Wage stickiness and unflattering accounts of the unemployed and poor

by on July 19, 2015 at 1:35 am in Economics, Education, Food and Drink, Philosophy | Permalink

It is common for left-wing progressives to complain that conservatives serve up unflattering accounts of the unemployed and poor, such as by calling them “moochers” and the like.

But many versions of the standard Keynesian account, once we deconstruct them a bit, don’t paint such a flattering picture of the unemployed either.  In one Keynesian scenario, many of the unemployed have lacked jobs for years because they have sticky nominal wage demands.  Under one scenario, they could find jobs for $x an hour but won’t take the work.  If government policy could reflate the economy enough, those jobs in nominal terms would offer more and the unemployed would be in essence fooled into taking the offer.  The job would be paying the same in real terms, so the ex ante stubbornness is a big mistake, at least under this account of the matter.

Such a mistake is made throughout years of material suffering and psychological deprivation, including serious problems for one’s children.  Yet a mere nominal trick, by boosting pride just a bit, will move them back into a job.

It is of course a well-known stylized fact that, at least in America, unemployment rates for the poor and undereducated are much higher than for wealthier or better educated people.  So a general citation of “money illusion” won’t rescue the victims from the rather unflattering Keynesian portrait painted here.

Alternatively, the relevant mechanism may operate through the demand for labor, rather than the supply.  Perhaps low-skilled workers cannot be employed at lower wages because their resentment at the low wage would be so high that they would impose unacceptable morale costs on the organizations employing them.  In other words, insult them with a sub-par wage offer and they turn destructive toward the entire organization.  Companies of course prefer to keep these workers at arms’ length under this hypothesis.

If Charles Murray had come up with that hypothesis, he would have been savagely attacked for it.  Yet there is growing evidence, for instance from the work of Alan Blinder, that it is a major cause of wage stickiness.

Left-wing Keynesians are reluctant to acknowledge their own implicit unflattering treatment of the poor, which I should add came (in part) from snobby and elite British economists, including Keynes.  Often microfoundations are considered an embarrassing topic, and the emphasis is on “well, we know that wages are sticky,” with a desire not to look too closely under the hood, or to consider how those stories jive with other deeply held views, many of which try to raise the relative status of the poor and unemployed.

Bryan Caplan is consistent and is also happy to satisfy the publicity condition.  He believes in nominal stickiness as a driver of unemployment (under many circumstances) and he holds a relatively skeptical view of the decision-making capabilities of many (by no means all) of the poor.

The most flattering macro theories toward the poor, undereducated, and unemployed are the complementarity, increasing returns, and RBC “the poor are maximizing given some bad constraints” approaches.  Insider-Outsider models make the unemployed victims of exclusion who don’t even get a chance, rather than potential troublemakers ready to sabotage an enterprise at a moment’s notice.  The same can be said for Scott Sumner’s “musical chairs” account.  As for schools of thought, the rational expectations theorists provide the most flattering picture of the poor, yet in the context of macroeconomics they are very frequently mocked for their unrealistic assumptions.  Search theory models of unemployment, which for instance I have tried to promote, also paint a not unfavorable picture of the jobless, but they too are not very popular in the New Old Keynesian economics.  If I were to generalize, and yes there are many exceptions, but still I would say that these more flattering pictures of the unemployed are more likely to be associated with or embraced by the political Right.

Consistency is hard to come by, and probably always will be.

1 E. Harding July 19, 2015 at 1:48 am

It is of course a well-known stylized fact that, at least in America, unemployment rates for the poor and undereducated are much higher than for wealthier or better educated people. So a general citation of “money illusion” won’t rescue the victims from the rather unflattering Keynesian portrait painted here.

-Zing! I do say that’s an awesome put-down.

2 Ray Lopez July 19, 2015 at 5:07 am

Not clear what “zing” TC meant here, perhaps you can unpack this sentence.

I did like this zinger by TC: “Often microfoundations are considered an embarrassing topic, and the emphasis is on “well, we know that wages are sticky,” with a desire not to look too closely under the hood, or to consider how those stories jive with other deeply held views, many of which try to raise the relative status of the poor and unemployed” – right on! I’ve challenged economist S. Sumner to provide evidence that the Fed influences the economy, not in theory, but citing econometrics, but he’s declined to do so (I’ve cited studies showing the evidence the Fed does so is ambiguous, with only 60% confidence). As for ‘sticky wages’ the usual ‘evidence’ is that a bell shaped curve shows more wage increases than decreases, but that’s not really ‘sticky wages’ at work, more like wage increases keeping up with inflation. Sticky wages is where a person refuses to take a pay cut in a declining industry. In such a scenario, most people I know would either take a pay cut or move to another field that pays better.

3 Ricardo July 20, 2015 at 4:07 pm

Am I imagining it or does this sound like exactly the sort of thing that many presidential candidates say?

4 E. Harding July 20, 2015 at 6:08 pm

Ah, but what if the fields don’t have job openings? That’s the crux of the problem.

5 T. Shaw July 19, 2015 at 12:10 pm

It’s not their fault! They should not be viewed in an unflattering light.

It’s the central planners that should be vilified; and the politicians (idiots by definition) who think they know better than tens of millions of rational, market players acting in their self interests. When the elites’ (FYI Albert Greenspan was on the wrong side in the S&L crisis and then they gave him the opportunity to repeat the exact same mistakes in the recent great recession) latest administered-market fuster cluck blows up, they blame the free market which they didn’t allow to operate.

6 E. Harding July 19, 2015 at 4:02 pm

It was Bernanke who made the mistakes, not Greenspan.

7 Todd K July 19, 2015 at 1:49 am

(psst… the word you want is “jibe”: “or to consider how those stories jibe with other deeply held views…”

8 dearieme July 19, 2015 at 11:59 am
9 E. Harding July 19, 2015 at 1:51 am

Tyler, you have, indeed, pointed out a yawning gap between the political factions’ formal models and their rhetoric.

Also, I do think Sumner does subscribe to sticky nominal wage demands.

10 Ben July 19, 2015 at 2:03 am

I don’t think anyone’s conception of the poor as a group is terribly favorable.

There are people who get thrown there (typically temporarily) through no fault of their own that aren’t among them. And there are Bohemians and diogenes types with really good features.

But generally, I’m poor because I watch 14 hours of TV per day.

11 Harun July 19, 2015 at 3:04 am

The worst and best poor are the smart people who decide to check out.

The worst because, yeah, you could be more than a Goth revivial DJ or world of warcarft addict.

The best because they are often smart and interesting.

12 Anonymous July 20, 2015 at 2:42 pm

This seems anathema to libertarian thought. If your life is yours and yours alone, it should not matter what you do with it so long as you pay the bills.

13 dearieme July 19, 2015 at 12:03 pm

I suspect that the latter part of “their own implicit unflattering treatment of the poor, which I should add came (in part) from snobby and elite British economists” could be phrased as “plain-spoken self-confident Britons unwilling to indulge in sentimental, saccharin tommyrot about the poor”.

14 Steve Sailer July 19, 2015 at 2:15 am

Does Krugman ever try to reconcile his worship of Keynes with Keynes’ lifelong obsession with eugenics?

15 Ricardo July 19, 2015 at 3:49 am

What is there to reconcile? Krugman has never rested his views on macroeconomics on the moral authority of Keynes. He has instead defended what might more accurately be called neo-Keynes-Hicks-Minsky economics on the Popperian grounds that it made predictions that have been borne out by recent events. Keynes’ advocacy of eugenics is no more relevant to an economist than Newton’s beliefs in alchemy are to physicists or engineers.

16 Nigel July 19, 2015 at 4:48 am

You’re a fine one to be talking about unsavoury obsessions.

