tag:blogger.com,1999:blog-8702840202604739302.post6044633945456904709..comments2024-03-27T11:12:49.188-07:00Comments on MacroMania: What Scott Sumner Knows for CertainDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8702840202604739302.post-9184345054468077582011-09-20T14:05:34.155-07:002011-09-20T14:05:34.155-07:00Westslope:
What you say may be true in some theor...Westslope:<br /><br />What you say may be true in some theoretical settings, but it most certainly does not hold true in all theoretical settings. <br /><br />Let me give you an example. Suppose that a firm and a worker are in a long-lasting relationship. They negotiate a contract to share in the NPV of their joint venture. They agree to do this by keeping the nominal wage fixed for discrete periods of time, with upward adjustments (think of an increasing step function.) <br /><br />Suppose now there is an unexpected decline in NGDP (maybe temporary, maybe persistent). Let's say this shock has no effect on the NPV of their joint venture. To keep the worker's share of the surplus unchanged, the two parties may agree to suspend the future increase in the nominal wage path. <br /><br />There is no change in the current nominal wage. The real value (NPV) of the wage cost has not increased for the firm. There is no reason to lay off the worker, or reduce hiring.<br /><br />This is a logical possibility. Whether it holds empirically, of course, is a different matter.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-41122837222124629902011-09-20T13:44:45.010-07:002011-09-20T13:44:45.010-07:001. If nominal wages are highly sticky, then NGDP ...1. If nominal wages are highly sticky, then NGDP slowdowns will raise unemployment.<br /><br />Let me rephrase 1. If nominal wages are constant in the near-term and NGDP declines, the number of employed workers will decrease. Almost a tautology me thinks.Erik Poolehttps://www.blogger.com/profile/02442592238782846163noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-84261016401489294252011-09-18T12:24:53.919-07:002011-09-18T12:24:53.919-07:00Simon,
Is what you see in the aggregate wage data...Simon,<br /><br />Is what you see in the aggregate wage data similar to what I report here: http://andolfatto.blogspot.com/2010/11/2005-real-wage-shock.html<br /><br />There does seem to be evidence suggesting that the deceleration in price level growth has been sharper than the deceleration in nominal wage growth. But really, as Prof J suggests above, I'm not sure that this level of aggregation tells us anything meaningful.<br /><br />Not only "Keynesians" are worried about the rise of long-duration unemployment. I would go further and say that the problem is understated if one just looks at reported unemployment because a lot of people (who likely should be working to build or maintain their human capital) have dropped out of the labor force. <br /><br />I'm not sure I understand your last question. I'm not even sure if nominal wages are "sticky" in a meaningful sense. Perhaps it has to do with time-varying bargaining power? (I've seen a paper recently, Ravenna and Walsh, I believe, that allows for stochastic variation in bargaining power that ends up looking a lot like a NK markup shock.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-65713081797584384692011-09-18T10:21:06.484-07:002011-09-18T10:21:06.484-07:00Are aggregate wages really a meaningful concept? D...Are aggregate wages really a meaningful concept? Doesn't wage aggregation require the labor to be homogeneous to have an economic interpretation?Prof Jhttps://www.blogger.com/profile/16539902592080231165noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-4542892326830420782011-09-18T06:54:35.569-07:002011-09-18T06:54:35.569-07:00I'm never sure how a macroeconomist should thi...I'm never sure how a macroeconomist should think about the US labor market, esp. these days. <br /><br />On the one hand, I have microeconomists reminding me, as David does, that the gross flows into and out of employment dwarf changes in aggregate employment. That makes me expect that, even if the wages paid in a given job-employee match are quite sticky (for example, because they are long-term contracts), aggregate wages should behave quite differently. It also makes me worry less about the social cost of unemployment because I think short spells between jobs are less serious than long-spells.<br /><br />But what I think we see in the aggregate data is that average nominal wages are quite sticky. I also keep hearing Keynesians worried about a sharp rise in long-duration unemployment in recent years; I think most economists would agree that's a bad sign.<br /><br />How do you think about movements in the duration of unemployment spells, David? And are sticky individual wages enough to explain sticky aggregate wages?Simon van Nordenhttp://expertise.hec.ca/simon_van_norden/noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-25276617012911911022011-09-17T19:11:31.175-07:002011-09-17T19:11:31.175-07:00Anonymous,
I don't think it's fair to mak...Anonymous,<br /><br />I don't think it's fair to make such a sweeping statement about groups of economists. Nor do I think it's fair to Sumner, who I think understands and appreciates competing viewpoints. I am just chiding him here for a sin that I think we all occasionally make (being too sure of what we think we know).David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-90969123911874028982011-09-17T17:32:54.642-07:002011-09-17T17:32:54.642-07:00When you dont know what to do, often the best thin...When you dont know what to do, often the best thing is to just do nothing. Sticky wages and prices could be a symptom of underlying uncertainty and coordination problems, rather than the source of the problem. Steve Williamson and his commenters have been discussing something like that this week. Keynesians or monetarists like Sumner seem stuck in some 1960s theoretical amber like in Jurassic Park.Anonymousnoreply@blogger.com