The labor market ran hot, real wages fell

You may remember that I’ve been predicting that repeatedly, while much of “Twitter economics” was suggesting that “running the labor market hot” would boost real wages, I was claiming it was far more likely that rising employment would be correlated with falling real wages.  (Try here.)  This did not represent any great insight on my part, rather I was simply refusing to make the mood affiliation move of denying the tradeoff, and I had read Keynes’s General Theory.  Here is the latest:

Companies big and small are raising wages to attract workers and hold onto employees as the economy revs back into gear.

But those fatter paychecks aren’t going as far, thanks to rising inflation.

In fact, compensation is now lower than it was in December 2019, when adjusted for inflation, according to an analysis by Jason Furman, an economics professor at Harvard University.

The Employment Cost Index — which measures wages and salaries, along with health, retirement and other benefits — fell in the last quarter and is 2% below its pre-pandemic trend, when taking inflation into account. (Wages and salaries are growing at a faster pace than benefits.)

Score one for Keynesian economics > Twitter economics.

Or maybe they didn’t run the labor market hot enough.



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