Over at EconLog Bryan Caplan has posted a review of Truman Bewley’s Why Wages Don’t Fall During A Recession. Based on the glowing review it seems that it should be well worth the read. In his post, Bryan summarizes a number of Bewley’s arguments and makes a fairly compelling case for the existence of sticky wages.
Sticky wages have been a thorny problem for libertarians. On the one hand, basic economics would suggest that profit maximizing employers will simply lower wages in the face of falling demand. On the other hand, compelling arguments have been presented that suggest that employees may (somewhat irrationally) resist nominal wage cuts or become demoralized and unproductive when they are administered.
Even more problematic is the suggestion that voluntary interactions among adults can cause periodic economic crises and involuntary unemployment.
So what is my take on the issue? While I haven’t yet read Bewley’s…
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