Half of Workers Have New Jobs Since the End of the Recession

by on September 8, 2014 at 7:20 am in Economics | Permalink

Many people continue to call for greater inflation to solve our current economic problems. A classic argument for why inflation can help is downward nominal wage rigidity. It is difficult to believe that nominal wage rigidity is important now, years after the end of the recession. The main reason nominal wages don’t fall is that wages are an anchor around which expectations and understandings are built and when wages are cut workers get angry and upset. But when a worker begins a new job with a new employer it’s anchors away! New job, new wage and no feelings of loss even if the wage is less than what some other person earned sometime in the past for doing something sort of similar.

Now here is an important fact: the median number of years that current wage and salary workers have been with their current employer is about four and a half. In other words, more than half of current workers have jobs that are new since the end of the recession. A majority of workers have new jobs, some workers have wages that are increasing (and thus a fortiori not downwardly rigid) and quite a few workers have flexible wages due to piece rates, commissions, bonuses and so forth. Not all of these categories perfectly overlap. Thus, the scope for nominal wage rigidity as an explanation for current problems appears to be small.

Moreover, here’s an interesting test. If nominal wage rigidity explains unemployment and if wages are more rigid at old jobs than at new jobs then we ought to see a positive correlation between unemployment rates and job tenure. Instead, we see the exact opposite, unemployment rates are lowest in the industries with the higher tenure. Of course, this is a raw correlation not a causal estimate. Nevertheless, some of the points are striking.


In the leisure and hospitality industry, for example, the median worker has been in their job only about 2.4 years–that means that well over the half of the jobs in this industry are new since the end of the recession–yet the unemployment rate in that industry is over 8%. With that kind of turnover in jobs its difficult to believe that wages have not adjusted. Or to put it differently, if one were to ask apriori which will have a greater influence on reducing nominal wage rigidity either a) turning over more than half the jobs in the industry or b) a few extra points in the inflation rate then I think most economists would, without hesitation, answer the former. Inflation is not magic.

1 John Thacker September 8, 2014 at 7:31 am

it’s anchors away!

Not anchors aweigh?

2 Alex Tabarrok September 8, 2014 at 8:00 am

Not in this context!

3 dearieme September 8, 2014 at 12:01 pm

“no feelings of loss even if the wage is less than what some other person earned sometime in the past for doing something sort of similar”: is that a disparaging allusion to that broad at the NYT? Well done, sir.

4 prior_approval September 8, 2014 at 12:24 pm

Well, speculation is fine, but in DC, this is the sort of news that counts when it comes to job changes –

5 Marie September 9, 2014 at 1:59 am

Agh! I trusted you. That was the most boring story ever!

6 Greg Ransom September 8, 2014 at 2:17 pm

Anchors aweigh works also — and is actually the proper way to say it,

7 Greg Ransom September 8, 2014 at 2:19 pm

“anchors aweigh” = anchor no long “anchored” to the bottom

8 Marie September 9, 2014 at 1:49 am

I’m so embarrassed.
I might seriously have gone my entire life getting that wrong! I had no idea. Learn something new every day. . . . .

9 NPW September 8, 2014 at 8:05 am

This is a shotgun blast mistaken for a trend line. It isn’t even rational to consider the two ends, Leisure and hospitality and Govt, when talking about UE and tenure.

“New job, new wage and no feelings of loss even if the wage is less than what some other person earned sometime in the past for doing something sort of similar.” Do you have data for this? I certianly felt loss when my pay cut by a third. Now it is back up, but it was a hairy few years. More significantly, I lost pole position.

“In the leisure and hospitality industry, for example, the median worker has been in their job only about 2.4 years–that means that well over the half of the jobs in this industry are new since the end of the recession.” Can you back that up? I’ve only been at my current employeer for three years, but I’ve been in the general industry for almost 20.

