Wage Cuts Deflationary?
Mish has a post from 4 days ago, http://globaleconomicanalysis.blogspot.com/2008/07/airtran-asks-employees-to-take.html, about airline and auto industry workers agreeing to take pay cuts.
This is one of the things that I've expected to see more of as the credit bubble unwinds. I constantly go back to what I saw happening in Vancouver as I think it was a very unique economy in that I remember seeing lots of workers being forced to take pay cuts over the years, yet we've seen housing costs go up enormously. There are simply jobs here that pay the same as they did in range of 20-30 years ago, and many unions dissolved so there are lots of jobs that pay less then 20-30 years ago.
Yet our housing market went up. When I was young workers without finishing high school enjoyed a reasonable lifestyle. Now they work full time and many go to food banks to help make ends meet.
Our rise in housing costs has been driven by the fact that Vancouver is an "international" city and a major port for both shipping and airlines from Asian counties. Immigration here has been insane, so there has been a dual economy, one with a grossly declining standard of living for average workers, yet there has also been the convention centers and booming international business and wealthy immigration.
If you look at a place like Detroit where there hasn't been the immigration, the wage cuts and lay offs have hit their housing market. Vancouver's housing market simply wasn't driven by what was happening in the lives of local people, but immigration.