
There is a widespread labor shortage, as evidenced by the “Help Wanted” signs everywhere, yet there are also falling after-inflation wages. We economists cannot fully explain these circumstances. But they may suggest that employers simply are not willing to agree to higher wages, perhaps due to business uncertainty. And if a labor shortage won’t push them to increase real wages, perhaps a higher rate of inflation won’t either. In short, one of the main effects of a permanently higher inflation target may be lower real wages. A lot of workers may not be too happy with their situation. There remains a risk that these workers, in lieu of bargaining for higher wages, will quit the labor force entirely, or perhaps just further disengage from their jobs.