Abstract

Vedder and Gallaway are mistaken in their attempted demonstration that government policies to raise real wages have been the source of most or all U.S. unemployment in the twentieth century. Their case depends on a presumed correlation between high unemployment and high real wages that has not existed since World War II, and on a naive confusion between correlation and causation: just because real wages and unemployment were both relatively high during the Great Depression does not mean that high real wages were the cause of high unemployment. More likely, the reverse is true. The ascription of high unemployment to higher‐than‐equilibrium real wages is not always in error. But there is no reason whatsoever to believe Vedder and Gall‐away's claim that the government's policies to raise wages have been “the major cause of high unemployment in the United States.”