Personally, so data set of one, I’ve had to be very willing to leave employeers in that last 7 years or so. Without a very real threat, they’ve been willing to believe it is all just a bluff during salary discussions. As a rule, employers believe that they have the upper hand, and until I have an offer letter in hand, the raise doesn’t come.

“Unemployment rates are lowest in the industries with the higher tenure” If I can’t fire someone, they aren’t unemployeed. If you are looking for a relationship there it is. You may note that has nothing to do with wages…………and far more specifically, govys are union. There wages are rigid and firing them is next to impossible.

10 NPW September 8, 2014 at 8:07 am

Note: No comment about inflation. Just the graph and the conclusions drawn

11 Andrew' September 8, 2014 at 8:41 am

You can feel the loss, but you likely don’t blame the new employer who you are likely grateful to for the opportunity. Macro, with a broad brush, seems to be the observation of the fallacy of composition (anecdote can be misleading versus aggregate data) sprinkled with some behavioral economics (loss aversion, paradox of thrift, feeling grateful to your new employer even though they just shit-canned the guy you are replacing).

12 NPW September 8, 2014 at 8:57 am

I did blame my current employeer. They woudn’t budge on the salary until I got an offer letter from a competitor for 50% more plus another week vaction. My current employeer exceeded the offer in less than a day.

I’m good, but I’m not that good. Nobody is worth that kind of raise that quickly if they weren’t significantly underpaid previously, and in this case knowingly. Also, I’m not an overhead employee. My salary is a percentage of what my company charges to clients.

The personal experience is just that, and I mentioned that it wasn’t anything more.

However, the position on inflation, regardless of it being right or wrong, that Alex comes to are not supported by the graph, so my point remains the same.

13 Andrew' September 8, 2014 at 9:26 am

I meant you don’t blame your future employer even though they are in the same labor market as your current employer. When labor is in high supply and jobs scarce the new employer is collusion with your current employer against macro aggregate labor. That is, if people have to change jobs to lower sticky wages then they new employer is part of the musical chairs where everyone gets a new job at lower pay and thanks the new employer for it.

My point about anecdote was not to criticize your anecdote. It was to say that what we see individually hides the macro picture.

14 Andrew' September 8, 2014 at 9:32 am

That is, the macro is a function of everybody’s aggregate anecdote!

15 NPW September 8, 2014 at 11:35 am

I should have split it up into to posts to avoid this. Ignoring all personal experience, the graph still doesn’t in anyway support Alex’s statements. Alex took the graph that shows turnover by industry and jumped to inflation is bad in a very poorly thought out manner. I should have left the rest out and said:

This is a shotgun blast mistaken for a trend line. It isn’t even rational to consider the two ends, Leisure and hospitality and Govt, when talking about UE and tenure. The first is a high turnover industry and the second by people who hold on to their brass ring for life. With out those two, there isn’t a trend line worth mentioning.

“New job, new wage and no feelings of loss even if the wage is less than what some other person earned sometime in the past for doing something sort of similar.” Do you have data for this? Please show anywhere were people are happy making less. I know those of you in the ivory tower who aren’t actually affected think we should just be grateful for anything. I assure you, this isn’t universally true. Thanks for letting us eat cake.

“In the leisure and hospitality industry, for example, the median worker has been in their job only about 2.4 years–that means that well over the half of the jobs in this industry are new since the end of the recession.” Can you back that up? Please show that all new hires in the leisure and hospitality industry are for new jobs.

“Unemployment rates are lowest in the industries with the higher tenure” No really, you think? People who are more difficult to fire are less likely to be unemployeed, specifically gov workers. And if someone gets fired from the government, what industry do you think they are in? If someone leaves the government by choice, how likely are they to lack the skills to get another job?

16 Andrew' September 8, 2014 at 12:20 pm

Well, just point of order, we aren’t really in disagreement about your points, but Alex isn’t saying inflation is bad. He’s looking for a natural experiment to test the assertions that “the economy isn’t on the prior trend line, thus we need real price reduction and nominal price increases.”

