What Does Seasonal Employment Show About Nominal Rigidity?
By Bryan Caplan
Casey Mulligan makes a thought-provoking point about summer employment:
[N]ational employment was two million to three million higher in July
than it was six months before (employment estimates vary somewhat
between the business surveys and the household survey).
But it’s big news that the seasonal employment cycle continues to
operate as normal. The cycle is, of course, the outcome of seasonal
fluctuations in supply and demand, and Keynesian economists insist that
supply and demand are not operating normally since the recession began
and that the economy has been caught in a “liquidity trap.”
This is a telling objection to weird Keynesian stories where the solution to nominal rigidity isn’t lower wages. But it’s perfectly consistent with a normal Keynesian story of unemployment where excessive wages prevent full employment. Consider: What’s special about temporary summer jobs?
1. Employers don’t have to cut any worker’s wage to cut workers’ wages. Just offer less than last year to the new batch of employees.
2. Insider-outsider issues aren’t much of a problem. Temporary workers, whatever their pay, pose little threat to the jobs of any full-time co-workers, so there’s little reason to haze them.
3. The temporary workers leave their jobs before feelings of wage “unfairness” can do much damage to morale.
What we learn from seasonal employment, in short, is that if all workers were like temporary workers, there wouldn’t be much of an unemployment problem. Unfortunately, most workers aren’t like temporary workers, and the unemployment problem is very real. Employers who cut wages won’t be popular, but they should be.