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Tag Archives: real wages

Did the 2017 Tax Cut Leave the Majority of Americans Behind?

In his recent State of the Union speech, President Biden stated, “Unlike the $2 trillion tax cut passed in the previous administration that benefited the top 1 percent of Americans, the American Rescue Plan helped working people — and left no one behind.” Excuse me? It’s true that the Trump tax cut benefited the top 1 percent of Americans. But it also helped Americans at all income levels. It helped in two ways. First, it cut taxes for virtually everyone and often by...

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Does immigration reduce wages?

Critics of immigration often point to the fact that the post-WWII decades were a sort of golden age for American workers, with rapid growth in real wages up until about 1973. They argue that the immigration changes of the 1960s opened the floodgates, leading to much higher rates of immigration and lower wage gains for workers.Some people argue that it’s simply a question of supply and demand—more supply of workers means lower wages. Economists often reply that more...

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Identifying monetary shocks

This post is a follow-up to my recent post on the “masquerading problem”. Recall that changes in interest rates are not a reliable indicator of changes in the stance of monetary policy. A new paper by Marek Jarociński and Peter Karadi discusses an interesting method of identifying monetary shocks: Central bank announcements simultaneously convey information about monetary policy and the central bank’s assessment of the economic outlook. This paper disentangles these...

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More Capital Per Worker Makes Workers More Productive

In a recent blog post, I wrote: Aside for non-economists: Why would reductions in income tax rates on corporations and on high-income individuals even be expected, at a theoretical level, to increase real wages? By increasing the incentive to invest in capital. The greater the capital to labor ratio, the higher are real wages. Commenter Robert asked: Could someone expand on this a bit for me? Does investing in capital, mean investing in capital goods (i.e., land,...

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Case and Deaton on Deaths of Despair and the Future of Capitalism

In their recent book Deaths of Despair and the Future of Capitalism, Anne Case and Nobel economics prizewinner Angus Deaton, both emeritus economists at Princeton University, show that the death rate for middle-age whites without a college degree bottomed out in 1999 and has risen since. They attribute the increase to drugs, alcohol, and suicide. Their data on deaths are impeccable. They are careful not to attribute the deaths to some of the standard but problematic...

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Some misconceptions about wage stickiness

When macroeconomists talk about wage stickiness, they are generally referring to nominal stickiness. Because nominal wages are slow to adjust, a sudden and unexpected change in NGDP will usually impact employment, often in a sub-optimal fashion. It’s possible to construct a variable called “real wages”, but I don’t view that as a useful concept. This is partly because (like Keynes) I don’t view inflation as being a particular useful concept, except perhaps when trying...

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Henderson on Tom Woods Podcast

Tom Woods contacted me last Thursday morning to ask if he could interview me that afternoon on this 8-minute monologue from Tucker Carlson in which Tucker endorses Elizabeth Warren’s economic plan and claims that libertarians are running Washington. On this latter, who knew? So with minimal prep, I did so. That episode has now come out. It is Episode 1423. It goes a little under half an hour and I was pretty pleased with it. I did make one major factual error. I said...

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The real wage myth

After the 2016 election, several pundits suggested that the Trump victory reflected frustration with stagnant real wages. Unfortunately, this argument is based on a misconception. The average hourly earnings series at the FRED data site only goes back 12 years, but real wages were doing well before the 2016 election: BTW, in nominal terms, average hourly earnings are currently $27.77/hour. FRED does have a much longer series for average wages earned by production and...

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Albert Edwards: “What On Earth Is Going On With US Wages”

When Albert Edwards predicted in late 2016 that a surge in wage inflation was imminent, we were confused by this prediction from the world's preeminent deflationist: after all, not only had not a single economic indicator validated a tighter labor market despite unemployment just above 4%, but as we have have repeatedly demonstrated what little wage inflation existed, was attributable to managerial-level, supervisory positions while the bulk of job creation remained with minimum-wage jobs,...

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“Costs Are Rising, Wages Are Dropping” – The ‘Real’ Economy That Obama Left For Trump

As President Obama held his last press conference this afternoon, basking in the warm afterglow of an over-sampled poll showing his favorability near record highs, it would appear he (and the press corps) forgot to mention that for most Americans - the 80% in production and nonsupervisory roles - this morning's data showed real wages actually dropping for the first time since 2013. Bloomberg's Vincent Cignarella notes "Costs are rising, while pay isn’t: is the U.S. on the road to...

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