Friday, April 2, 2021

Tyler Cowen's "Decades of Evidence on the Cyclicality of Real Wages"

Oops. I lost this one in the mix. Adding it to the table of contents post now.

The contemporary Democratic position seems to be that "running the economy hot" is going to increase real wages.

In terms of a simple model, this means that shifting the AD to the right with fiscal policy is going to produce a boom in which real wages rise. In short, that real wages will be procyclical.

Except there isn't a theory that says that.

There are a lot of empirical results, and they are a mixed bag. Neoclassical economists have been looking at this for a very long time, and have not found this at all. Instead, real wage seem to be acyclical.

It's not definitive, but Cowen does a Google Scholar search for papers with the keywords "real", "wages", and "acyclical" and finds that they've been used together ... 18 thousand times. That's ... a lot.

Cowen also notes that a good paper on why the cyclicality of wages may change through time was published in the AER about 15 years ago ... and used a model to clue the reader in.

So it seems like contemporary Democrats are hanging their collective hat on something that ... if it's going to work, is going to have to work in a way it never did before.

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