17 libert July 19, 2015 at 9:07 am

The same way I can admire Thomas Jefferson’s ideas and despise the fact that he owned slaves.

18 Steve Sailer July 19, 2015 at 2:18 am

In 1911 Keynes, along with the great statistician and geneticist Ronald A. Fisher, R.C. Punnett, and Horace Darwin, helped found the Cambridge Eugenics Society. Keynes was a eugenics activist throughout his life, serving as an official of the national eugenics promotion organization from 1937-1944. In the year of his death, 1946, Keynes made a speech citing eugenics as “the most important and significant branch of sociology.”

19 Jan July 19, 2015 at 8:17 am

Irrelevant or crux of the issue? You decide.

20 Too Late July 19, 2015 at 5:30 pm

Irrelevant, but interesting nonetheless.

21 CC July 20, 2015 at 3:13 am

We get it Steve. You like eugenics.

22 ChrisA July 19, 2015 at 2:23 am

To be fair, I would guess that many Keynesians of the left wing type would argue that inflating the economy to get round the sticky wage problem is a second best solution. I am sure they would argue that the money illusion that poor people have is caused by their lack of privilege during their childhood (plus racism). And the real goal should be to have everyone educated to masters level and then the problem will disappear or something.

But I do always think it strange that people can simultaneous advocate for Keynesian economics and the minimum wage in the same breath.

23 E. Harding July 19, 2015 at 2:24 am

Keynes himself didn’t believe the sticky-wage theory of unemployment.

24 ChrisA July 19, 2015 at 2:42 am

It’s pretty hard to argue against sticky wages when you see the bunching around zero for the data on pay rises/pay falls.

As a manager, I get why this is so. Try getting folks to accept a pay cut, you are going to get a lot of grief and animosity in the office that lasts for ever. Better to get rid of someone and then the problem is gone. The people who remain will always rationalise why that guy was let go.

25 Steve Sailer July 19, 2015 at 2:46 am

“No man, no problem” — J. Stalin

26 Mike W July 19, 2015 at 10:03 am

You lose…Godwin’s law variation.

27 Steve Sailer July 19, 2015 at 6:58 pm

I quote Stalin, Trotsky, and Lenin a lot. They had insights that are still relevant and a punchy way of phrasing them.

28 Ricardo July 20, 2015 at 4:22 pm

The Wikipedia entry for Godwin’s Law does not mention anything about variations, so I don’t think Steve has violated it. To me it feels more like the penultimate step in something like the centipede game

29 Unanimous July 19, 2015 at 6:09 pm

Add to this a reluctance of managers to give any staff pay raises higher than their own, and a reluctance to break habits and change jobs or take risks with new staff who may or may not be good.

The employed and their managers have to be at the core of any sticky wages theory, because they are the ones with the sticky wages. You can wonder why competition from the unemployed doesn’t have more effect on sticky wages, but they are only 5 to 10% of the workforce and the other 90 to 95% have to be involved in the sticky wages.

I don’t think a bunch of wacky interpretations of models is going to be of much use to either critics or proponents of those models.

30 Ricardo July 19, 2015 at 5:02 am

There is an abundance of evidence that wages are sticky. Whether economists who were alive seventy years ago had access to comparable evidence or found it convincing is irrelevant.

31 libert July 19, 2015 at 9:08 am

Yeah but Keynes was into eugenics, didn’t you hear? So all of his beliefs must be wrong.

32 ThomasH July 19, 2015 at 8:37 am

Second best. Current rightwing ideology rule out higher taxes to fund a EITC alternative to the minimum wage.

33 E. Harding July 19, 2015 at 2:23 am

This is, like, the best post I’ve seen on MR in over a month. Of course, Scott Sumner (or even Noah Smith) makes at least one of these in a week…

34 triclops41 July 19, 2015 at 3:07 pm

Sick burn!

35 Brian July 19, 2015 at 2:27 am

That’s an interesting observation. But it’s probably important to note that it’s not professional economists who normally use terms like “moochers” to describe the poor. That rhetoric normally comes from opinion writers and entertainers and I’d say exclusively from the right. So while it may be possible that the models right leaning economists use include more favorable implicit assumptions about the poor than the models used by left leaning economists, that somehow doesn’t follow through to our public debates or, more importantly, to our public policy.

Why do you think that is?

36 Harun July 19, 2015 at 3:08 am

Its fairly simple. The “moochers” vote for the left.

Insulting some of your largest reliable voting blocs is dumb.

So they don’t do it.

But, watch what happens when a voting bloc like this doesn’t vote “correctly”

Then its “What’s the matter with Kansas?” or Australians lefties bitterly denouncing the Bogan Vote.

or calling them dumb for voting against their interests or bitter clingers or racists.

37 Jan July 19, 2015 at 8:25 am

Republicans have a pretty significant share of lower-income “values voters” who are net-takers living in net-taker states (What’s the Matter with Kansas” noted). Vilifying the moochers tends to be no problem at all for Republicans. I think liberals would rather spend time courting the growing minority vote than trying to pry the gun rack and welfare check vote back from the regressive party.

38 Harun July 19, 2015 at 1:58 pm

“courting the growing minority vote”

Identity politics I find very, very dangerous. I really do not want a country where Tutsis vote for Tutsis and Hutus vote for Hutus.

Instead I prefer a country where white people vote for black senators and Sikh governors, and black people can vote for white senators and Asian governors, etc.

Which party has achieved this? The GOP.

Which party has prefered to constantly harp on skin color as a reason to vote for someone? The Democrats.

White Democrats raised the Confederate flag in South Carolina in the 1860’s and then again in the 1960’s.

Republicans brought that flag down TWICE. A female governor of Sikh heritage the last time.

OK, pro-Republican snark aside I think Democrats do the moocher thing against Red States as you mention.

So Republicans may vilify welfare recipients while Democrats vilify Red States as “taker” states.

Of course, both are right and wrong, here.

Welfare has a big problem in that some people really are moochers, but some people really do need help.

Red states may indeed by net takers, but Red/Blue state is far too facile. A Democrat poor person in Mississippi and a Republican taxpayer in California both exist.

39 Jan July 19, 2015 at 3:15 pm

No party has a monopoly on diversity, but overall I think democrats are a much more diverse group. And even immigrant groups that used to be slightly right leaning, such as Asians, have swung dramatically towards democrats and liberal policies in recent years.

I think we’d agree that the parties of the 60s bear little resemblance to their modern versions. But you’re right that the democrats of yore were guilty of some pretty significant race related transgressions.

I think democrats point out the taker red states primarily as a reaction to republicans’ opposition to programs that help poor people and other federal aid. Railing against big government and overly generous social programs looks foolish when your state is getting much more than it pays in, riding a gravy train of democratic state largesse.

40 Steve Sailer July 19, 2015 at 2:34 am

Here’s a call-in show from, I believe, 2013, in which a caller confronted Dr. Krugman over his eugenics advocacy:

https://www.youtube.com/watch?v=i7hIFP9ZCqE&t=8m19s

Skip ahead to 8:20

“Host: Frank in Largo, Florida. Independent caller. Go ahead.

“Caller: Ah yes, Mr. Krugman, this is Frank. You’re a proponent of Keynesian economics.

“Krugman: Yeah.

“Caller: And I found out recently that Lord John Maynard Keynes was not only a eugenicist, but he was the treasurer of the Eugenics Society of England. And I was wondering if you read his paper, ‘Some Social…’ or ‘Some Economic Consequences Of A Declining Population.’ And are you a eugenicist yourself?