Yes, what he is using for his evidence is probably not the ideal form that we would prefer. OTOH, it’s a blog post!

17 Andrew' September 8, 2014 at 12:28 pm

Also, I don’t think Alex is assigning as much power to the chart as we might think.

And look at some of the points that make the chart look more scattered, finance, construction. These are sectors with known issues. Construction is below trend, and most people seem to think finance is in a kind of bubble.

18 Andrew' September 8, 2014 at 12:32 pm

I’ve found that some people in life think there is an argument when I’m having a discussion. And this is face to face.
You can have the last word if you want it. 😉

19 NPW September 8, 2014 at 7:32 pm

Last word? I’ve got a wife. Wouldn’t know about that last word thing. I only wanted to point out that the chart had nothing to do with Alex’s discussion on inflation. I have no position on inflation but sloppy logic annoys me, especially when it is this egregious from a Professor teaching what is supposed to be a science.

20 Marie September 9, 2014 at 1:51 am

“feeling grateful to your new employer even though they just shit-canned the guy you are replacing. . . ”


21 ChrisA September 8, 2014 at 9:04 pm

@NPW – take away the trend line and Alex’s point is still supported by the graph. The basic fact is that the industry with shortest employment tenure (hospitality) has the highest unemployment. Which is a strong argument that unemployment in that industry is not being driven by sticky wages, per the standard economic analysis.

22 rayward September 8, 2014 at 8:08 am

“Or to put it differently, if one were to ask apriori which will have a greater influence on reducing nominal wage rigidity either a) turning over more than half the jobs in the industry or b) a few extra points in the inflation rate then I think most economists would, without hesitation, answer the former. Inflation is not magic.” Isn’t that a false choice? Is Tabarrok saying that we’d be better off with a higher turnover rate in industries with good paying jobs (and low turnover and wage rigidity), that we’d be better off if the industries with good paying jobs (and low turnover and wage rigidity) were more like the industries with low paying jobs (and high turnover and less wage rigidity)? Wouldn’t it make more sense to adopt policies that make industries with low paying jobs more like the industries with high paying jobs, rather than the other way around? On the other hand, I agree that “inflation is not magic”. Indeed, I’d say that this recovery is unlike other recoveries because the crisis (cause) that preceded it is unlike the crisis (cause) that preceded prior recoveries.

23 XVO September 8, 2014 at 10:08 am

“Wouldn’t it make more sense to adopt policies that make industries with low paying jobs more like the industries with high paying jobs”

Minimum Wage increase, make it more difficult to fire people, make it harder to hire part time workers. Yuck, communism. All the obvious policies have the problematic side affect of making the pie smaller.

24 Nathan W September 8, 2014 at 11:02 am

If you stop focusing on tomorrow’s pie and the dividends included in this quarter’s investment reports, not so.

If there were no minimum wages, we could race to the bottom.

Instead, we enforce a threshold under which businesses are not allowed to operate.

Better to create a regulation which forces them to find ways of organizing their business to be profitable at a new and higher minimum wage. This will stimulate future productivity instead of competing for the bottom of the barrel.

There this funny thing about wages: people are more willing to work harder and train harder for higher wages. But, it’s very difficult to negotiate for a higher wage when you are solo and McDonalds or Walmart can collectively exert great influence on policy.

So, collectively, we can favour government who will raise minimum wages in order to grow the pie, for EVERYONE, next year, the year after, etc., as businesses continue to engage in organizational innovations to make profitable use of workers at ever higher wages in ever higher productivity environments.

I suggest (CPI+0.1%) as a good formula for the minimum wage. If the economy cannot achieve 0.1% annual productivity growth (not on the back of cancelled holidays and cancelled dental plans for the children), and/or is not able to ensure that at least this much of the productiivty growt his ploughed back into low end wages, then something is wrong with the economy.

