Bob Higgs makes the troubling observation that even as the unemployment rate skyrockets, wage rates have actually gone up, a situation first observed at the beginning of the Great Depression:
The U.S. rate of unemployment has been rising since March 2007, when it stood at 4.4 percent. In 2007 it rose slowly, then in 2008 and 2009 much more quickly. In August 2009 it reached 9.7 percent. The increase in unemployment represents for most people the most troubling aspect of the current recession.
However, during the past year, so much attention has been focused on the financial debacle in its various dimensions, and on the Fed’s and the Treasury’s efforts to deal with it, that the growing unemployment - now amounting to approximately 15 million persons - has become almost a footnote to the welter of troubles besetting the economy, and the labor market itself has received relatively little attention. Of course, the government’s “stimulus” spending programs purport to be aimed at restoring employment, and, if we subscribed to vulgar Keynesianism, we might expect them to do so.
Sound economists know, however, that, as some of them like to say, the labor market clears in the labor market, not in the product market or the bond market. When we seek to understand changes in the volume of employment (and by loose implication, the amount of unemployment), we are well advised to pay closest attention to what is happening in the labor market.
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