is the heightened pressure on firms and their workers in industries that compete internationally. domestic deregulation has had similar effects on the intensity of competitive forces in some industries. in addition, the continued decline in the share of the private workforce in labor unions has likely made wages more responsive to market forces - - indeed, the converse is also true in that the new competitive realities have in many instances undermined union strength. in any event, although i do not doubt that all these explanations are relevant, i would be surprised if any were dominant. another potential explanation is that persistently low price inflation is constraining wage increases. historical evidence clearly indicates that price inflation is a factor in wage change. but, if the causation is running mainly from product markets, where prices are set, to labor markets, where wages are set, then we would expect to see some squeeze on profit margins. clearly, this is not the case at present. rather, owing in part to the subdued behavior of wages, profits and rates of return on capital have risen to high levels. the high rates of return, in turn, seem to be inducing competitive pressures that limit the ability of firms to raise prices relative to their underlying cost structures because they fear that competitors anxious to capture a greater share of the market will not follow suit. thus, the evidence seems more consistent with the view that wage restraint is damping price increases than the other way around. if the job insecurity paradigm that i have outlined is the key, then we must recognize that, as i indicated in last february ’ s humphrey - hawkins testimony, “ suppressed wage cost growth as a consequence of job insecurity can be carried only so far. at some point in the future, the trade - off of subdued wage growth for job security has to come to an end. ” in short, this implies that even if the level of real wages remains permanently lower as a result of the experience of the past few years, the relatively modest wage gains we ’ ve seen are a transitional rather than a lasting phenomenon. the unknown is how long the transition will last. indeed, the recent pickup in some measures of wages suggests that the transition may already be running its course. if so, the important question from a monetary policy point of view is whether prospective labor market conditions will be consistent with the maintenance of satisfactory price performance. i would like to conclude with a brief discussion of some issues of measurement and economic data that may be useful as you begin your delibe

rates is consistent with changes in individual circumstances. the denials could also indicate that business difficulties have a significant influence on the ability of business owners to borrow for personal reasons. indeed, business owners have much more difficulty documenting their income than do wage - earners. the combination of weaker earnings, lower net worth, and renewed focus on income verification could have made it particularly difficult for business owners who lost wealth to refinance mortgages or purchase homes. business owners whose wealth rose were also more likely to have applied for business credit, but the rate of denial and for those who feared denial was nearly the same for business owners who gained wealth as for those who lost wealth ( figure 13 ). in this case, the pattern of denial does not match the variations in individual circumstances. unfortunately, we don ’ t have any history for this series so it is impossible to tell how it has changed over time. but the striking similarity in credit approval rates for business loan requests by business owners who gained and those who lost wealth would seem to support anecdotal reports at the time – that business credit was hard to obtain even for good borrowers. conclusion the results i have discussed today are among the first details to emerge from our panel study of changes in family finances over the financial crisis. the data show significant heterogeneity in the wealth changes that families experienced during the period of the financial crisis between 2007 and 2009. any consequent macroeconomic wealth effect depends on the distribution of gains and losses and the propensities of the families that experienced those changes. research remains to be done on how all those factors come together, but the data offer at least a suggestion of what may emerge. among the preretirement age group, those who gained and those who lost wealth during the financial crisis generally appear to act as if they had lost wealth – in that there are signs of delayed retirement and greater desire to save and bis central bankers ’ speeches to avoid risk. in addition, there appears to be an asymmetric reaction to wealth shocks that could be a factor in the slow recovery of spending. business owners had much wider changes in wealth than those reported for the general population and the changes were related to the conditions of the industries in which the businesses operated. business owners who had increases in wealth were more likely to apply for personal and business credit. although business owners who experienced decreases in wealth were more likely to have been denied or to fear denial of personal credit, actual denial rates for business credit