Here is a long post, full of insight and citations, basically arguing that sticky wage models are better for macro than sticky price models. Sticky wage models had been deemphasized because real wages seemed to be acyclical, but sticky prices can’t quite do the work either. The post is hard to summarize, but my reading of it is a little different than what the author intends. My takeaway is “Sticky wages for new hires are the key, and we didn’t have real evidence/modeling for that until 2020, so isn’t this all still up in the air?” I am a big fan of the Hazell and Taska piece, which I consider to be one of the best economics contributions of the last decade, but still…I don’t exactly view it as confirmed and all nailed down. I do believe in nominal stickiness of (many not all) wages, but I still don’t think we have a coherent model matching up the theory and the empirics for how nominal stickiness drives business cycles. I thus despair when I see so many dogmatic pronouncements about labor markets.
For the pointer I thank João Eira.