Tags: krugman | falling | wages

Krugman: Falling Wages Will Turn Us Into Japan

By Dan Weil   |   Tuesday, 05 May 2009 10:27 AM

Wages, which are dropping in jobs across the economy, represent a clear and present danger to the economy, says Nobel laureate economist Paul Krugman.

“Concern about falling wages isn’t just theory,” he writes in The New York Times.

“Japan — where private-sector wages fell an average of more than 1 percent a year from 1997 to 2003 — is an object lesson in how wage deflation can contribute to economic stagnation.”

The economy needs to produce a vigorous recovery to push wages back up, Krugman argues.

“There has been a lot of talk lately about green shoots and all that, and there are indeed indications that the economic plunge that began last fall may be leveling off,” he writes.

“But the unemployment rate is almost certainly still rising. And all signs point to a terrible job market for many months if not years to come.”

That would mean more wage cuts, which in turn would prevent a strong recovery, Krugman says.

“To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation,” he maintains.

“The risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be rising.”

Most experts don’t see wages rebounding soon.

"It is going to be a long time before we see sustained pay raises," Harvard University economist Lawrence Katz tells The Washington Post.

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Economy
Wages, which are dropping in jobs across the economy, represent a clear and present danger to the economy, says Nobel laureate economist Paul Krugman.“Concern about falling wages isn’t just theory,” he writes in The New York Times. “Japan — where private-sector wages fell...
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2009-27-05
 

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