More on Cowen on Nominal Rigidities
By Bryan Caplan
In case you didn’t notice, the reason why I outsourced my advice for the unemployed is that Tyler preceded it with, “Yet I have seen not one such post to the unemployed,” and followed it with, “If such posts would seem patently absurd, we should ask what that implies for our underlying theory of current unemployment.” Two followup points:
1. The main reason why such posts “seem patently absurd” is that they’re insensitive and make the author sound like a jerk – not that they’re false.
2. Tyler continues to attack a straw man version of the nominal rigidities story. As I chided him a few months ago:
[T]he main problem isn’t that unemployed workers are “stubborn” about
their nominal wages. The crucial “behavioral postulates” are rather
1. Hiring new workers for lower wages provokes resentment and resistance from existing employees – the classic insider-outsider mechanism.
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.
Encouraging individual workers to be more flexible in their wage expectations is still helpful advice. But it would be even more helpful for the average worker if the average worker became more flexible.