>A problem I have with some of the anti-NAIRU literature is that it has
>thrown the proverbial baby out in its efforts to critique the
>natural rate of unemployment idea. You can dispute the inotion
>that unemployment is "natural" without wholesale rejection of any
>connection
>between growth/ low unemployment and inflation.
>Obviously, a one-to-one relationship between growth// inflation is
>difficult to establish, since so much
>depends on the wage-setting and price-setting
>institutions in a country, but its a pretty plausible relationship, all
>in all.
Throwing out the NAIRU concept also throws out any class conflict model of wage setting and inflation. The bourgeoisie likes slack labor markets.
>The worst sustained real wage declines in the US came during the 1980s and
>1990s, though manufacturing wages began to decline in 1973.
Here's the record on U.S. real wages since 1970s. The first two columns show the one-year and three-year changes in the real hourly wage for all private nonsupervisory workers; the third and fourth, the one- and three-year change in the real weekly wage for the same set of workers; column six shows the yearly change in the CPI, and column five, the percentage point change in CPI inflation from three years ealier. The biggest long-term hits to the real wage were in the high/rising inflation years of the 1970s and early 1980s. The losses of the later 1980s were during the period from 1986 onward, when inflation was rising. I'm not fully sure what to make of this, but it's clear that bursts of inflation have not been good for the U.S. working class. But didn't Keynes recommend inflation as the best way to cut the real wage?
hourly weekly CPI
----------------- ---------------- -----------------
1-year 3-year 1-year 3-year vs. T-3 yearly
1970 +0.2% +3.5% -1.3% +1.1% 5.9%
1971 +2.4% +4.0% +1.7% +1.5% 4.2%
1972 +4.0% +6.6% +4.2% +4.7% 3.3%
1973 +0.2% +6.7% +0.2% +6.2% +0.4% 6.3%
1974 -3.1% +1.0% -4.2% +0.0% +6.8% 11.0%
1975 -2.0% -4.8% -3.2% -7.1% +5.9% 9.1%
1976 +1.4% -3.7% +1.6% -5.8% -0.5% 5.8%
1977 +1.3% +0.7% +0.9% -0.8% -4.5% 6.5%
1978 +0.8% +3.6% +0.3% +2.9% -1.5% 7.6%
1979 -2.7% -0.7% -3.2% -2.0% +5.5% 11.3%
1980 -4.7% -6.6% -5.8% -8.4% +7.0% 13.5%
1981 -1.3% -8.6% -1.3% -10.0% +2.7% 10.4%
1982 -0.2% -6.2% -1.5% -8.4% -5.1% 6.2%
1983 +1.2% -0.4% +1.7% -1.1% -10.3% 3.2%
1984 -0.6% +0.4% -0.2% +0.0% -6.0% 4.4%
1985 -0.5% +0.1% -1.2% +0.4% -2.6% 3.5%
1986 +0.3% -0.8% -0.1% -1.5% -1.2% 1.9%
1987 -1.1% -1.3% -1.1% -2.3% -0.7% 3.7%
1988 -0.7% -1.5% -1.0% -2.1% +0.5% 4.1%
1989 -0.7% -2.5% -1.1% -3.1% +2.9% 4.8%
1990 -1.6% -3.0% -1.8% -3.9% +1.7% 5.4%
1991 -1.1% -3.4% -1.7% -4.6% +0.2% 4.2%
1992 -0.5% -3.2% -0.2% -3.7% -1.8% 3.0%
1993 -0.4% -2.1% -0.2% -2.1% -2.5% 2.9%
1994 +0.1% -0.9% +0.6% +0.2% -1.6% 2.6%
1995 -0.1% -0.5% -0.6% -0.2% -0.2% 2.8%
1996 +0.4% +0.4% +0.3% +0.3% +0.0% 2.9%
1997 +1.5% +1.9% +2.2% +1.8% -0.3% 2.3%
1998 +2.5% +4.5% +4.4% +7.0% -1.3% 1.6%
1999 +1.9% +6.0% +1.4% +8.2% -1.1% 1.8%
>Yes, this is true, but how long can this last? The fact that wages
>are rising without inflation (indeed with disinflation)
>is due to the weakness of 1970s style wage-setting institutions,
>like collective bargaining units and contractual raises in bureaucratic
>workplaces.
Between 1997 and 1998, union members had an average weekly wage increase of 3.0%, vs. 4.4% for nonunion workers. I suspect that's a reflection of a higher unionization rate in manufacturing, where the real wage is virtually flat; for the last two years or so, private service workers have seen real hourly wage increases in the 2-3% range, despite low union density. Obviously this service outperformance is a function of tight labor markets without significant import competition.
>I think leftists should support inflation, if only for the wealth-
>redistributing properties. Frankly, I don't know how I'll ever
>pay off my debts if the inflation rate stays near zero.
In the U.S., debt substitutes for the social wage. Free tuition! Free healthcare!
> There's
>no evidence that inflation is politically destabilizing in the sense
>you seem to imply -- save for hyper-inflation, which is
>always a manifestation, not a cause, of political instability. Several
>years
>back, though, Jerry Epstein at UMass wrote a paper hypothesizing
>that the US 1970s inflation, to the extent that it reflected
>irresoluble conflicts over wages and productivity and the power
>of strong unions to press for wage gains, caused finance
>and mfg capital to close ranks behind Volcker.
I think it'd be more productive to talk about the tightness or slack in labor markets than about inflation. That's what Wall Street means by inflation - the balance of class power. That's what Greenspan means when he's talking about the dwindling supply of new workers.
Doug