Higher minimum wages will draw more workers out of the woodworks, provides incentives for business which employ people in lower wage jobs to invest in more efficient organizational processes, and effectively communicate to unemployed mothers, grandparents, etc., that it might actually be worth taking some certification so that they can efficiently integrate themselves into some position THAT IS ACTUALLY WORTH SHOWING UP FOR!

If that makes Americans lazy, so be it. A higher minimum wage is a stimulus to efficiency, and it is not difficult to dream up conditions under which employment may also rise, a fact that is corroborated by evidence from the real world in many (most?) instances of minimum wage hikes. The contrary assumption of all the evils of minimum wages are almost never reflected in any labour market outcomes following the increase in the minimum wage.

25 Brian Donohue September 8, 2014 at 11:19 am

“Better to create a regulation which forces them to find ways of organizing their business to be profitable at a new and higher minimum wage.”

Your inspiring rhetoric has touched me. Imagine the heights to which businesses would reach to accommodate a $50 minimum wage.

26 XVO September 8, 2014 at 11:29 am

Indeed, by the leftist logic, why stop at $50, why not $1,000,000? We could all be millionaires and only work 1 hour a lifetime. If it weren’t for greedy business owners…..

Still waiting to hear a logical explanation as to why $15 vs $7.50 per hour is expansive stimulus but $1000 just couldn’t work.

27 XVO September 8, 2014 at 11:24 am

So much ignorance it’s difficult to know where to start.

Minimum wages do not grow the pie, the make working conditions bad for the people who work for these wages because management has to extract more productivity out of fewer workers. This is where the pressure comes to have employees work off the clock. It reduces the total number of jobs available, it has to, unless you’ve decided supply and demand is bs? Another thing it does is push employers towards automation which will cause less employment and make the employers richer without having to deal with greedy ignorant employees who think businesses are unlimited money boxes. Not to mention how the minimum wage raises the price on everything we (and especially poor people) buy, in part your simply taking money out of one pocket and putting it in the other (of course the government takes a share both times).

All you have to do is look at Europe to see that rigid wage structures cause economic malaise.

Anyways I’m sure you have a page of half remembered leftist rhetoric to write so I’ll leave you to it.

28 Thomas September 9, 2014 at 3:53 pm

“So, collectively, we can favour government who will raise minimum wages in order to grow the pie, for EVERYONE”

Pass me that weed, brother.

29 derek September 8, 2014 at 10:45 am

Yes. What we need is government run restaurants. There is a terrible failure rate for restaurants. With loan guarantees, even better, government run restaurants there could be steady employment and higher wages. Maybe climate control on a large scale so that it’s sunny and warm all year round, or the ski hills never lack snow.

High school cafeteria nostalgia.

30 chuck martel September 8, 2014 at 8:32 am

According to the position of the dot, government employees stay at their job longer, which everyone already knows. That means that their wages and benefits are too high.

31 RustySynapses September 8, 2014 at 10:48 am

I may agree with the conclusion, but it doesn’t follow necessarily. It could be that government attracts people who value security more or don’t like change (that’s what i’d expect, and that’s what people say), or that there’s more benefit (to the government) in lack of turnover. Similarly, on the opposite end, the fast turnover in fast food might not mean that they are underpaid.

32 Bill September 8, 2014 at 11:28 am

+1 People choose a package of wages and security, and sometimes trade one for the other, which would explain the tail on the right.

33 Brian Donohue September 8, 2014 at 11:37 am

What’s especially sweet is when you choose security over wages when health insurance costs $1,000 per year and pensions cost 10% of pay, and, by union contract, these benefits can’t be revisited during your career, and it so happens that health insurance now costs $15,000 per year and pensions cost 20% of pay and you don’t have to pay for it and you find that you and your public sector buddies are the only people who can retire at age 55, and somehow this doesn’t mean that you got the best of both worlds, courtesy of Joe Taxpayer, but fortunately you’re selfless and not motivated by anything so petty as self-interest, and the money you spend will prop up aggregate demand anyways and, by golly, somebody’s gotta do it.

