By Jonathan B. Wight

Krugman has an interesting blog today theorizing about why we have little upward wage pressure even though unemployment rates are historically low.

What I like about the blog is that it integrates different strands of theory, one having to do with downward nominal wage rigidity, the other with microeconomic market structure, and uses relevant data sources to tease out what might be going on.

It’s tentative, speculative work, and an interesting romp through history and behavioral economics. His conclusion is that:

“[T]he combination of downward nominal wage rigidity and monopsony power helps explain both why wages didn’t fall during the period of high unemployment and why employers aren’t doing much to raise wages despite tight labor markets now.”