Real Depressing Wages


Did FDR’s high wage policies (and, by extension, Hoover’s) harm recovery from the Great Depression? Scott Sumner says yes:

The bottom series is log of industrial production (monthly, detrended), and the top series is inverted real wages (nominal wages deflated by WPI).

Paul Krugman has a “depression model” of wages which suggests that high wage policies help when you’re in a “liqidity trap”. It’s kind of hard to identify if, in 1933, the US was engaged in such mythology…but I think it is clear that high wages, in fact, don’t help recovery from Great Depressions.

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