“Krugman: Ah, come on. This is stupid. I’m sorry. I shouldn’t say that to a caller. But it’s stupid. He wrote some foolish stuff when he was eighteen years old. And it was still basically Victorian Britain. And a lot of people held disagreeable views from our point of view right now. And that’s a shame. But that has nothing at all to do with his economic analysis. Right? Lots of bad people have had good economic ideas and unfortunately lots of good people have had bad economic ideas. And that’s what we’re talking about. If you’re gonna… you know… I don’t think I wrote anything when I was eighteen years old that would look terrible. But lots of people probably did.”

Obviously, Krugman is being disingenuous: Keynes continued to promote eugenics up through the year of his death in 1946.

41 Evan July 19, 2015 at 3:58 am

Steve, this is so irrelevant to the substance Tyler’s post (not to mention Krugman’s *ideas*) that I think you’re just here to promote your crummy blog.

As Eleanor Roosevelt never said, Great minds discuss ideas, average minds discuss events, small minds discuss people.

42 Steve Sailer July 19, 2015 at 7:03 pm

Tyler is responding to a Krugman post denouncing Charles Murray.

As for Keynes’ eugenics being irrelevant to Keynes’ economics, Keynes didn’t think they were irrelevant. He thought the welfare state he favored needed policies to provide incentives for improving the nature/nurture of the population, or the country would wind up overrun with chavs and yobs. It’s hardly irrelevant to ask Krugman to comment upon Keynes’ largest, longest-held beliefs.

43 XVO July 19, 2015 at 10:41 pm

But can’t we all just agree that in reality eugenics is a good idea for society. Whether it’s nature or nurture it’s clear people inherit their circumstance, getting fewer people to inherit bad circumstance and more to inherit beneficial circumstance is a huge win. Crime and drug addiction run in families, criminals and drug addicts overall consume more of society’s resources than they produce, so why is it so wrong to disincentivize them from having children? There is no reason this would have to be violent, give them money to take long term birth control or sterilize themselves is just as well.

Keynes was absolutely correct, the welfare state requires eugenics and the future of civilization and humanity also requires eugenics.

44 Floccina July 21, 2015 at 8:51 am

criminals and drug addicts overall consume more of society’s resources than they produce

I bet that you are wrong I bet that some criminals and most drug addicts produce more that they consume.

45 TGGP July 19, 2015 at 4:27 am

You’re right that it can’t be dismissed as merely the discarded beliefs of an 18 year old. But Krugman is right that bad people can have some good ideas, and vice versa. There’s no more contradiction in accepting Keynes’ economics (though hardly anyone does) and rejecting his eugenics, than there is with Haldane’s science and communism.

46 chuck martel July 19, 2015 at 8:20 am

Lincoln Steffens spent a lifetime making astute observations as a journalist but has been condemned as a communist for one ill-considered sentence about the Soviets.

47 Alain July 19, 2015 at 11:13 am

I’m guessing that the point Steve is trying to make is that the left routinely has campaigns to eject people from the public square based upon their summary judgement that they are racists or whatever is the left’s current tool of choice.

That they don’t eject all people with similar views, especially if most of the people who are ejected harbor other viewpoints (eg: being conservative), opens the left upto the charge of being at best hypocrites, and at worst completely disingenuous assholes who use any excuse possible to shutdown debate and intimate.

I agree with him. Carry on Steve.

48 derek July 19, 2015 at 11:24 am

In this case because they agreed with him.

49 Ted July 19, 2015 at 1:00 pm

Ironically, the line of questioning Steve is pursuing would be a good candidate for something one did at eighteen that becomes embarrassing as one grows up.

“I can’t believe you support the economic ideas of someone who had really bad ideas in a totally unrelated field!” Steve, you’re a grown man. Reason like one.

Philipp Lenard and Johannes Stark were Nobel-prize winning physicists who actively supported Hitler. Oswald Teichmüller was a tremendously influential mathematician (there is today a whole field of geometry named after him) who supported Hitler so thoroughly that he asked to be sent to the front to fight for Nazi Germany.

I don’t particularly care for Krugman, but your arguments here are garbage.

50 cthulhu July 19, 2015 at 3:54 pm

If I may be so bold, I suspect that Mr. Sailer’s point is that, were Keynes seen as nominally conservative, he would be deemed a pariah by all Serious and Thoughtful People because of his eugenics position, even if the Krugster were right that it was a single youthful dalliance. The child is father to the man and all that.

Or, in more metaphorical terms, what’s sauce for the goose is sauce for the gander.

51 Steve Sailer July 19, 2015 at 7:14 pm

Please pay attention: Krugman was lying about Keynes’ only promoting eugenics at 18. He was an official eugenics activist from 1937-1944 and endorsed it in 1946, the year of his death.

Eugenics was a lifelong commitment for Keynes. His brother married into the Darwin clan, who famously practiced very careful marriages. For example, the young movie star Skandar Keynes (“Narnia”) is the economist’s great-great-nephew and the great-great-great-great-great grandson (I think) of Charles Darwin.

Eugenics was a respectable ideology until Stephen Jay Gould and friends like Lewontin, Kamin, and Rose succeeded in retroactively demonizing it in the 1970s. As Krugman’s 1996 speech on evolutionary theory and economics demonstrates, Krugman holds Gould in contempt as a thinker:

http://web.mit.edu/krugman/www/evolute.html

Like I said, Krugman could have been a broader, more interesting thinker than he turned out to be. I think Krugman’s second wife has been very good for his career, but not for his development.

52 Art Deco July 20, 2015 at 9:07 am

Eugenics was a respectable ideology until Stephen Jay Gould and friends like Lewontin, Kamin, and Rose succeeded in retroactively demonizing it in the 1970s.

The American Eugenics Society thought it politic to change the name of it’s journal from Eugenics Quarterly to Social Biology at the end of 1968. The name of the organization was also changed in 1972 to the Society for the Study of Social Biology. By some accounts, it had lost 2/3 of its membership between 1930 and 1960. Steven Jay Gould completed his dissertation in 1967 and was at the end of 1968 a very junior faculty member at Harvard. I do not think you can find any collaborative work between Gould and Lewontin published prior to 1979 or between Lewontin and Kamin published prior to 1984. While we’re at it, C.S. Lewis The Abolition of Man and That Hideous Strength were published in 1943 and 1945 respectively. The notion that some collection of scheming cretins at Harvard took out eugenics in 1975 is fiction.

53 Boris July 19, 2015 at 2:36 am

So what’s the point of this? That the right is superior to the left because the left contains some people with unfavorable opinions of the poor as a result of elitist self-delusion?

It’s like a 5 year old discovering the power of logic and misusing it for selfish ends.

54 E. Harding July 19, 2015 at 2:38 am

“Consistency is hard to come by, and probably always will be.”

55 libert July 19, 2015 at 9:12 am

“A foolish consistency is the hobgoblin of little minds.”

56 Ted July 19, 2015 at 1:03 pm

“A foolish consistency is totally awesome.”

57 Ricardo July 20, 2015 at 4:26 pm

So Emerson said some stupid things. So what?

58 derek July 19, 2015 at 11:35 am

Because policy ends up being built around it.

What was one policy that defined the post 2008 crisis? Extended unemployment insurance, up to two years. I would suggest that it had more effect on the plight of the US worker than anything else policy makers did. It cemented in wage stickiness for Keynesians, it guaranteed a disconnection from productive employment for the Right.

59 Steve Sailer July 19, 2015 at 2:54 am

Here’s an interesting 1996 address Krugman gave to the European Association for Evolutionary Political Economy about why Stephen Jay Gould is over-rated:

WHAT ECONOMISTS CAN LEARN FROM EVOLUTIONARY THEORISTS

http://web.mit.edu/krugman/www/evolute.html

It’s a reminder that Krugman could have been a broader, more interesting thinker than he turned out to be. I have a vague suspicion that his second wife, whom he married in 1996, played a role in the narrowing of his mind.

