Why Wages Don’t Fall During A Recession

I have finished reading a fascinating book by Truman Bewley called “Why Wages Don’t Fall During A Recession”. It’s an interesting book not only for its topic but also for the way in which the author conducted his research. Unlike most economists who conduct studies based on complicated mathematical models, Bewley did something unusual and interviewed business owners to understand more about how they run their business. Economists traditionally viewed the market as automatically self-adjusting so that wages and prices would easily change to the right level in response to market conditions. However, it has been found that wages are rigid and almost never decline so between 1992 and 1994 Bewley interviewed 336 people in the North East of the United States (the book was published in 1999). The studies were meant to be qualitative and as such are not random or representative. They provide a very interesting insight into the mind of business managers. Continue reading “Why Wages Don’t Fall During A Recession”