Friday, March 14, 2014

What's Wrong with Rising Wages

Paul Krugman asks what's wrong with rising wage. I'm going to assume he was asking a serious question, though it should be deeply embarrassing for a winner of the economics nobel not to know the answer. What's wrong with rising wages is nothing per se. It's only wrong when wages rise out of balance with the rest of the economic picture, distorting the economy and necessitating large changes in where work is done as a reaction. As the UAW found out, you can push things far enough that an entire industry will relocate out of your reach just to escape you.

The US labor wage got out of whack compared to global labor conditions and the great outsourcing of jobs to foreign nations started and ran decades, hollowing out this country's economy and creating large numbers of dying cities, a problem that we still haven't fixed as any observer of Detroit could tell you.

But that imbalance has largely been resolved and we're at the leading edge of a manufacturing renaissance in the US. Following Krugman's policy to "wait some more until wage growth is at least back to precrisis levels and preferably higher" risks killing that manufacturing renaissance in the crib because it would restore the productivity adjusted wage gap between China and the US and make workers in foreign lands more attractive for the next production line.

I actually agree with Krugman that at 6.7% unemployment we're unlikely to be running out of slack in the labor market anytime soon. If we are, then the country's in a great deal of trouble. But restoring the economic distortion of unjustifiably high wages is a real danger to the US economy. Krugman should be ashamed of himself to advocate it. US workers should earn more because we produce more, not as some sort of 'thumb-on-the-scale' politically guaranteed birthright.