Customer Reviews

Why Wages Don't Fall during a Recession

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Every business cycle researcher should read this book. Truman Bewley, a leading economic theorist, had spent years theorizing about why businesses didn't cut wages when times got worse. After all, when workers are in a bad situation, why not take advantage of them? Then, Bewley did something that economic theorists almost never do: He went out and talked to businesspeople and asked them why they didn't cut wages during the 1990 recession.

What he learned contradicted every paper he had ever written. To dramatically and unfairly oversimplify, he found out that businesses were obsessed with the idea that wage cuts would hurt worker morale, which could hurt worker productivity. He found out that culture mattered, and that good business culture depends on perceptions of wage fairness.

To those who say that you can't quantify culture, I say go read Truman Bewley. He found out that one part of culture can be quantified quite easily: The optimal change in wages in a healthy corporate culture is generally bounded below at zero.

Nobel Laureate Robert Solow and Princeton professor Alan Kreuger have both written enthusiastic blurbs for this book. Bewley's book is evidence that economists can do great anthropological research, research that can help us better understand and better model the real world.