Dean Baker v. Greg Mankiw on Wage Inflation

I may have been too nice to Greg Mankiw per something Dean Baker notes with support from Paul Krugman. Dean notes:

if we use the broader measure of wage growth for all workers, we don't see any evidence of acceleration at all. Wage growth has been hovering around 2.0 percent for the last two and a half years. It had been somewhat lower in 2010 (@ 1.6 percent), but there certainly is no upward pattern in this series.

Paul adds:

One of these numbers, wages of production and nonsupervisory workers, shows a modest uptick, the others not. All three remain well below their pre-crisis rates of increase. Is this the kind of evidence on which you want to base a major policy change? Not in my world.

Whether we examine the growth in average hourly earnings for production and nonsupervisory workers, the growth in average hourly earnings for all employees, or the employment cost index, wages seem to be rising by only 2% per year. If this increase in nominal wages is matched by an increase in productivity, one would think that unit labor costs would not be rising. The Bureau of Labor Statistics publishes the change in unit labor costs on a national basis every quarter. Unit labor costs actually fell by 3.7% in 2010 and have barely increased since. Call me old school – but why are we worried about a modest increase in nominal wages when unit labor costs are basically flat?