The frontpage headline story for the Labor Day weekend was "Low Wage Growth Challenges Fed." Despite an alleged 4.4% unemployment rate, which is full employment, there is no real growth in wages. The front page story pointed out correctly that an economy alleged to be expanding at full employment, but absent any wage growth or inflation, is "a puzzle that complicates Federal Reserve policy decisions."


The lead editorial declares: "The biggest labor story this Labor Day is the trouble that employers are having finding workers across the country." The Journal's editorial page editors believe the solution to the alleged labor shortage is Senator Ron Johnson's (R.Wis.) bill to permit the states to give 500,000 work visas to foreigners.

In my day as a Wall Street Journal editor and columnist, questions would have been asked that would have nixed the editorial.  For example, how is there a labor shortage when there is no upward pressure on wages?  In tight labor markets wages are bid up as employers compete for workers.''

There is more to it than the rearward-looking PCR has ever been able to figure out: the U.S. actually has a two-tier labor market now; a large segment of the market (call it the "upper") is experiencing shortages -- in highly-technical, professional, and otherwise specialized jobs. The "lower" tier consists of non-degreed service jobs and manufacturing. Obviously the imbalance is the opposite between the two tiers, and this situation has been going on so long that the denizens of the lower tier have pretty much given up looking for jobs. This is why the unemployment rate is low AND wages are stagnant AND the labor force could be even larger (or the participation rate higher) (i.e., bringing in more people or re-training lower-tier market folks for the upper tier, or increasing employment in the lower tier -- but that would require more jobs there).

There's virtually no "band-aid" style, short-term solution for any of this; not tariffs or "re-negotiating trade agreements to try to "bring back manufacturing jobs"; not government largesse to try to create them, not banning robots, not importing huge quantities of skilled workers. First, monetary policy needs to be fixed to rev up the central engine of capitalism; beyond that, it would probably be a good idea to fix the costs of the university education system and invest in skilled re-training; but perhaps most importantly would be to get a guaranteed job program in place (better than universal basic income) to relieve real, broad-based economic misery while the major reform efforts take effect. More ideas have been suggested on this site; we won't recap them all right now, but it suffices to say, real reform is needed, it is hard, not easy, and it will (generally) act in the long term, not quickly (though some, like monetary and financing reform, could act very quickly).

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