Tuesday, August 27, 2013

What To Do About Wage Stagnation

Real wages have not grown over the last decade.  Productivity has grown over this period but the growth in productivity has not been shared with the labor force.  One way to deal with the lack of growth in wages is for government to redistribute income through a variety of programs.  Most of the debate between conservatives and liberals in Washington is about these programs.  Conservatives and liberals assume that nothing should be done to alter the distribution of income that is determined by market forces.  That is not sustainable.  Our social safety net programs are helpful, but there is a limit to the effectiveness and political support for income redistribution programs.  That means that more attention should directed towards the labor market itself.  The labor market does not work well when there is high unemployment.  Wages are depressed when the supply of labor exceeds the demand for labor.  One way to alter that situation is for government to pick up the slack when there is weak demand for labor.  In any case, more attention needs to be paid to altering the market forces that are behind the stagnant growth in wages.

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