34 Bill September 9, 2014 at 9:23 am

Brian, You posit that a professional (doctor, lawyer, engineer, economist, software programmer) makes more in government than in private practice.

You really have no fact, but your beliefs will carry you on.

The Office of Personnel Management and others conduct yearly surveys of compensation.

Guess what.

Secretaries and less educated are overpaid, but professionals are not.

Next time, why not rely on data, rather than Fox Nus.

35 Brian Donohue September 9, 2014 at 9:53 am

Bill, you make a good point with respect to the small number of professionals employed in government, which isn’t really germane to the larger issue here.

To be clear, though, as you say, government jobs for professionals represent a trade off, not a sacrifice.

36 Marie September 9, 2014 at 1:57 am

Anybody else think it’s weird that all of us just accept as fact that public jobs offer more security than jobs in private industry?

Objectively, there’s no reason that should be so, right? But it really is, right?

37 Brian Donohue September 9, 2014 at 10:58 am

Perhaps these jobs are more ‘static’ and lend themselves to long careers. But maybe this an illusion because these jobs have always been government jobs.

Regardless, it seems to me it has been ever thus (trade compensation for stability in government work), and I guess I’m ok with it.

Stability, by the way, is worth quite a lot. Ask anybody.

Over the past generation though, the success of public sector unions and the explosion in cost for healthcare and retirement has upset the historical trade off.

The recent recession has been a bit of a…corrective. Here is a summary of the most recent (seasonally adjusted) jobs numbers (in thousands) compared with the pre-recession peak in January of 2008:

January 2008: total jobs 138,365; private 115,977; government 22,388
August 2014: total jobs 139,118; private 117,221; government 21,897
Change: total jobs 753; private 1,244; government (491)

38 Kyle M September 28, 2014 at 8:55 am

Because there are all those competing governments which keep poaching from each other?

39 Nathan W September 8, 2014 at 11:04 am

Perhaps it means that they are offered job security rather than high wages, and this allows them to get good at their jobs. However, some will get complacent. Sounds like large firms I’ve heard of too …

40 NPW September 8, 2014 at 11:38 am

Large firms don’t have the job security of the government.

41 Benny Lava September 8, 2014 at 8:49 am

Paging Scott sumner, Scott Sumner to the inflation desk.

42 Ognian Davchev September 8, 2014 at 9:06 am

How do you figure out which industry the unemployed belong to? When someone is unemployed they don’t work in any industry.

43 prior_approval September 8, 2014 at 9:10 am

Well, in the In the leisure and hospitality industry, most of the people were probably unemployed actors, right?

44 Slocum September 8, 2014 at 9:17 am

Can we really assume that sticky wages are no longer a problem when there’s turnover? Or do employers feel they have to maintain nominal wage rates even for new hires? This is from a Bryan Caplan review of Truman Bewley:

Question: Why don’t employers just cut wages for new hires, then? Do new low-paid workers really have bad morale? Do old workers really resent new low-paid co-workers?

Answer: Initially, there’s no morale problem at all. New workers are thrilled to land a job, even if the pay is low. Old workers only resent new workers if the newbies outearn them. The problems start once the new workers realize they’re paid less than their co-workers for doing the same job. After 3-4 months, this leads to bad morale for new hires. The new hires’ resentment then poisons old workers’ morale as well.

45 Brenton September 8, 2014 at 1:17 pm

It would be interesting to see Tabarrok comment on this. I was surprised at Tabarrok’s opinion as I had thought that Caplan’s opinion was common among economists.

46 dead serious September 8, 2014 at 3:52 pm

I have no earthly clue what my colleagues make. I wish I did but I don’t. It’s not only considered gauche to talk about salaries, but companies actively dissuade you not to.

I also don’t trust the information on Glassdoor.

I’m curious how many people posting here know what their more seasoned and more recently hired colleagues are making.

47 R. Gregory September 8, 2014 at 9:28 am

Mixing data from 2012 for tenure with the 2014 unemployment rate… disprove nominal wage stickiness? So now are you proposing “tenure stickiness” instead?