60 mikeInThe716 July 19, 2015 at 6:29 am

“I have a vague suspicion that his second wife, whom he married in 1996, played a role in the narrowing of his mind.”

I’m going to remember that line for cocktail parties with local academics – although I may get punched.

61 jonathan July 19, 2015 at 7:19 am

This has been a favorite talking of Krugman critics since the New Yorker profile that had some comments on how his wife pushed his pieces in an angrier direction, but I’d go with a simpler explanation: the intellectual climates of the Bush presidency and the Clinton presidency were different as night and day (and, as a result of bitterness over the 2000 election, the rupture occurred immediately).

62 jonathan July 19, 2015 at 7:57 am

talking point I should say.

To elaborate on my point- many of the things Krugman said that (sweatshops good, Galbraith is dumb, people who don’t understand comparative advantage should be taken taken out and shot) conservatives/free market types nod in approval at were not, in fact, that out of line with the intellectual and political climate of the time. The sustained success of Reagan and Thatcher led to serious soul searching not only by left-wing politicians, but also by left-wing academics who were in touch with reality (i.e. who weren’t Marxists). The resulting approach was, unsurprisingly, aligned with the political strategy adopted by Clinton and Blair: continue to criticize conservatives as heartless and misguided, but at the same time attack old school leftists as obtuse dinosaurs. This strategy is well exemplified by the book in which Krugman made his most withering criticisms of Galbraith- most of it is devoted to attacks on right-wing economic policies.
The 2000 election changed ended this era in an instant. First, eight years (or, at least, six years) of a moderate southern triangulator as President, an economic boom, and a moderate southerner as a presidential candidate weren’t enough for the Democrats to win in 2000. This convinced many that the success of “triangulation” was more about Clinton being a good retail politician than the public wanting a moderate Democratic Party. Second, the ugly manner in which Bush “won” the election produced a massive outpouring of outrage. September 11th led to a brief halt, but after it became clear that Bush intended to invade Iraq the intensity was ratcheted up even higher.

Consider Slate in 1999 and Slate in 2015. Or, if you want to look at economist who has swung even further than Krugman, look at Jeffrey Sachs 1995 and Jeffrey Sachs 2015.

63 Jan July 19, 2015 at 10:54 am

Primarily, I’m jealous of his success.

64 Steve Sailer July 19, 2015 at 7:24 pm

It has less to do with left or right than with the narrowing of Krugman’s mind.

Krugman is not, by nature or nurture, a wide-ranging intellect (as his taste in music demonstrates), but he was admirably forcing himself in interesting new directions in the mid-1990s.

Since then …

65 Bob July 19, 2015 at 1:38 pm

Right, because liberal intellectuals from New York City like Krugman are all likely to be eugenics enthusiasts if only for their wives….

66 Steve Sailer July 19, 2015 at 8:36 pm

Krugman had the independence of mind to not fall for Gould’s ethnocentric hate-mongering, which speaks well of his character.

67 Meets July 19, 2015 at 2:55 am

This is why the left would rather talk about evil banks, greedy corporations, and racist Republicans.

Under Kling’s three axis model, the left see the unemployed as oppressed.

Conservatives see them as just being bad while libertarians see them as just making optimal choices.

68 Jason Smith July 19, 2015 at 3:30 am

I always thought sticky wages was a descriptive term for an observed effect that things like Calvo models attempt to capture. It’s not just unemployment that goes up but job offers go down. You could say employers are being idiots for not offering jobs at lower wages, or cutting wages instead of laying people off in the first place.

In any case, sticky wages look more like an emergent property with no microeconomic rationale:

http://informationtransfereconomics.blogspot.com/2014/10/wage-stickiness-is-entropic-force.html

69 Jason Smith July 19, 2015 at 3:35 am
70 E. Harding July 19, 2015 at 2:51 pm

There are lots of good micro rationales for sticky wages.

71 Jeffrey Deutsch July 19, 2015 at 9:46 pm

Yep, including efficiency wages. As Adam Smith pointed out in 1776, when workers have enough to eat and can live in healthier housing and in general don’t have to stress over where their next meal is coming from, they’re obviously more productive. He also pointed out that for certain occupations requiring a great deal of trust (eg, goldsmiths and jewelers) you want to pay them more so they’ll hesitate to do something that could jeopardize their nice paychecks.

More broadly — especially these days where lots of jobs entail some degree of trust — you want to give workers a strong incentive to want to keep their jobs. That means paying them more than they can easily get elsewhere — or if other employers do the same the resulting above-market-clearing wages mean equilibrium unemployment and a different kind of strong incentive to keep one’s job.

I did my Economics graduate school (yes, at GMU) in the ’90s and in particular my Macroeconomics in the early ’90s. I saw how the New Keynesians had made good use of their time (basically, the ’80s) in the wilderness. Their development of microfoundations, IMHO, earned them their place back in the sun.

72 Floccina July 21, 2015 at 9:18 am

I also thought that, and I thought it was also related to the fact that current employees (insiders in Tyler’s post) are getting paid to much, and so there is no money to pay the new hires even at a lower wage. That would indicate that employers are not ruthless enough.

73 Lorenzo from Oz July 19, 2015 at 4:32 am

The two Google links (views of Bryan Caplan and Scott Sumner) don’t work.

74 jerseycityjoan July 19, 2015 at 5:09 am

How many employers just filter out people who have been unemployed for over 1 year or 2 years?

How many refuse to consider those who are above a certain age?

How about those who have a criminal record at age 22 due to drug-use related crimes such as shoplifting and theft?

How many businesses that used to hire a lot of teenagers and students now hire mostly adults?

How many businesses require parttime workers to be available for many hours each week yet guarantee 0 hours a week and will frequently switch the hours they do offer between days, nights and weekends?

I could go on but the point is, it is also much harder to become and stay an employee for many people. That is the other side of the equation that must be considered.

I would also note that there’s millions of people who are unemployed and would like to work but aren’t poor because they’re lucky enough to have a spouse, children, parents, etc would have been supporting them for years. These people escape notice but what happens if their lifeline is yanked away, when for example the parent dies?

Things are terrible out here for a lot more people than the stereotypical or statistically poor. How would the economists of yesterday have revised their views based on current conditions in 2015 which were never really imagined in prior generations?

75 mikeInThe716 July 19, 2015 at 6:57 am

My local anecdote for your list:
How many refuse to hire those with employment history with government or a certain “private sector” auto union?

A note about “current conditions in 2015”.
There’s a subset of savvy poor who like their free time – and 2015 conditions DO allow some decent flex gigs where free time can be maximized.

76 Jeffrey Deutsch July 19, 2015 at 9:48 pm

Indeed. Noting that “decent flex gigs” is neither an oxymoron nor a redundancy.

77 Moreno Klaus July 19, 2015 at 7:45 am

How many people fell into poverty due to the wonderful US Healthcare system?

78 Ricardo July 20, 2015 at 4:28 pm

And yet how many Canadians crossed the border to get it?

79 Floccina July 21, 2015 at 10:00 am

yes, people can easily be bankrupted in the USA due to an illness. Surprisingly to some, people in countries with socialized medicine can also easily be bankrupted due to an illness. Being bankrupt in not necessarily poverty.
Almost no one in the USA lives in poverty today. So if the illness is not mental illness, it will not generally drive a person into poverty in any developed country, not even the USA.
If you can go back to work after the illness you can recover from bankruptcy if go back to work, in the USA you will be able to get on medicaid and SS disability. If medicaid and SS disability did not exist things would different enough that it is hard to imagine how people would get by but I would bet that they would. The trick is to help the needy while maintaining good incentives to produce.

