Where Is the Wage Growth?: (Late) Thursday Focus for October 9, 2014

Nick Bunker picks up the slack left when Reuters pulled the plug on its noble and very useful Counterparties:

Nick Bunker: Where is the wage growth?: “The lack of wage growth is on everyone’s mind…

…Catherine Rampell at The Washington Post considers a variety of reasons for this slow wage growth… but finds one more convincing… a considerable amount of slack in the labor market…. Justin Wolfers presents a related puzzle… at the historical relationship between the unemployment rate and average wage growth…. Jared Bernstein looks at the relationship between wage growth and… [a] labor market slack [measure] developed by… Andrew Levin… [and] finds that the… relationship between slack and wage growth has weakened…. Tim Duy… thinks that Wolfers’s puzzle… isn’t all that puzzling…. The meager wage growth of recent years is just a continuation of a long-term trend highlighted by The New York Times’ David Leonhardt…

Also worth putting on your must-read view is the Bruegel weekly Blogs Review by Jeremie Cohen-Setton…

I remember Robert Solow saying 35 years ago that the assumption that business cycles were stationary symmetric fluctuations around a trend that to first-order evolved independently of the cycle was analytically very convenient but was also quite possibly completely wrong, and that a good economist with know when it was time to throw that assumption overboard.

Looking at nominal wage growth since 1985:

And looking at the difference between nominal wage growth and the core CPI since 1985:

allows you to see the stakes at issue here: was there something going on on the supply-side that made 1997-2010 the only time period of positive real wage growth since the Carter administration?

Or does the positive real-wage growth arise because Greenspan after the 1992 and 2003 unemployment-rate peaks is interested in producing a high-pressure economy and in doing whatever it takes in a way that Volcker and Bernanke/Yellen have not been? How much do social conventions of what real wages ought to be shape labor-market supply and demand in the medium- and the long-run, and how much do episodes of labor-market depression and labor-market boom shape those social conventions of what real wages ought to be?

You think that, having been in this business for 35 years, I would know–or at least have strong opinions that I regard as evidence-based…