48 Ed September 8, 2014 at 9:40 am

One data point is that the federal goverment is willing to put salary freezes and furloughs on its employees, in effect cut their pay in lean times, and at the same time federal government employees tend to stay there much longer compared to their counterparts in the private sector. Firms in the private sector tend to prefer laying off the older employees and hiring new ones for less pay towards just cutting everyone’s pay.

However, what does happen in the private sector is that the non- cash salary portion of “wages” gets cut quite often. Usually this means that the employees’ health insurance premiums rise and the coverage is cut.

49 dead serious September 8, 2014 at 3:15 pm


I’ve worked in Fortune 100 companies where retirement plans are different for new employees as are health insurance plans, vacation time, even titles.

At first I would be happy to land the new job. Before long, realizing that the 20+ year vets were mostly useless and coasting toward pension-ville, I became resentful.

50 Jesus September 8, 2014 at 6:28 pm

Tsk, tsk.

51 Marie September 9, 2014 at 2:01 am

Was that 20 years ago? 😉

52 dwb September 8, 2014 at 10:01 am

Keep in mind, downward nominal wage rigidity is a stand-in for a lot of rigidities, including price rigidity. The most important is not wages, per se, but housing costs (which are upwards of 35% of the typical consumer budget). When home prices decline, consumers remain locked into fixed payments. If you could easily abrogate debt, consumers could effectively get the same house for a new lower price (monthly payment, rent). When wages get cut (either outright, or through periods of unemployment), delinquencies skyrocket, and a whole bunch of people move into new places at lower prices. remember, its the Q in housing that counts, not the P.

The effective cost of extreme wage deflation is adjustment costs in housing – delinquencies, foreclosures, and so on. The housing stock itself (the Q) has not changed except for depreciation.

Currently, the adjustment is still happened (delinquencies are still higher than normal, and construction employment is still low in states like Maryland where foreclosures remain high). Also keep in mind, the adjustment costs are not merely a function of price declines. In “judicial foreclosure” states (like Maryland) the process is lengthy and costly, so the adjustment process is a state-specific supply side issue.

The correct way to think about housing is through a Calvo pricing model (the average house resells about every 7-10 years, and the contract price for housing reset). With your home underwater of course, you cannot move out or refinance. Such contracts effectively determine 30-40% of the consumer budget for housing… and are reset only every 10 years (ish).

Adjustment costs of inflation/deflation are going to happen. Eventually, housing contracts will be reset (many through foreclosure/bankruptcy) so the issue is whether a small amount of *wage* inflation reduces the adjustment costs.

Given that we are still adjusting 5.5 years later, I believe that the cost of a small amount of inflation is significantly smaller than the adjustment costs of deflation in a good that determines 35% of the consumer budget.

And by the way, when wages go down, house costs go down, but you are locked into a high payment (based on the old costs) guess what you consume less.

We have about 2.5 more years to go…

53 Barry W. Ickes September 8, 2014 at 10:30 am

Omitted Variables Bias. Big time. Meaningless comparison.

54 Kenneth Duda September 8, 2014 at 10:37 am

This post is very disappointing.

Our economy still suffers from inadequate aggregate demand — we could produce more without straining resources. (See GDPPOT versus GDP on FRED2, In that context, monetary expansion is key to boosting demand. The best way to achieve this would be NGDPLT. A temporary higher inflation target is another way that is clumsier than NGDPLT (because it’s harder to pick the target, and harder to figure out how to hit it), but perhaps more politically achievable than NGDPLT given the realities within the FOMC, where inflation is an “acceptable” target but NGDP level isn’t.

In other words, we need monetary expansion to accelerate demand, and a higher inflation target is a practical way to create some monetary expansion.

So this post, which implies that we don’t need a higher inflation target because nominal wage rigidity shouldn’t be a big deal, is pushing things in entirely the wrong direction and is thus a disservice.

