Wage Cuts Needed For Full Employment

Kevin Hassett points out correctly that the most important reason of the high unemployment rate in America -and for that matter also many other countries- is insufficient downward wage flexibility. Amazingly, wages have actually continued to rise this year (albeit at a slower pace than before) despite the high level of unemployment. Hassett has some interesting suggestions on how to achieve the wage cuts needed to reduce unemployment.

Some leftist economists dispute the fact that wage cuts can reduce unemployment (at least if it comes in the form of nominal wage cuts, as opposed to real wage cuts through inflation). I refuted their arguments here.