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Let's not forget minimum wage. Though there are arguments for it, minimum wage creates a floor on the price of labor above the equilibrium price, which creates
by BrentRitterbeck 17y ago
Let's not forget minimum wage. Though there are arguments for it, minimum wage creates a floor on the price of labor above the equilibrium price, which creates a surplus of labor, and that surplus is part of what goes into our unemployment numbers.
- eru 17y agoMostly. But there are some other factors, too. Wages tended to be sticky on the way down. There's an interesting book full of interviews on the subject: ``Why Wages Don't Fall During a Recession'' by Truman F. Bewley. It used to be that managers rather fired a some employees instead of letting them work for less money. See http://cowles.econ.yale.edu/news/bewley/tfb_00-02_wages.htm http://cowles.econ.yale.edu/news/bewley/tfb_00-02_wages.htm for a copy of the book's review in the Economist. Lately we have seen wages fall, so that this rigidity might be on the way out.