It is so frustrating to continue to watch professional economists fail to help this country get on the right track. We need economists like you supporting monetary expansion, not cooking up silly reasons why it’s not needed. The economics profession has a lot to answer for.

Kenneth Duda
Menlo Park, CA

55 Andrew' September 8, 2014 at 11:12 am

No offense, but your entire point consists of question begging. The “potential gdp” like could alternatively be labeled “the only thing we know was not possible and perhaps the definition of unsustainable.”

People like Alex have long transcended your assertion. Sure, they could be wrong. But, for example, has someone disproven the part where the last monetary expansion created the unsustainable debt situation? What about the stock bubble? I know Scott Sumner doesn’t believe in bubbles. Maybe bubbles don’t believe in him!

56 chuck martel September 8, 2014 at 11:49 am

It’s so simple, just enpixelate more money and everyone will be richer, the government gets to pay its bills with money they created that day and automatically people will be hired to do something or other in an aggregate sort of way. Why can’t people understand this?

57 Andrew' September 8, 2014 at 12:21 pm

That isn’t the fight I’m trying to make any more than Alex is opposing NGDPLT.

58 Nathan W September 8, 2014 at 10:55 am

With high turnover comes high adjustment cost and lower productivity. High turnover is not good for productivity growth unless, perhaps, companies can get away with paying sooo much less that they have more profits to reinvest into something more “productive” than people. My guess is that the outcome is most likely to be higher short term profits, lower future productivity and competitiveness, a someone larger number of companies with open doors but which are less competitive, and uncertain LONG term impacts on wages, employment, profits and overall competitiveness. My guess is that the uncertain impacts will be negative on all of the uncertain factors, but these partial effects would be exceedingly difficult to untangle from everything else going on in an economy.

59 Willitts September 8, 2014 at 10:57 am

This is a really good post.

I think we are at full.employment. Structural problems and other frictions have shifted the Beveridge Curve.

I don’t see how lowering nominal wages could help now even granting the Keynesian model. The people who want higher inflation also tend to want higher minimum wage. So they want to slam it to middle income earners even worse than they already have been?

60 Nathan W September 8, 2014 at 11:13 am

I would rather a higher minimum wage than higher inflation. It puts money into the pockets of people who presently may struggle to upgrade their wardrobe or invest in a new course. Or they may “waste” some of it at the bar, where they may also meet people.

61 Andrew' September 8, 2014 at 12:25 pm

This is an interesting nugget of an idea. Maybe the bottom rung of the labor market is so competitive that labor captures no profits. So, it is in their best interest to force them to pursue education or some other pursuit. Let me just say that I would assume this idea would be very heterdoxical.

62 NPW September 8, 2014 at 11:36 am

Except the logic of the post is one massive non sequitur, even if the conclusion is right.

63 dead serious September 8, 2014 at 3:19 pm

“I think we are at full.employment.”

Another satisfied Obama voter.

64 Dog September 9, 2014 at 6:17 pm

Tagging your post for later :D:D:D:D

65 Spencer September 8, 2014 at 10:57 am

Just point out that 19% of employees in the leisure and hospitality industry are minimum wage workers.

This is second to only food and eating places where 21% of the employees are minimum wage workers.

So you have a very significant floor under wages in these industries.

I would suggest that this create substantial stability in the wages paid in these industries, especially if you are looking for wage weakness.

66 Bill September 8, 2014 at 11:30 am

What does the chart look like over time….take two year periods since 1990, through all types of business cycles and then test if there is a significant difference with this two year period.

67 Bill September 8, 2014 at 11:33 am

I think you would also have to look at the age composition of the workforce as well and control for that.

68 Chris September 8, 2014 at 12:03 pm

Why would nominal wage rigidity apply only within existing jobs? I anchor my wage expectations to my current wage; that applies to whether my employer wants to cut my wage or whether I’m taking on a new position. Plus most job transitions are job-to-job so it isn’t as if the alternative is unemployment benefits.

