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A Wage Growth Disease: Why Stagnant Services Restrain Aggregate Wage Growth and Inflation - as part of our Sociology job talks

The CEU Campus
Tuesday, March 26, 2019, 3:30 pm – 4:30 pm

The Department of Sociology and Social Anthropology cordially invites you to the following Sociology job talk:

"A Wage Growth Disease: Why Stagnant Services Restrain Aggregate Wage Growth and Inflation": Aggregate annual wage growth and inflation in advanced economies are continuing a secular decline that started in the early 1980s. Existing explanations include elevated unemployment, union decline, changes in monetary institutions, and globalization, but the trajectories of these changes do not fit well with wage growth and inflation trends for several countries, suggesting that they have a modest role. Drawing on the New Structuralism literature and related works, I argue that a key driver of falling wage growth and inflation has been the growing share of employment in “stagnant services”: those with limited productivity growth, competitive product markets, and thin profit margins. In these services, it is difficult to raise wages and prices. I revisit Baumol’s cost disease theory, arguing that stagnant services jobs are holding down wages in other sectors with more room for wage growth, resulting in an economy-wide “wage growth disease.” I examine these arguments using graphical plots and single equation error correction models of nominal wage growth and inflation from 1972-2009. The analysis shows that stagnant services employment growth has been the largest driver of falling wage growth and inflation, halving both over this period. Without deep changes in stagnant services, slow wage growth and low inflation are here to stay.