Nominal Wages and Behavioral Postulates
By Bryan Caplan
Tyler’s not satisfied by the traditional nominal rigidities explanation for continuing high unemployment:
It’s also the case that the rate of new job creation has been
especially low. Yet the nominal wages on those jobs-to-be are not
constrained by previous contracts or agreements. Tell stories as you
may, but it’s hard for me to see that as exclusively an AD problem.
I wonder what is the behavioral postulate for how long all these
unemployed workers are all staring jobs in the face yet persistently
stubborn about their appropriate nominal wage. I’m all for behavioral
economics, but I don’t buy the necessary story here.
In my view, the main problem isn’t that unemployed workers are “stubborn” about their nominal wages. The crucial “behavioral postulates” are rather that:
1. Hiring new workers for lower wages provokes resentment and resistance from existing employees – the classic insider-outsider mechanism.
2. At this point, the unemployed will probably say “yes” to jobs even if they they perceive their nominal wages as “unfair.” But after a brief honeymoon period, these new workers would probably have low morale. This wouldn’t just hurt their productivity; it would also bring down the productivity of their better-paid co-workers.