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.
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.
It would be helpful to see the corresponding real graph.
ReplyDeleteBetter late than never...
ReplyDeleteKrugman 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.