Karl Smith recently posted this graph showing the inverse relationship between real wages and durable goods sector hours worked:
He also inverted the real wage series, to make it easier to see the correlation:
Remember how conservatives used to mock that old NYT headline?
Prison Population Soars Despite Lower Crime Rates
I had a sudden vision of a puzzled reporter remarking:
Workers choose to work fewer hours, despite higher real wages.
Of course real wages aren’t the best indicator, wages/NGDP works better when you have supply shocks. But it’s good enough for the period Karl Smith examined, and it was good enough when I investigated the 1930s:
Recessions are actually pretty simple. Nominal wages are sticky. So when NGDP falls you get fewer hours worked. Of course this isn’t true of all recessions—on occasion an asteriod impact will reduce hours worked by 10%. But not very often.
PS. The recent tsunami had no apparent impact on the Japanese unemployment rate.
PPS. Nick Rowe has done a number of posts arguing that recessions are almost inevitably due to monetary disequilibrium. Here’s his latest.
PPPS. David Beckworth has a very good post showing why the Fed should welcome higher long term interest rates.