Not necessarily criticizing, genuinely interested whether there’s reason to believe wages are only rigid downward when holding the same job.

69 Brian Donohue September 8, 2014 at 12:19 pm

The alternative to cutting wages is cutting jobs. Those whose jobs are cut are often willing to take a new job at lower pay if that’s all that is available.

70 Vivian Darkbloom September 8, 2014 at 1:18 pm

I’ve wondered the same thing. But, I’d look at the issue from a slightly different angle. Suppose that the prevailing wage at Employer X prior to the recession is $20 per hour plus a standard benefits package. For reasons that are well known, Employer X is reluctant to reduce wages below $20 for existing employees. But, suppose due to turnover, Y walks in the door and is hired by X. Is X going to reduce the wage to $18 per hour for Y or give the new employee a lower benefits package? Clearly not in a union shop and I doubt this (reduction of pay and benefits) always happens in non-union shops with respect to new hires. There are morale and other issues here, too.

This is also in partial response to Brian Donohue’s reply. Commenters here probably draw from their own experiences in negotiating salaries and benefits from prospective employers with respect to mid- and upper-level management or comparable jobs. But, I don’t think this experience necessarily holds for the majority of jobs out there.

71 Brian Donohue September 8, 2014 at 1:32 pm

FWIW- my experience has been on both sides here (employer and employee.) True, this is a professional setting, but I’ve heard stories of two-tier wage structures, etc. in lots of union environments even.

72 Vivian Darkbloom September 8, 2014 at 1:40 pm

I’m not suggesting that two-tier wage structures don’t exist. I’m sure we could find many instances where they do. I am questioning how prevalent that is and whether the seeming assumption that employers always reduce nominal wages for new hires is necessarily valid in all cases, or even in most.

73 JonFraz September 9, 2014 at 8:21 am

Non-union workplaces generally have little salary visibility so no one really knows what others are making (apart from rumor). And salaries for new hires can go down a lot. I hired in at a Wall Street firm (an office in Florida, not NYC) in 20065 at a decent starting rate. The starting rate now at their Baltimore office is 12K less, as I learned from a recruiter while job hunting recently.

74 joan September 8, 2014 at 1:11 pm

The BLS also has semi annual mean and median wages by industry. Why speculate what is happening to wages inseaded of looking at the data. Here is latest report

75 Bill September 8, 2014 at 5:29 pm

Re: With that kind of turnover it is difficult to believe that wages have not adjusted.


Why not simply look at the wages for those categories and see if they changed, rather than hypothesizing that “they must have changed” because of turnover.

Turnover could be for many reasons…including a kid in a fast food restaurant graduating from high school.

Why assert an hypothesis without testing it against the actual data of wage rates?

76 tom September 8, 2014 at 8:07 pm

Well done. And yet this blog so far as I recall has been very positive on the brain-dead theory that central banks can and should wish inflation into being, called NGDP targeting.

77 David Khoo September 8, 2014 at 9:34 pm

“A classic argument for why inflation can help is downward nominal wage rigidity.”

Who actually makes this argument? I don’t think any of the economists calling for higher inflation believe this. You are attacking an argument no one is making.

78 ThomasH September 9, 2014 at 6:25 am

“Calling for more inflation” is not a useful way to think about the issue. The idea is not to let an implicit inflation target of less than 2% become a constraint on policy making. Scott Simon thinks that keeping ngdp growing and persuading the markets that it will could imply inflation greater than 2% at times. Wasn’t it Milton Friedman that said the worst thing about inflation was the mistaken policies that were taken to avoid it?

79 Spencer September 9, 2014 at 3:49 pm

From 2006 when the minimum wage was $5.15 to 2010 when the minimum wage was $7.25 the share of leisure and hospitality workers earning the minimum wage rose from 12.7% to 23.0%, or almost double.

I suspect that this had a much bigger impact of leisure and hospitality workers wages than anything Alex suggested.

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