Why Ease Credit, But Not Increase Wages? | The Business Desk with Paul Solman | PBS NewsHour

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In the fall of 2007, when the U.S. economy first seemed in peril, I began answering reader queries here on the Business Desk. I still do so, but this page has expanded to include posts from eminent economists, "far-flung correspondents," and a variety of voices that have intriguing and/or useful things to say about economics, broadly defined. Please feel encouraged to respond to any and all of them.

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Why Ease Credit, But Not Increase Wages?

Name: Doug
City & State: Waialua, H.I.

Unemployed workers at a job fair; AP photo

Question/Comment: A basic truth in economics is that wages drive demand. Yet for the last 30 years wages have been stagnant or decreasing. Why do I hear only talk of easing credit, not increasing wages? Easy credit is what caused this bubble in the first place. I am middle class and guarantee you if my wages are not going up I will not buy.

Paul Solman: The reason you don't hear the talk of increasing wages - as a policy matter - is that it's so hard and controversial to do. You increase them by decree: minimum or "living" wage hikes and union contracts.

But there are legitimate arguments against: high minimum wages may discourage employers from hiring unskilled labor. Same for "living" wage laws. Union contracts help hamstring an industry, like autos, once it faces cheaper global competition.

People have long bemoaned wage stagnation. I've been doing stories about it and economic inequality since I joined the NewsHour in the 1980s. But apart from a progressive tax policy, which Obama endorsed in his campaign, there's no obvious answer, just policies with pluses and minuses which are not easy to effect.

-- Posted December 22, 2008 | Comments ( ) | Permalink