80 Engineer July 19, 2015 at 7:52 am

I could go on but the point is, it is also much harder to become and stay an employee for many people. That is the other side of the equation that must be considered.

Precisely.

The models that TC discusses seem to assume that there is no basic difference between the job market of 2005 and the job market of today ie. 2005 and today have the same model with different parameters.

The fundamental question is: what is the profile of people who were employable in 2005 and not in 2015?

This leads into the fact that hiring, training, and firing is a huge mess today, which then leads back to those game theory models like principal-agent conflict of interest, risk models, and cognitive biases.

81 chuck martel July 19, 2015 at 8:35 am

“Things are terrible out here for a lot more people”

Terrible? In the US of 2015 not even the truly mentally incapacitated have it “terrible”. Also, the contemporary measure of success, which centers on money, doesn’t include other indices, like experience, knowledge, satisfaction, relationships, etc. There’s certainly a dearth of knowledge in US society but it’s not just an adjunct of poverty.

82 Jan July 19, 2015 at 8:42 am

Happiness Index?

83 Jan July 19, 2015 at 8:44 am

Joan, this is a huge research project. Perhaps if we all pooled our money, we could get a few RAs to answer at least a couple of these questions by the end of the summer.

84 jerseycityjoan July 19, 2015 at 3:50 pm

Jan,

The biggest challenge to finding out the “Secrets of America’s Human Resources Departments” would be getting honest answers. I sure wish we could, though.

There’s always been biases and unfairness in hiring but it seems to be the employers today won’t even consider tens of millions of people they would have just 10 years ago.

That we have companies who refuse to consider applicants who have bad credit due to layoffs — says it all. If we really cared about our fellow Americans, if we were really serious about moving people into jobs, such things wouldn’t be tolerated.

85 XVO July 19, 2015 at 10:48 pm

The people who are more likely to be good employees get jobs first. For now employers can afford to be choosy but anecdotal evidence is showing.that this is changing…the quality of the lowest workers has gone down tremendously where I live.

86 Ricardo July 19, 2015 at 5:12 am

I think Tyler is missing the point.

For any given policy, there are two questions that can be asked about it: Is this policy good for society? Does this policy directly benefit people who are relatively virtuous or “deserve” the benefits of the policy?

Keynes’ point was to separate these two questions. Economics is not a morality play. Does Tyler disagree with Keynes? If so, he should make his argument. If not, it is not clear why a theory of unemployment should be crafted to paint flattering or unflattering portraits of the unemployed. What is much more important is having a theory that is backed up by empirical evidence and that says what policies will be most effective for returning to full employment.

87 libert July 19, 2015 at 9:14 am

+1

88 DocMerlin July 19, 2015 at 10:47 am

“Is this policy good for society?”
That isn’t a question an economists can ask, as “society” doesn’t have a meaningful utility function (as showed by Arrow). And interpersonal utility function comparisons are meaningless. They can only ask, “is this good for some individuals” then arbitrarily rank what that means.

89 Ricardo July 19, 2015 at 1:26 pm

That’s true of people trying to use microeconomic theory to rank policies. But my comment did not assume that this is the best or the only way to evaluate policies. Indeed, it’s an almost useless way to rank policies in the real world because almost every policy choice involves winners and losers and the lump-sum transfers that are supposed to theoretically compensate the losers are never enacted. What should the U.S. do about ISIS? Who the hell knows if your only tool is u(x)?

90 derek July 19, 2015 at 10:48 am

OK, let’s talk minimum wage then. It is a morality play, 100%.

91 Winton July 19, 2015 at 5:26 pm

Good point. The more important questions we should ask are about the extent to which money illusion exists and the circumstances under which it exists. I seem to remember it was much less evident when inflation was high during the 1970s and 1980s.

92 The Beyonder July 19, 2015 at 6:06 am

Personally, I’m just getting an unflattering picture of humanity in general here.

93 Ian July 19, 2015 at 10:49 am

Can you elaborate? Is it because some things are better not talked about in a good society?

94 The Beyonder July 19, 2015 at 7:04 pm

It appears to be a failing common to humanity that is merely noticed and commented upon when experienced by the unemployed and poor.

95 Scott Sumner July 19, 2015 at 8:09 am

I would distinguish between structural and cyclical unemployment. Structural unemployment is higher among the poor for reasons that might sound unflattering (at least to many people.) They didn’t study hard in school, or they have a bad attitude, etc., etc. Cyclical unemployment affects all classes, because all classes have money illusion.

Money illusion and nominal stickiness are unrelated to poverty. The elites of our society are every bit as susceptible to money illusion as the poor. These elites design financial instruments that are almost always nominal bonds, not real bonds. As a result an unexpected fall in NGDP can result in a financial crisis, all because of money illusion among the “masters of the world” on Wall Street. The elites have salaries that are rarely indexed to inflation or NGDP. That means that even if the poor did agree to index their salaries to inflation, it wouldn’t be enough to prevent a drop in NGDP from triggering a recession.

96 prognostication July 19, 2015 at 12:21 pm

Interesting comment by knowledgeable author making important point largely ignored by MR commentariat, film at 11.

97 Art Deco July 19, 2015 at 1:40 pm

Non-contentious statements that few people find objectionable provoke no rude responses, film at 11.

98 Harun July 19, 2015 at 2:04 pm

Crazy idea here. We should spend some resources on developing the skill to flip to new currencies quickly and without pain – a digitized world should help.

Then, whenever we have a situation where wages or other prices need a big change and we need to fool people with the money illusion just switch to a new currency with a weird conversion rate.

So, I was being paid $10 / hour, but now its 1429.8 Quatloos so I don’t notice I just took a 7% pay cut.

99 Scott Ferguson July 19, 2015 at 2:17 pm

“They didn’t study hard in school, or they have a bad attitude, etc., etc.”

This is really how we describe the state of education among the poor?

100 cthulhu July 19, 2015 at 6:42 pm

Sounds more polite than citing “The Bell Curve.”

101 ThomasH July 19, 2015 at 8:31 am

It may be the case that simple “Keynesian” models embed unfalteringly incorrect assumptions about the unemployed, but does THAT mistake, lead them to incorrect macroeconomic policy recommendations in the same way that believing that people receiving food stamps are “moochers” leads to incorrect policy recommendations leads to incorrect social safety net policy recommendations?

102 Jan July 19, 2015 at 8:40 am

Lots of references here to wage stickiness, etc, but I am not familiar with the literature. I can see how “pride-based unemployment” would be a very attractive narrative for conservatives and regressives to point to, as it helps make the case for pulling up by bootstraps and committing fewer public resources to helping unemployed people.

Does anyone have good evidence demonstrating that the unemployed tend to refuse work for wages lower than their last job? I am really interested in the people who have been out of work for a while and how much lower the salaries are that these folks are refusing. That is, how big is the issue Tyler points to? For example, I would not be surprised if someone who has only been out of work a month is not interested in taking a $9/hr job when she was previously making $13. However, at 6 months, that is more surprising.

103 Tarrou July 19, 2015 at 9:44 am

Not necessarily. The answer could just as easily be a more structured path to the middle class. I live in the shell of a once-bustling car manufacturing city in Michigan. Many poor blacks and whites moved there in the sixties and seventies to take advantage of the low-skill, high-wage jobs available. But when the industry started dying, those who had made their nut (white and black) moved out and left those who came too late or wasted their opportunity to save to trundle along without them. The result is as predictable as it is widespread. Rising crime, falling population and tax base, more industry leaves or closes, rinse, repeat.

