Thursday, November 27, 2008

Federal Reserve Bank and Wages: Professor Fox Responds

Professor Langbert makes some very good points. Nevertheless, in my view the rigidity in the long run real wages received by workers of moderate skill stems primarily from other factors.

The real wages of workers without high school degrees have stagnated for several decades. During that period real interest rates have fluctuated considerably. This evidence suggests that other forces are at work.

It appears that a few coincidental factors have contributed to this trend. There is some evidence that technological change has shifted labor demand to those with higher skills – which in turn has reduced the demand for relatively uneducated workers. The expansion of free trade (e.g. NAFTA) may have caused U.S. production to shift towards those industries where the American economy is more competitive, i.e. high technology goods and services which employ more educated workers. Moreover, the increase in the pool of unskilled immigrants (legal and illegal) has probably depressed the wages of unskilled native-born workers who are their chief competitors in the labor market.

Marc Fox
Brooklyn College

Professor Fox is associate professor of economics at Brooklyn College and an expert in the subjects of labor, health and education economics.

No comments: