Will monetary tightening halt the labor market recovery?

My latest Bloomberg column is on that topic, here is one bit:

…these days more and more economists, especially those with Keynesian sympathies, are insisting that higher legal minimum wages don’t lower employment much, if at all. If higher real wages don’t much hurt employment, we shouldn’t expect lower real wages to much boost employment. This “new wisdom” on minimum wages contradicts Keynesian labor economics and implies inflation won’t much boost employment, if at all.


One thing we do know about inflation is that voters hate it. Economists sometimes treat this belief as irrational, assuming that workers in aggregate will get raises to compensate for the higher prices. This is true for many top performers, whose income growth would exceed inflation regardless. But a lot of other workers are concentrated in somewhat bureaucratic service-sector jobs, they have weak bargaining power, and their pay is not indexed to inflation. If the rate of price inflation is 4 percent rather than 2 percent, for many people that means their take-home pay is worth 2 percentage points less than it would have been under modest inflation.

And this:

Most discussions about monetary policy aren’t about economic theory (properly understood) at all. Rather they are about blaming the system, as people feel a sense of outrage that somehow someone isn’t trying hard enough to fix basic problems. Most of the claims out there, when put under the microscope of reason, dissolve into a beautiful, brilliant agnosticism.

Here is the full column.  Note that Bloomberg now has a paywall, with I believe ten free articles per month.  Here is information on subscription offers, I urge you all to increase the velocity of money.


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