Interesting note: Where I live, there are no straight black male waiters in sit-down restaurants. There are a ton of straight black male cooks in those restaurants (a solid majority of the total, I would guess), so the places will hire them. And waiters make far more than the cooks. But the job is customer service, rather than back-of-the-house labor. There are almost no black female waitresses. The problem isn’t that racists won’t hire them, the town is almost 70% black, most of the owners are black. The issue is that they don’t apply, and if they do, they quit quickly. My best guess is that it isn’t Mr. Cowen’s explanation either, but rather that there is something about that basic job that is unappealing to most blacks in my area. And with the collapse of heavy industry, service jobs are the majority of what is left. Hard to get a start when one is unwilling to do the most common entry-level jobs.

104 Jan July 19, 2015 at 10:01 am

Thanks. And to clarify, I don’t necessarily think the policy he suggests is a bad idea. Just want more info and can see how the narrative might play out.

Also, I’m from Detroit suburbs. You in Flint by chance?

105 Tarrou July 19, 2015 at 11:03 am

Saginaw. The one and only Sagnasty!

106 Tarrou July 19, 2015 at 11:13 am

And also, I can totally understand why waiting on white people might trigger some deep cultural reaction from blacks. But also, there is a strain of underclass bravado for both whites and blacks that goes with it in many cases I think, the unwillingness to be professional and swallow the crap that customers shovel your way. Face is a big deal in the underclass, reputation is important, and I think many don’t want to do menial or servile work because it would heavily damage their social status.

107 Mike W July 19, 2015 at 12:40 pm

Because what else have they got?

108 Tarrou July 19, 2015 at 2:11 pm

You see clearly the problem, I think!

109 mikeInThe716 July 19, 2015 at 12:10 pm

About your male cooks and waiters:
I’d guess that these are cultural choices. Many people and groups know that they won’t enjoy or thrive in certain jobs, so they don’t apply and/or get discouraged. After 20 years of technical and code writing, I’d sooner eat my glock than work customer service again. I’d could do short order cook or drive a truck. My dream in retirement is to have a part time delivery job to age 75 and then get canned for sexual harassment.

Local anecdote about delivery driving: In conversations with wayward young people, especially able bodied young men, friends and I suggest entry level truck driving (a good starting gig). About half have issues with either their driving record or they know they won’t pass (and won’t change their behavior to pass) a drug screen. Some others have issues with physical labor or don’t want to work alone. I walk away from these conversations feeling very, very old…

110 Tarrou July 19, 2015 at 2:18 pm

Cultural, personal, status driven. My point was that it isn’t simply monetary. Ergo it’s not something you can fix by raising the minimum wage a few bucks. You’d have to raise it a whole lot for it to be worth the status hit. Enough that you’d get competition from more qualified people, putting you back to square one.

Alternately, you could raise the status of the work. Changing cultural expectations of how customers behave would be a start. Americans are fucking pricks to deal with in any way, and the insane “customer is always right” culture of corporate America feeds the entitlement and rudeness of the population. If customers in Russia acted the way Americans do on a daily basis, the business would throw them into the street and the other customers would beat them to death with bricks. A little respect between customer and worker goes a long way.

And thirdly, conservatives love to talk about “changing the culture”, but in reality no one knows how to do that and their proposals usually shake out to mean “punish groups I don’t like”.

111 Jeffrey Deutsch July 19, 2015 at 9:56 pm

Another supply-side issue specific to waiting tables (and probably food delivery and similar jobs too): If we assume blacks are more familiar with other blacks than whites are, and if blacks also comprise many of the restaurants’ customers, we can understand this reluctance a little better.

112 derek July 19, 2015 at 10:53 am

Your last paragraph illustrates exactly what can happen. If someone doesn’t take jobs for 6 months for some reason, in 6 months they are almost unemployable.

113 Jan July 19, 2015 at 1:56 pm

Yeah, that is a good point. If someone has opportunities they don’t take after a while they look pretty bad to employers.

114 chuck martel July 19, 2015 at 8:45 am

If there is a problem with being “poor” in the US, it’s not that the poor can’t regularly eat T-bones or are limited to basic cable service, it’s that they are aware that others have more and that it’s possible that those others may somehow feel guilty enough about this to fear an uprising. A replay of the Peasants’ Rebellion of 1524 is unlikely in that it might interfere with the NFL schedule.

115 rayward July 19, 2015 at 8:53 am

The Keynesian theory relies on rigidities in wages and prices. Moreover, the rigidities in wages relates to the employed not the unemployed. In any case, Cowen is stuck in the 1980s. I don’t know that the traditional Keynesian theory matters much in today’s non-inflationary environment. I appreciate that the best guide for the way forward is the past, but if the past doesn’t resemble today, how is it a guide for the way forward? I’ve mentioned this more than once in comments on this blog, comments directed at both Keynesians and non-Keynesians. I suppose it’s human nature to see the world through the image we have of it.

116 TH July 19, 2015 at 9:08 am

Smells like a desperate straw-man argument to me … the concept of wage/price rigidities applies to all, not just the poor. The concept of poor being moochers applies only to the poor – and is often proclaimed people that are the biggest moochers of all.

117 Tarrou July 19, 2015 at 9:13 am

Keep in mind that in political and social tribe terms, familiarity breeds contempt, and so does similarity. The dominant leftist paradigm is one in which rich white men oppress and exploit the poor, the black and the female. But in reality, the rich are split pretty evenly between the parties and the tribes, and have no discernible prejudices because everyone they deal with, whatever their race, is rich! The people with real prejudices are those close to the problem, and those with similar problems. The poor white underclass is by far the most racist against the poor black underclass, and vice versa. And no one has a worse opinion of the lower classes than the upper lower class and the lower middle class. It serves an ego-defense role to denigrate those with similar cultural pathologies. So while I am on SSI, Section 8 and Medicaid, no one infuriates me more than those on WIC , direct assistance and unemployment. Rich and middle class people don’t much care one way or the other about the poor, they are an abstract (until they start moving in next door).

Anecdote: I work in a job that brings me into contact almost exclusively with very poor people. I can’t count the number of them who insult others for not having jobs when I know damned well they don’t have one. But they have good excuses, just as I’m sure the people they don’t like do. And a big one is that they are too proud to do work they see as demeaning, or are unwilling to submit to basic authority (a boss). One guy told me the reason he keeps getting fired is all his bosses are pricks, and “No one tells me what to do”. If that’s your self-concept, keeping a job is gonna be hard. It’s not just wage stickiness, it’s a cultural self-image that prevents people from getting a leg up.

118 mikeInThe716 July 19, 2015 at 12:26 pm

The people with real prejudices are those close to the problem, and those with similar problems.

In my experience, upper level blue collar trades (tool and die maker, machinist) have the most insightful and viscous commentary on the poor and their (poor) habits. These trades have moved also moved politically over the last 20 years. Used to be 50/50 Dem to GOP. Now it’s easily 20/80.

Outside of Military Special Ops, I’m not familiar with a more skewed group…

119 Ricardo July 19, 2015 at 1:19 pm

The working definition of “blue collar” or “working class” in the U.S. seems to be “someone who has a job that 1) doesn’t require a college degree and 2) involves standing up all day or getting your hands dirty.”

The incomes of the people you describe are almost certainly at middle class levels by now. Some of the most loyal Republican voters are those without a college education but who earn high incomes.

120 Tarrou July 19, 2015 at 2:10 pm

Exactly, Mike. Now why would that be? Most of those guys come from lower-class or lower-middle class backgrounds, and have busted their asses to work up a little ways. In my area, there are tons of these guys who did their thirty or forty for the UAW, retired, and now can’t leave a decimated city because their property, while nice, is now worthless. They live next to the underclass, or at least near it.

