Wages Rise...As Jobs Are Cut

February 25, 2009

James Surowiecki at the New Yorker has an article ‚ that explains why average wages are rising...even as people are losing work.‚  "This is the Age of the Incredible Shrinking Everything. Home prices, the stock market, G.D.P., corporate profits, employment: they're all a fraction of what they once were. Yet amid this carnage there is one thing that, surprisingly, has continued to grow: the paycheck of the average worker. Companies are slashing payrolls: 3.6 million people have lost their jobs since the recession started, with half of those getting laid off in just the past three months. Yet average hourly wages jumped almost four per cent in the past year. It's harder and harder to find and keep a job, but if you've got one you may well be making more than you did twelve months ago. This combination of rising unemployment and higher wages seems improbable. But, as it turns out, it's what history would lead us to expect. Even during the early years of the Great Depression, manufacturing workers actually saw their real wages rise, and wage cuts have been scarce in every recession since. Oil and wheat prices may rise and fall instantaneously to reflect supply and demand, but wages are "sticky": even when the economy goes bad, it takes a lot to make them fall."