Tuesday, January 23, 2018

Anchored expectations and wage stagnation?

It's a tremendously common-sensical explanation for wage stagnation in the face of massive economic growth, which explains why economists are only fucking stumbling onto the idea right now:

Jaren Bernstein - anchored expectations and wage stagnation. Quote:
Sen’s argument is that even employers who need new workers are avoiding raising their wage offers because they don’t want to have to raise the pay of their incumbent workforce.

When an employer in the Boston district was asked why the company didn’t raise wages as a way of attracting more workers, it responded that if it had done so, it would have had to pay all the existing workers more, which would be uneconomic. And another contact in the Boston district said that when a worker departs, the replacement typically ends up earning 10 percent more than the departing worker made.

This implies that incumbents could do much better if they left their jobs paying well below what they could get elsewhere given current conditions. That would show up as more labor-market churn, which has, in fact, been down in recent years (the economist Betsey Stevenson has long emphasized this development).

If so, then perhaps incumbent workers are just too used to a labor market market characterized by stagnating pay so they don’t bother looking for a better job elsewhere, under the assumption that, pay-wise, their next job would be no better than their current one. It’s “well-anchored expectations,” applied to a job market long characterized by wage stagnation. And just like with the Fed’s inflation problem–undershooting their inflation target for years on end–it takes a long time for expectations to change.
And, of course, the elephant in the room that no economist dare mention:
US employers have just thoroughly forgotten how to raise pay, and they don’t have too much by way of unions to remind them.

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