Your Fat Paycheck Keeps Your Neighbor Unemployed: Kevin Hassett

[Buzz]

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain in the 2008 presidential election. The opinions expressed are his own.)


The article is posted in its entirety at:

http://www.bloomberg.com/news/2010-0...n-hassett.html

ome observations perfectly at home in economics textbooks can be so beastly in practice that nobody is willing to mention them.

Ignoring the facts, though, leads to bad policies, and with the U.S. unemployment rate at a stubborn 9.6 percent, we don’t need more of those.

So here comes the leap into ice-cold water: The biggest problem with the labor market right now is that wages are too high. As Washington again turns to government spending as a cure for unemployment, some against-the-grain thinking is in order.

Economics teaches that full employment would be reached if wages adjust downward, to a level that better reflects current circumstances. At lower wages, employers would desire more workers. Labor markets generate persistent unemployment only if wages are sticky, failing to fall as demand declines.

A number of reasons help explain why wages don’t and won’t drop, beginning with federal and state minimum-wage laws.

Second, because union contracts generally cover multiple years, adjusting wages in response to economic circumstances would require a return to the bargaining table, which rarely happens.

Third, the natural reluctance of workers to accept lower pay is amplified by how their wage helps define their identity. A $60,000-a-year office worker might have an extra-hard time coming to terms with becoming a $40,000-a-year worker.

Finally, workers and jobs might be mismatched, either geographically or occupationally. Workers might be needed in places they don’t want to move to, or can’t afford to live.

[ducknwork]

Sounds great and all, but wages can't drop unless food prices, electric bills, water bills, and other basic living expenses drop first. Last I checked, they are only going up. In the past 6 months, without any changes on my part, my electric and water/sewer bills have increased a total of about $100 a month. I was living pretty comfortably 6 months ago, now it's a little tighter in my house.

[Marvin S]

I have always opposed a minimum wage. What it does is keep those who would benefit from the training of having a job where they learned some useful skills. Like show up regularly & on time, paying attention to what you are supposed to be doing, recognizing that they are there for a purpose.

Read a story one time of a person who worked for an ice cream vendor - what they learned was giving the customer what they had paid for ended up with more profits that could be shared with the employees, which the employer did .