Labor Mysteries

“Dramatically Overstated”
Phillips Curve
More Fun with Unemployment Numbers
Dueling Economists
Soft Landing
RIP, Tom Romero
Fishing, COVID, and New Ventures

Politicians talk about “jobs, jobs, jobs” because a steady income keeps people happy and (mostly) voting for incumbents. Carville once told us, “It’s the economy, stupid,” and it always has been. Economies in a recession are usually bad for those in power.

Economists care about jobs for a different reason. Labor is a factor of production—part of the formula for economic growth. Ample labor income promotes consumer spending and raises living standards. All good for everyone. Rising wages and growing productivity? Nirvana!

Inflation complicates this. A strong job market leads to higher wages, which can eventually feed into consumer prices. That brings the dreaded “wage-price spiral.” We aren’t there yet; wage growth has actually lagged behind inflation for many workers. This could change, though.

That presents a dilemma for central bankers like Jerome Powell whose mandate is to maintain both stable prices and maximum employment. What happens when the Federal Reserve has to choose one or the other?

In the early 1980s inflation episode, the Volcker Fed chose to stamp out inflation at the cost of raising the unemployment rate to double digits. We who remember those times know it wasn’t fun, even if you kept your job. Jimmy Carter lost his job and Paul Volcker wasn’t exactly Mr. Popularity. But more inflation wouldn’t have been great, either.

So now many ask if Jerome Powell can emulate Volcker. We will certainly find out. But much has changed in 42 years. Does Powell even need to emulate Volcker? Here, some prominent economists disagree. Today we’ll talk about the issues.

But first, we need to get the data straight. And that’s a whole different issue.