Reservation Wages

Interesting new paper from Alan Krueger and Andreas Muller using surveys of unemployed workers.  Tyler Cowen passes on this popular summary (no source given):

… today’s job seekers seem more picky. According to an analysis of surveys of 6,000 job seekers, the minimum wages that the unemployed are willing to accept are very close to their previous salary and drop little over time, says Mr. Mueller. That could help explain in part why they have so much trouble finding work, he says. [emphasis added]

The paper gives evidence that the unemployed aren’t doing the things we might expect them to (or maybe we would?).  Namely, during an unemployment spell, time devoted to job search declines while the reservation wage doesn’t.  Which, according to the paper, is the exact opposite of what one needs to do to find employment, as “amount of time devoted to job search and the reservation wage help predict early exits from Unemployment Insurance”.


Zoning and Miracles

Lots of discussion about the so-called Texas Miracle, in which Texas has evidently avoided the worst of the ongoing unemployment crisis.  This is the heart of Gov. Rick Perry’s campaign message.  I might go into some of the core arguments later, but right now, let’s talk about zoning!

Tyler Cowen writes:

Texas, it seems, doesn’t give nearly as much political power to its equivalent of the Mantua moms, for whatever reason (can anyone tell us why?).  That leads to cheaper land, cheaper housing, and inferior public school systems, not to mention better and cheaper food.  And poor people are voting with their feet to choose it.

Based on context, the “Mantua moms” appear to be a powerful local political group that pushes for tight zoning.  I have heard friends complain that the lack of zoning regulations in Houston makes for a very ugly and confusing city.

Do you want to live in ugly Houston with its low standard of living but inferior schools or beautiful Fairfax with its top-tier schools but high standard of living?  To each his own, I say.  This is a great example of competition in local government (recall the neighborhood association comparison).  There are different options for different kinds of people, and the states hold each other accountable in some sense.

So Texas is a state that appeals to people with certain preferences.  Does Rick Perry deserve credit for helping create that environment?  And even if he does, is that relevant to the President election?  The neighborhood association view does not really apply at the federal level.  For another day.

Are Sticky Wages Still the Problem

From Tyler Cowen:

One simple view is that Keynesian economics holds true in the short run — it explains a lot of layoffs — but it doesn’t explain longer-run unemployment, precisely because wages are sticky only for a while.  That’s what most neo-Keynesian models imply and for the most part those are good (but not perfect) models.  What we’re seeing is a previously rejected form of Keynesianism, applied across increasingly long and increasingly implausible time frames — suddenly pretending to be the mainstream view.  It’s not and has not been for a long time.

In other words, Keynesianism is morphing into a theory of the long run.

He calls the sticky nominal wage theory “an embarrassment — when it comes to the unemployed across the longer run (but not the employed)” and then offers this provocative sentence:

A lot of people don’t like hypotheses which suggest the unemployed are not victims of the system, so it doesn’t get much of a hearing.