Falling Wages Compound Economic Woes
Without new stimulus, US faces Japan-style slump: Krugman
By Jason Farago,  Newser Staff
Posted May 4, 2009 8:00 AM CDT
United Auto Workers President Ron Gettelfinger, left, and Vice President General Holiefield speak to reporters in Sterling Heights, Mich. on Monday, April 27, 2009.   (AP Photo/Paul Sancya)
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(Newser) – From bailed-out automakers to newspapers facing cutbacks, companies across the US are slashing wages, and employees—even those with unions—are sitting still for it. While cuts may look like a good alternative to unemployment, but they're more harmful than they appear, writes Paul Krugman in the New York Times. "Falling wages are a symptom of a sick economy," he says. And the example of Japan in the '90s shows that wage deflation can spell years of economic trouble.

Falling wages exacerbate the problem of high debt; as your paycheck shrinks, your mortgage payments remain the same, putting even more pressure on consumer spending and further hurting the economy. The Obama administration has done well to keep the economy from full collapse, Krugman allows, but that's not enough; "We basically need more: more stimulus, more decisive action on the banks, more job creation."