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This note is forthcoming in Critical Review (1998). It is a response to Vedder and Gallaway's reply to my longer review.
By this point brevity is called for:
First, Vedder and Gallaway's measures of real wages are, simply, wrong. Because the composition of employment by education and experience varies over the business cycle, the average wage paid to employed workers has a different pattern of variation than the wage that firm managers care about. This is important. They ignore it.
Second, Vedder and Gallaway wrongly scale their measures of real wages by actual, not potential productivity. Thus they move shifts in productivity that are the result of changes in unemployment over from the "effect" to the "cause" side of the ledger. This is important. This is how they generate false statistical confirmations of their theories.
Third, a methodological point: There is a large body of work on how to measure the cyclicality of wages, and on whether fluctuations in actual productivity over the business cycle are cause or consequence of the cycle. Vedder and Galloway ignore this literature. They ignore it whether published in the University of Chicago's flagship journal, the Journal of Political Economy, or in Harvard University's flagship journal, the Quarterly Journal of Economics.
Now if you want to contribute to a conversation--and economics is an ongoing intellectual conversation, carried out between people of many different methodological and political viewpoints--you have a moral obligation to your readers to situate your contribution. You need to say which recent and important contributions to the discussion you agree with, and which you disagree with. And you need to say why.
Vedder and Gallaway do not do so.
At the very least this is bad manners. If Vedder and Gallaway want anyone to take them seriously, they need to lay out why they think a broad range of smart, hard-working, and well-respected economists who have written on the cyclicality of wages and productivity--and who disagree with Vedder and Gallaway--are wrong.
Fourth and last, Vedder and Gallaway's tone is odd.
Their tone is odd in their claim that they have uncovered what has been hidden from others, the secret cause of unemployment.
Their tone is odd in their claim that they have "relentless and devastating evidence" that unemployment is caused by "...minimum wages, legal privileges for unions, civil rights legislation, unemployment compensation, and welfare."
Their tone is odd in their calling those who disagree with them pseudo-intellectuals, claiming that modern economics is little more than trivial mathematical formalization, accusing John Maynard Keynes of launching an ad hominem attack on themselves from sixty-two years in the past, and trying to borrow Karl Popper's intellectual authority to try and convict a number of economists of intellectual high crimes and misdemeanors.
To cut connections with the ongoing conversation (and it is a powerful and interesting conversation) about the cyclicality of the real wage and of labor productivity; to dismiss intellectual adversaries as pseudo-intellectuals; to claim to have uncovered secrets that have been hidden from others--readers should be sure to take these oddities of tone into account in evaluating their work.
Mark Bils (1985), "Real Wages Over the Business Cycle: Estimates from Panel Data," Journal of Political Economy 93 (August), pp. 666-689.
Gary Solon, Robert Barsky, and Jonathan Parker (1994), "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?" Quarterly Journal of Economics 109 (February), pp. 1-25.
Richard K. Vedder, and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America (New York: Holmes and Meier, 1993).
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