Posted 12:43 AM by Robert

Some Questions Regarding Herr Doktor Professor Paul Von Krugman's Wages Theory

What Herr Doktor Professor Paul Von Krugman wrote in his October 6, 2006 column The War Against Wages:

So what's keeping paychecks down? Major employers like Wal-Mart have decided that their interests are best served by treating workers as a disposable commodity, paid as little as possible and encouraged to leave after a year or two. And these employers don't worry that angry workers will respond to their war on wages by forming unions, because they know that government officials, who are supposed to protect workers' rights, will do everything they can to come down on the side of the wage-cutters.

What the New York Times reports on the front page today:

After four years in which pay failed to keep pace with price increases, wages for most American workers have begun rising significantly faster than inflation. .... The average hourly wage for workers below management level - everyone from school bus drivers to stockbrokers - rose 2.8 percent from October 2005 to October of this year, after being adjusted for inflation, according to the Bureau of Labor Statistics. Only a year ago, it was falling by 1.5 percent. .... The fall in unemployment to 4.4 percent and the recent surge in wages, however, raise the prospect that the job market could be on the brink of another strong run, much like the one that lifted incomes in the late 1990s.

Of course, "wages" are just one component of overall compensation, which includes a variety of other expensive and valuable benefits. "Wages" and "paychecks" matter more than they should to Herr Doktor Professor and the Times generally; indeed, they are drawn to "wage" and "paycheck" arguments like moths to flames. There is, for example, no disclaimer or distinction made between of "wages" or "paychecks" and "overall compensation" in either Herr Doktor Professor's October column or in today's "news" article. On the other hand, nobody seems to have a good grasp on what is happening to true worker compensation in the United States - including people who focus on overall compensation. So although one can go far criticizing Herr Doktor Professor and the Times broadly on this count, I prefer to ask a far narrower question today:

If, as Herr Doktor Professor says, what had been keeping paychecks down was major employers like Wal-Mart having decided that their interests are best served by treating workers as a disposable commodity, paid as little as possible and encouraged to leave after a year or two, then does the recent rise in paychecks reported today in the Times mean that major employers abandoned or softened that approach? Have those major employers decided since October 6 that their interests are not best served by treating workers as a disposable commodity? If so, why? Why now?

And, most importantly of all: Why does the Times' "news" article, which takes up plenty of column inches with various analyses of why wages have fluctuated, not even mention Herr Doktor Professor's key theoretical insight into the main cause of wage stagnation?

Sheesh, you'd almost think that the economic reporters at the Times don't care a bit about what Herr Doktor Professor has to say on this topic. Surely that can't be true. Can it?

Just asking.