Saturday, December 10, 2011

Nominal Wage Rigidity

This is a staggering graph, taken from Krugman's recent article on lessons from Europe for economic theory. I am not surprised by nominal wage rigidity but to see it so starkly really makes one think.

2 comments:

Kevin Denny said...

It would be helpful to see the corresponding real graph.

Cormac O'Sullivan said...

Better late than never...

Krugman fails to mention the impact of compositional effects. We know that firms have been letting go more unskilled workers than skilled workers. Since unskilled workers tend to paid less, this puts an upward bias on average hourly wages.