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Isn't the premise that "real wage growth is closely tied to labor productivity changes [of that particular job, in all cases]" just completely wrong in itself?
by devit 7y ago
Isn't the premise that "real wage growth is closely tied to labor productivity changes [of that particular job, in all cases]" just completely wrong in itself?
If increased productivity (of everyone in a profession due to some new technology) means less people are needed in a given profession, demand for employees decreases and thus wages go DOWN along with product prices.
Also the "natural equilibrium state" for wages is for them to be all equal regardless of profession because otherwise people would have trained for and went to a more profitable career until wages are equalized, and this only doesn't happen because people are not equal and changing careers is costly.
So the "Baumol cost disease" seems like a pretty reasonable observation instead of being somehow paradoxical.
- fnord123 7y agoI'm not an economist but I expect Jevon's paradox to make the cheaper productivity result in increased consumption of the productivity. And that seems to be what we see.
- anonuser123456 7y ago>If increased productivity (of everyone in a profession due to some new technology) means less people are needed in a given profession, demand for employees decreases and thus wages go DOWN along with product prices. Demand is elastic. Productivity growth triggers price declines and increased consumption in many industries. Most industries are not static, they continue to invest in technology (the underlying basis for productivity growth). The more investment they make, the cheaper it is to deliver their goods/services and the more they sell. This can push those industries to hire more workers and drive wage growth higher.
- papln 7y agoParadox is always in the eye of the beholder and their assumptions.