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Old 01-02-2012, 02:43 PM
jimM47 jimM47 is offline
Join Date: Apr 2007
Posts: 459
Default Re: Matt Yglesias: Creating Jobs by Cutting Wages

Originally Posted by sugarkang View Post
Originally Posted by MattYglesias
The depressing truth is that the easiest way to bring good, high-paying manufacturing jobs back to America is to make them less good and less well-paying.
How do we shoehorn this into the progressive narrative?
No shoe-horning necessary.

Do you ever notice how progressive Keynesians (but I repeat myself :-p) talk about how the monetary authority should purposely strive for a positive rate of inflation to help pull the economy out of recession? Well, the way Keynes himself explained this is that wages are "sticky" such that they more easily go upward than downward. Inflation, he said, would facilitate a lowering of real wages as nominal wages failed to keep pace with inflation.* That in turn would allow for an increase in the returns to the owners of capital and a decrease in the returns to labor that would induce capitalists to hire more workers at the lower real wage.

In essence, what Keynes was calling for — and what many of his modern followers are calling for when they call for inflation — is to increase employment by decreasing (real) wages, based on the theory that current wages are above the market rate for labor, so that there should really be greater returns to capital in order to induce greater employment of labor.

*=[Incidentally, I am not convinced that wages actually have to be sticky in precisely the way Keynes formulates it in order for this dynamic to occur. It is enough that at some margin wage prices are more rigid or labor supply is less elastic than prices/supply for final goods. This can go both ways, and explains why, in a well-functioning banking system, moderate price deflation need not create the deflationary spiral that Don_Zeko talks about down-thread, but can actually shift returns from capital to labor.]
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