Cutting Wages Is Hard to Do: Why That's Bad for Unemployment
In Jackson Hole, Wyo., this August, Janet Yellen, chair of the Federal Reserve, gave a speech explaining just how hard it is to understand unemployment. She made passing mention of an idea only an economist could love: “downward nominal wage rigidity.” In plain English, that means it’s hard for any company to cut pay, even in a recession. Economists sometimes call this “wage stickiness.” Depending on your brand of economics, stickiness either makes no sense and therefore only happens because of bad policies, or it’s a significant, enduring problem that worsens unemployment. Yellen seems to be leaning toward “enduring problem.”
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