Do We Really Want Rising Wages?

Washington Post: Whether wages rise soon “depends on how much shadow unemployment is left. That’s everyone who’s not officially ‘unemployed’—not working, but actively looking for a job—but basically is.”

“The White House, as you can see above, calculates that about half the decline is due to aging, which is in line with other estimates. Another chunk is due to the crisis. And the rest is unexplained. (That’s the blue part of the graph).”

“It’s important to remember, though, that this whole time the Boomers have still been retiring, and in greater numbers than before. So if none of the shadow unemployed were coming back, the labor force would be shrinking right now. That’s why, as economist Scott Sumner argues, the labor force participation rate really is recovering even though it’s not going up: returnees are exactly balancing out retirees. It’s not as much of a recovery as we’d like, but a flat participation rate is still one.”

“The economy’s biggest problem is that workers’ wages have fallen, in inflation-adjusted terms, for 15 years now, but we kind of don’t want that to change right now. If it did, that would mean the Great Recession had pushed millions of people into early retirement. It’d be better if more of those people came back, and then wages started rising again.”

“That’s the best way to tell that the economy still has a ways to go before it’s back to normal. Higher wages should never be bad news in any sense.”

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