Wage changes in economic recession: A PSTR model of wages in the US 02’-23’

Sammanfattning

Over the 21st century, the economic development of the western world has been largely tied to the development of the United States, the economic state of which is a deciding factor in many other countries across the world. This has had the consequence that when the economy stagnates in America, its effects are felt across the globe. In this state of recovery that the world found itself in, not only in 2009, but again in 2020, the development of wages has become an increasingly discussed subject. How are wages affected by economic hardship,and what relationships remain when the economy goes into recession? This is the question that this thesis paper aims to analyse, through a two-regime PSTR model analysis of wage changes with inflation rate as the transition variable, for the period 2002-2023. The 50 statesof the USA as well as the District of Columbia are used for analysis. The model finds a reversal of the classical relationship between wages and unemployment in cases with extremely low inflation, and the same reversal for inflation as well as rate spread. These all seem to suggest a state of exception for classical economic theory, when the inflation rate reaches extremely low or even negative values.