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Judy Shelton on the decline in nominal wage rigidity

From an independent research institute, “The moment Janet Yellen’fueled the wheels’ due to inflation”, Discussing the 1996 Fed meeting:

Ms. Yellen continued to use the academic case of 2% inflation as the preferred target based on the argument she described as “fuel the wheels”. Ms. Yellen quoted an academic paper co-authored by her husband, the well-known economist George Akerlof, and said, “In a world where individuals dislike nominal wage cuts very much, the promotion of relative pay Adjustment, slight inflation will lower the unemployment rate.”

The theory assumes that workers will resist even when companies suffer losses, and companies are unwilling to impose nominal wage cuts—an assertion consistent with Keynesian views on “sticky wages,” despite the economic downturn.

Two observations:

  • George Akeroff Yes Famous economist.He is also a Nobel Prize Winner in Economics.
  • Shelton wrote that it seems that the decline in nominal wage rigidity is a “theory”, basically mocking the idea. In fact, this is an observation, confirmed by a large amount of evidence from the United States and other advanced economies.

In the second observation, a large amount of empirical literature records the decline in wage rigidity, which is mainly based on survey data. The latest research-using administrative data rather than survey data-still shows that hourly pay has a lot of downward rigidity (less total pay); from Grigsby et al. (air, 2021) [ungated version]

source: Grisby, Hirst, Yildmaz (2021), No Gate 2020 Edition.

Finally, although Dr. Shelton’s devaluation of the 2% inflation rate (based on the personal consumption expenditure deflator, not the CPI) is not “price stable”, 2% may not be too far away. That’s because there may be some upward deviation in any government price index due to the failure to capture quality changes and new product launches.For the CPI, an estimate quoted has a deviation of 0.3 to 1.4 percentage points (see Goshen et al. (JEP, 2017).

since Dr. Shelton expressed her doubts about government statistics, The strange thing is that she didn’t even notice this possibility.

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