I have one bone to pick with the original article:
So let’s correct for that. Suppose the 1980 workforce had looked demographically just like today’s,
… then the supply curves would have shifted around and people in each group in the counterfactual 1980′s would have been earning a different amount to what they did in the real 1980′s.
So can anyone who understands economics help me—is the overall stagnation a supply or demand side thing? The data hint that cheaper labor is entering the workforce and driving wages down, but could it also be that the economy only supports a certain number of jobs, and regardless of how demographics shift around the median wage won’t go up?
You’re making an unwarranted assumption that the overall stagnation needs a macroeconomic explanation.
Imagine, for a moment, that most of the increase in a workforce happens in low-wage, low-cost-of-living regions. It’s entirely possible for average wages to stagnant even as average buying power increases, with no changes to any local costs of living; what mechanism in supply and demand can explain this? Is cheap food entering the country from Mexico and driving the cost of food down? That’s the problem with hidden variables.
Instead of looking for an explanation in supply or demand, first you need to look at the hidden variables, and see if there’s an inherent explanation there. By asking whether it’s a supply or demand issue, you’re effectively ignoring the hidden variables, and declaring that the broader statistics are meaningful.
Asking what mechanism in macroeconomics can explain the stagnation is a bit like using the Kidney Stone example used on wikipedia and asking whether maybe doctors aren’t sterilizing their equipment properly prior to performing procedure A.
Edit: To clarify exactly why this is the wrong question to ask, this phenomenon is perfectly well described by demand for workers increasing in all sectors, but increasing in some sectors more than others. It’s also perfectly well described by demand for workers staying constant (relative to population). It’s also perfectly well described by demand for workers declining across all sectors, but decreasing in some sectors more than others. (Absent additional information not present in this data, that is.) That is, you can obtain the same results with relative increases, relative stagnation, and relative decreases in demand for workers. “Supply and demand” in this case is an answer seeking a question.
Interesting data.
I have one bone to pick with the original article:
… then the supply curves would have shifted around and people in each group in the counterfactual 1980′s would have been earning a different amount to what they did in the real 1980′s.
So can anyone who understands economics help me—is the overall stagnation a supply or demand side thing? The data hint that cheaper labor is entering the workforce and driving wages down, but could it also be that the economy only supports a certain number of jobs, and regardless of how demographics shift around the median wage won’t go up?
You’re making an unwarranted assumption that the overall stagnation needs a macroeconomic explanation.
Imagine, for a moment, that most of the increase in a workforce happens in low-wage, low-cost-of-living regions. It’s entirely possible for average wages to stagnant even as average buying power increases, with no changes to any local costs of living; what mechanism in supply and demand can explain this? Is cheap food entering the country from Mexico and driving the cost of food down? That’s the problem with hidden variables.
Instead of looking for an explanation in supply or demand, first you need to look at the hidden variables, and see if there’s an inherent explanation there. By asking whether it’s a supply or demand issue, you’re effectively ignoring the hidden variables, and declaring that the broader statistics are meaningful.
Asking what mechanism in macroeconomics can explain the stagnation is a bit like using the Kidney Stone example used on wikipedia and asking whether maybe doctors aren’t sterilizing their equipment properly prior to performing procedure A.
Edit: To clarify exactly why this is the wrong question to ask, this phenomenon is perfectly well described by demand for workers increasing in all sectors, but increasing in some sectors more than others. It’s also perfectly well described by demand for workers staying constant (relative to population). It’s also perfectly well described by demand for workers declining across all sectors, but decreasing in some sectors more than others. (Absent additional information not present in this data, that is.) That is, you can obtain the same results with relative increases, relative stagnation, and relative decreases in demand for workers. “Supply and demand” in this case is an answer seeking a question.