Same thing with career soldiers. The trades and soldiering are some traditional male venues for the lower classes to reach middle class status. Just like nursing and teaching with women. Hard to tell the lads humping a hundred and eighty pounds of gear through the Korangel the reason he makes 30k a year is all that white privilege.

121 Vlad July 19, 2015 at 9:43 am

It’s also worth pointing out another contradiction: one of the key tenets of labor law theory, or at least the “hoi polloi” version of it, is that government intervention is required in labor markets because unequal bargaining power ensures that employees receive wages and working conditions that are somewhat below what the natural market price would be. If you look at macroeconomics, on the other hand, efficiency wage models point out that while it’s true that bargaining power arguments suggest a below-market-clearing equilibrium wage, asymmetric information arguments and morale arguments suggest an above-market-clearing equilibrium wage, and in fact the very existence of such large unemployment rates as we see, eg. during recessions, suggests that the above-market-clearing effects dominate. And thus we’re left with minimum wage advocates trying to artificially push wages upward while central bankers are trying to artificially push wages downward.

122 Lord July 19, 2015 at 10:00 am

This plays into the obsession of the right with the wages of the unemployed when the Keynesian point it is the wages of the employed that are too high.

123 Lord July 19, 2015 at 10:23 am

Perhaps the right would be more successful if they spent less time trying to put down the unfortunate and toadying up to the fortunate but they just can’t seem to help themselves.

124 Benny Lava July 19, 2015 at 10:25 am

Trolling is a art!

I predict this post will get over 150 comments.

125 Benny Lava July 19, 2015 at 10:26 am

Also, why is this post tagged with food and drink?

126 Jan July 19, 2015 at 10:33 am

Case study in how much bullshit readers will eat.

127 Jan July 19, 2015 at 10:34 am

How’s your loony bun?

128 asdf July 19, 2015 at 10:33 am

Accepting a lower wage lower prestige job can have a negative effect on your career path. It also affects your social status among peers.

If you say, “I’m still on career path X, I’m just taking time between jobs,” that can often be better then, “I took shitjob Y because I’m worried about whether I’m still on career path X.”

This means admitting to yourself, peers, and potential employers that you have doubts about yourself, which is a negative signal. Whereas some hotshot would just confidently KNOW that things will turn out alright and send that signal. And of course most people don’t really know if their circumstances are due to their really being on a new career track or just cyclical or random factors that affected them.

Also, at the lowest ends of society employment is so poorly paying and low status its often probably logical for people to not work. Until these jobs become higher status then unemployment people won’t take them. The solution to that doesn’t appear to be making unemployment even lower status (call this the Charles Murray solution) because:
1) That would basically mean starving them to death, which means all of the intending social problems that come from having a desperate starving class, especially in a democracy.
2) It would just make them more desperate for those shit jobs, which would raise supply and cause compensation and conditions to get even worse.

This is also, BTW, one reason that smart young people take high prestige internships rather then paying jobs in the service sector, its better for their careers to be on the high status track even if it pays less for awhile.

129 Tarrou July 19, 2015 at 11:21 am

I think this is a good read of the situation. It’s not ever just about money. It’s about money, leisure time, tribe, status and sex. You can make slightly more money at a minimum wage job than you can on benefits (in most states), but you lose all your free time, you will probably have to deal with shitty customers, perhaps wear an embarrassing uniform. You will lose status within your peer group, and if male, you will therefore be less likely to get laid.

The money counts, but only for a small part of it. I don’t know how you change the way cultures apply status, I don’t think anyone does. But we might be able to restructure the way employment advances to give people a stronger stake in the future. Unfortunately, we’re headed the opposite direction on that front. If there’s one group that will be left behind by the new economy of no job security, high reward for high skill, it’s the people who never developed any job skills at all because it was demeaning.

130 Edward Measure July 19, 2015 at 10:39 am

In the running for Tyler’s most obtuse post yet. Keynesians, says Tyler, insult the poor by believing in wage stickiness, thus apparently implying that the poor are too dumb to subscribe to George Mason Kochonomics.

I wonder if Tyler got some funny mushrooms in his quest to comprehend all the world’s cuisine?

131 Anon. July 19, 2015 at 11:51 am

They submit to something, no matter what: is it going to be lower wages, or no wages?

132 Rich Berger July 19, 2015 at 10:49 am

As long as you consider the “poor” as some homogeneous mass, the discussion will be misguided. Some are poor and on the way up even without any assistance. Some will be poor due to circumstances beyond their control (illness, divorce, decline of industry in locale). Some will be poor because of bad habits. If you are interesting in cost effective aid to the poor, the “remedy”, if there is one, needs to be tailored to each group. If you do not care whether the aid is cost effective, but instead wish to demonstrate to others your liberality, generosity and general broad mindedness, the solution is just more (other peoples’) money. If you disagree with me, please provide some examples of poverty programs that were accompanied with goals and measurements to determine whether the program worked.

BTW, if some of the poor won’t take a job because the wages are too low, what is the source of income that allows them to be choosy? If it is coming from public sources, there’s your problem right there!

133 chairman July 19, 2015 at 12:14 pm

Who says it’s a problem? Why remove an option superior to working a low-wage unpleasant job? All that will do is further drive down the wages(if possible) and make the conditions more unpleasant because you will have more people competing for the same amount of jobs. Let poor people continue to be choosy — if anything, allow them to be more choosy. If low-level service industries had a harder time finding employees they might have to boost their pay, or at least make the conditions less unpleasant. Some people have the idea that just getting an “entry level” low-wage job will start putting poor people on some sort of upward trajectory but this seems like fantasy to me. More likely they will just keep working that low paying job with no opportunity for any sort of “advancement.”

134 mikeInThe716 July 19, 2015 at 12:34 pm

Some people have the idea that just getting an “entry level” low-wage job will start putting poor people on some sort of upward trajectory but this seems like fantasy to me.

Fantasy? Really?
We have diametrically differing views of reality.

135 chairman July 19, 2015 at 12:59 pm

Reality seems to demonstrate that there are a lot of people who take low-paying jobs and … simply keep working at them.

136 chuck martel July 19, 2015 at 1:22 pm

“the “remedy”, if there is one, needs to be tailored to each group.”

No, groups are made up of individuals, each with different circumstances. One group, perhaps made up of members of more than one other group, are individuals incapable, by choice or otherwise, of adding value to any product or service. In a free market society these people will either never be hired or won’t last long in a job no matter what anyone does for them. Unless someone wishes to pay them to hang around the house and watch the cats.

137 Economist July 19, 2015 at 11:04 am

One of your best posts. The answers may be debated, and will evolve, but the question and perspective is insightful.

138 Peter K. July 19, 2015 at 11:28 am

Steve Randy Waldman’s brief response. All of the rightwingers here should read it.

http://www.interfluidity.com/v2/6088.html

What I do know is that rightwing politicians (who reflect the views of the rightwing base and subscribe to rightwing ideology and economic theory) are very rude about the poor. They’re lazy and moochers and deserve no assistance from the hardworking and morale taxpayer. Scott Sumner makes a useful distinction in his comment between structural unemployment and cyclical unemployment. To left wing economists it seems highly unlikely that after the 2008 housing bubble and financial crisis that so many workers would decide to simultaneously take a vacation and become cyclically unemployed. To the rightwing, the cyclically unemployed aren’t worthy of assistance because if they had just worked harder and been more morale, they would still have a job like their fellow employed citizens.

