Friday, August 21, 2015

Sticky wages?

I'm not sure I understand how economists (including Mark Thoma) can look at this data:


... and say:
Taken at face value, this analysis suggests the presence of some amount of wage rigidity.
24% of people are reporting nominal hourly wage declines. Only 20% are reporting the same wage. That means something like 80% of people are reporting wage changes. They should check out the section of my paper on entropic forces and nominal rigidity. Or this post on macro rigidity and micro flexibility.

6 comments:

  1. Fair enough, but I am thinking of Krugman's argument that at the time seemed to be very convincing to me, showing that Spanish wages got a lot more sticky in 2011 than they were in 2007.

    http://krugman.blogs.nytimes.com/2014/11/28/in-front-of-your-macroeconomic-nose/?_r=0

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    1. Even in that case, the zero wage change piece is only 25%, so 75% of wages are changing ... by upwards of 20% in some cases.

      Unfortunately, due the way it was graphed, it obscures the zero bin for the 2007/8 data. I don't know what the value at zero should be in 2007/8 for Spain (it could be 15-20%). In the US there is a huge spike there even in normal times (in the SF Fed measurements discussed in the link above it goes from 12% in normal times to 16% in the recession).

      As I discuss in the link above, I think there is some micro stickiness, but there appears to be a more important macro stickiness.

      I also talk about this some more here:

      http://informationtransfereconomics.blogspot.com/2014/10/coordination-costs-money-causes.html

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  2. also usually baffled by this .... especially since companies don't report how many more hours they make salaried employees work in bad times (although we can back it our through "productivity increases")...and the employee self reporting might be a good gauge

    but ultimately measuring any such micro-founded model would really require us to model employee's change in wages if mass amounts of them were not laid off ...

    Krugman doesn't always do data, but when he does he gives me an aneurysm...

    or at least his layman's discussion of the data does, im sure he has a more nuanced argument in mind...

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    1. I agree. It's a lot harder to tease this out of the data than it looks on the surface. Hours change, ability to work overtime changes, etc. And salaried people work later hours for the same pay when recessions come around.

      I still think there is macro stickiness though. Nominal wages don't fall on average far enough to put everyone back to work ... All the changes above still happen in the same distribution (roughly).

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  3. Actually, more than 80% of people are reporting wage changes, because the graph leaves out those reporting wage increases. :)

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    1. Sorry, I thought the numbers in the graph added to 100%. :( Nevermind.

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