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Sunday, July 16, 2006

Since You Brought the Subject Up...

In response to the post Krugman vs Mankiw below this one about Greg Mankiw's response to comments in Paul Krugman's latest column about CEA chair Ed Lazear, I received an email reminding me of a recent speech given by Lazear. The email ends with a good question:

Mark, I don't know if you saw the following article. Lazear is saying wage growth "seems to be taking off" ... but real wages have declined over the last year!

And Lazear is also quoted: "... wage growth is starting to catch up with productivity growth." Doesn't real wage [growth] have to be positive to be catching up with productivity growth?

The full speech is here. Here's one more quote:

Nominal wage growth is strong and has been able to compensate for large and unanticipated increases in energy prices that raised inflation rates.

Why assess consumer well-being by comparing wage inflation to energy inflation only rather than to the entire market basket? Actually, it's not even energy inflation that he's referring to, it's only the part of the rise in energy costs that has passed through to core inflation so far. That's misleading. Nominal wage growth has not kept up with inflation and real wages have fallen. This makes it hard to find the basis for calling wage growth "strong."

It's understandable why Krugman had questions about other comments Lazear has made about wage growth and inequality.

Update: Calculated Risk has more on this topic.

    Posted by on Sunday, July 16, 2006 at 12:15 AM in Economics, Income Distribution | Permalink  TrackBack (0)  Comments (7)


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