the problem with low inflation - you can't cut wages easily!

Doug Henwood dhenwood at panix.com
Fri Dec 20 09:46:02 PST 2002


The latest from St Alan

<http://www.federalreserve.gov/boarddocs/speeches/2002/20021219/>


>Another concern about deflation resides in labor markets. Some
>studies have suggested that nominal wages do not easily adjust
>downward. If lower price inflation is accompanied by lower average
>wage inflation, then the prevalence of nominal wages being
>constrained from falling could increase as price inflation moves
>toward or below zero. In these circumstances, the effective clearing
>of labor markets would be inhibited, with the consequence being
>higher rates of unemployment.



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