And low and behold as the economy recovers and “heals” and more jobs become available (at lower wage levels and job satisfaction than before) those people on cyclical vacation go back to work. They need to feed and cloth their kids after all.

139 Harun July 19, 2015 at 2:17 pm

I think you just set up strawmen.

The “moochers” are never the roofer who lost his job in 2009, but the people you see who are able-bodied but don’t work at all or very little. Yes, they exist.

Now, the roofer who lost his job in 2009, and then sat around and refused to become a Wal-Mart greeter because he thinks its beneath him, is another issue. Imagine he’s a 25 year old…then that seems a bit moocherish.
What if he just takes 99 weeks of unemployment as a vacation? Again a bit moocherish.

How about the roofer who was 59 and decides to go on SSI disability rather than take that job…again, a bit moocherish, but more understandable.

This is a real problem with a generous welfare state.

From personal experience, I had a landlord who was disabled but I was told by a neighbor he re-roofed and re-did the entire electrical of the house I rented for him… after he was disabled. He also had 3 mortgages on it…amazing.

Anyways, you suddenly get a bad taste in your mouth when you realize that guy is not really disabled – he just decided to retire early. He’s got that rental income to supplement SSI-disability.

Meanwhile, there’s a guy in a wheelchair at my Walmart who works as a greeter. Would I care if he also got SSI or other assistance? No way!

Finally:

“And low and behold as the economy recovers and “heals” and more jobs become available (at lower wage levels and job satisfaction than before) those people on cyclical vacation go back to work. They need to feed and cloth their kids after all.”

If you had not given them 99 weeks, they would have done that already is the entire point! Just as if we ended all welfare right now, tomorrow hungry, abled-bodied people would miraculously get jobs. There would still be the truly needy, of course, but some percentage would miraculously not be as disabled, their back pain would miraculously allow them to work again if it were that or no food.

140 Bernard Yomtov July 19, 2015 at 4:46 pm

Peter,

Thanks for the link. It is excellent.

Harun,

Yes. They exist. But to the right-wingers they constitute 47% of the population. I think that’s inaccurate.

141 E. Harding July 19, 2015 at 4:58 pm

Who are these supposed “right-wingers”? Romney wasn’t an especially right-wing candidate.

142 Samson July 19, 2015 at 11:40 am

There are plenty of jobs these days where the cost of working (commuting, clothes,daycare etc) is higher than the wages of working – no rational economic actor should be taking those jobs, full stop. My mother in the 70s worked minimum wage, and had full time hours & could afford her commute & her own place in a big city. That is not the condition of the lower rung of workers these days.

143 triclops41 July 19, 2015 at 3:45 pm

Then please get the left to stop making big city housing so unaffordable for people in 2015.

144 Ricardo July 20, 2015 at 4:36 pm

Not even in Houston?

145 Yancey Ward July 19, 2015 at 11:47 am

Economists have convinced me that the only people who actually fall for the Money Illusion are economists.

146 Alan July 19, 2015 at 1:45 pm

What? Some poor unemployed people are not rational libertarians? I’m shocked.

147 John July 19, 2015 at 1:57 pm

Any “poor, undereducated, and unemployed” equation has too few variables. Specifically, it isn’t just education or even IQ that determines employaility. Mental health matters a great deal. I would go so far as to say that a person with good mental health, and lesser IQ or education will have a job when troubled people high on the other two scales suffer.

Perhaps this is too orthogonal to the set-up, and the simplified view of human ability.

148 Barkley Rosser July 19, 2015 at 5:33 pm

Keynes was an elitist snob of the first order, not only a eugenecist but an anti-Semite.

His theory, and those of most Post Keynesian economists, does not depend on the downward stickiness of wages.

OTOH, it is an empirical fact, as noted above by several people, that nominal wages in the US are downwardly sticky, for whatever reason.

149 Peter Gerdes July 19, 2015 at 8:05 pm

One should be careful to distinguish theories which entail a negative view of some (potentially small) fraction of the poor from theories (or direct claims) which imply most of the poor are lazy, dumb or whatever. I don’t think anyone would deny that some poor are bad apples the objection is to the suggestion that most have some negative quality.

For instance, most poor people could be quite moral and refuse to steal or sabotage even low paying employers. Maybe only 1 in a 100 is a bad apple. However, if the harm from a single bad apple was larger than the savings from hiring a 100 low wage workers over the alternatives that would be enough to prevent low wages from being offered. Also the situation may be worsened by adverse selection (the good workers quickly parlay your job into references that let them take a higher paying one).

To offer a more positive explanation of why low wage jobs aren’t more plentiful perhaps it’s a result of people’s reluctance to fire workers. If you can’t convince your managers to quickly fire the guys who aren’t reliable or don’t produce it won’t be profitable to try and hire workers without much to lose from being fired.

150 JZ July 20, 2015 at 3:02 am

I can see TC is doing some normative sociology here

151 paul July 20, 2015 at 4:58 am

At the end of the day it about how u had set your foundations from the beginning because America is a land of opportunity but its depends how harder u work whether poor or uneducated, these will depend the direction your future takes.

152 Millian July 20, 2015 at 6:55 am

This is just mood affiliation against Keynesians.

153 RPLong July 20, 2015 at 10:35 am

“Under one scenario, they could find jobs for $x an hour but won’t take the work. If government policy could reflate the economy enough, those jobs in nominal terms would offer more and the unemployed would be in essence fooled into taking the offer. The job would be paying the same in real terms, so the ex ante stubbornness is a big mistake, at least under this account of the matter.”

I thought this scenario was invalidated by all that U of Chicago work that came out in the 70s. Do today’s Keynesians still believe this? I thought their models were a bit more refined these days.

154 John July 20, 2015 at 11:50 am

“In other words, insult them with a sub-par wage offer and they turn destructive toward the entire organization”

Seems like that could also be a special case of the efficiency wages argument.

155 JonFraz July 20, 2015 at 3:47 pm

Re: many of the unemployed have lacked jobs for years because they have sticky nominal wage demands.

Excepting the disabled, how common is this? I have always read that the poor generally cycle in and out of employment, either getting laid off/fired frequently, of quitting.

156 Tom Warner July 20, 2015 at 5:51 pm

The alignment of left vs right to flattering vs unflattering views of the poor is a huge topic. The best summary I can make is that left and right tend to slip from healthy realism into cynical generalization and engage in a contest between pretending to try and not wanting to try, while the middle tends to be resigned to that gridlock. There are exceptions among left, right and middle.

In econ theory, the left tends to favor a helpless victim analysis, which tends toward assuming ignorant foolishness, while the right tends to favor a perverse incentives analysis, which tends toward assuming cynical exploitiveness. Each is both flattering and unflattering in different ways.

I do think Tyler’s on to something in his second paragraph, about the element of the Keynesian wage-stickiness aka money illusion thesis in which people refuse job offers with a nominal and real income cut from their last job, but will accept job offers with the same real income cut but no nominal cut, after the state generates enough inflation.

In that situation, the cost of foregoing employment over a cut in pay is higher to the poor than to middle and upper classes, because the poor have less savings and weaker family safety nets. The sticky-wage thesis doesn’t imply any low opinion of a middle- or upper-middle-class man who falls out of the labor force and becomes a stay-at-home dad living off his wife’s income after he somehow loses a good job and is offered only mediocre jobs. That’s the family’s choice and they can afford it. But the thesis applied to the poor implies that either they don’t look out for themselves (where public safety nets are thin and the long-term unemployed face serious poverty) or that they prefer to exploit the public safety net than to take a lower-paying job.

157 Alice August 5, 2015 at 3:22 am

Thanks for a marvelous posting!

158 Alice August 5, 2015 at 3:22 am

Very descriptive article, I liked that a lot.

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