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Saturday, September 16, 2006

Why the Difference?

This is from Stephen Gordon at Worthwhile Canadian Initiative. Why have real wages tracked productivity closer in Canada than in the U.S.?:

Why are wages tracking productivity in Canada, but not the US?, by Stephen on Productivity, Worthwhile Canadian Initiative: A well-known curiosity of this business cycle is that US wages are stagnant, notwithstanding quite impressive improvements in worker productivity:

Prod1916

But in Canada, real wages are tracking productivity fairly closely:

Prod2916

The Canadian counter-example provides a useful check for possible explanations for the US 'disconnect'. For example, consider the hypothesis that US real wages are being held back by competition from low-wage countries such as China. This is a plausible story ... but it doesn't square with the Canadian experience. If anything, we'd expect the effect to be even stronger in Canada, what with the 40% appreciation of the CAD against the yuan since 2002.

So the challenge is to come up with an explanation for the US disconnect that wouldn't also predict a disconnect in Canada as well.

    Posted by on Saturday, September 16, 2006 at 12:15 AM in Economics, Income Distribution, Unemployment | Permalink  TrackBack (0)  Comments (62)

          

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