Home > inequality, unemployment, upward income and wealth redistribution > Will market forces solve the problem of stagnant wages and growing inequality?

Will market forces solve the problem of stagnant wages and growing inequality?

from David Ruccio


Will market forces solve the problem of stagnant wages and growing inequality? 

Mark Thoma says no.

The idea that an improving economy will overcome the problem of stagnating real wages and rising inequality that has existed for decades is suspect. Why should this time be any different from the past? Sure, improvements in labor demand relative to supply could make some difference, and a tight labor market is certainly better for the working class than a labor market will high levels of unemployment and a large number of discouraged workers, but should we suddenly expect workers to receive a higher share of national income – income that has increasingly flowed to those at the very top of the income distribution – once we reach full employment?

The data in the chart above appear to confirm Thoma’s review. Yes, there are moments (such as in 1969 and 2000) when a low unemployment rate gave a boost—however temporary—to the share of national income going to labor. However, as a general trend, the wage share has been falling from 1970 onward (from 51.5 percent then to less than 42 percent today) across many periods of both high and low unemployment.

Today, even as the official unemployment rate continues to decrease, the falling wage share—and, with it, an increasingly unequal distribution of income—shows no sign of abating.

Hence Thoma’s reasonable conclusion:

So long as we continue to believe that market forces and the attainment of full employment will solve the problem of stagnating wages and rising inequality. . .inequality will continue to be a problem.

  1. January 24, 2015 at 11:27 am
  2. January 24, 2015 at 1:21 pm

    The truth is economists have been wasting there time on unneccessary issues like inequality. without inequality there will be problem. reesources can never be evenly distributed and the sooner some delusional individuals realize that the better cos there will always be inequality.iun fact inequality is what makes nations of the world to trade.can all persons become like Bill Gates? the focus of economists is to encourage the unfortunate victim of unequal distribution of wealth to develop the skill of maximizing the little resources in their possession for the betterment of himself. economists should desist from deceiving people that wealth can be distributed equally. that is a visible.and on this note i call on all economists to start facing reality that wealth can never be equally distributed and look for ways to encourage victims of unequal distribution of wealth to learn to be contented with the resources they have and maximise them.after all the value of wealth is not in the quantity but UTILIZATION and that is why some people with low income who are judiscious with their resources live more happy and standard life than those with more wealth

    • John McDonald
      January 26, 2015 at 9:54 pm

      Seeing about 100 economists out there I ask you to raise your hand if you believe, “that wealth should be distributed EQUALLY?” Seeing no hands, I ask you to raise your hand if you think wealth should be distributed more fairly? Seeing only three of you with your hands down, could each of you please tell me why your hands are down? #1: “I am part of the 1%.” #2: “I want to become part of the 1%.” #3: “Me too!”
      Yes, well good luck = : )

  3. Fiona
    January 24, 2015 at 2:12 pm

    Do you have any evidence in support of this rather extraordinary series of assertions?

    In particular is there any rationale behind the notion that ANY person should be like Bill Gates? What use is a concentration of wealth of that order in the hands of one man?

    Is there any evidence that trade would cease if wealth were distributed more equitably? Does it mean that bananas would grow in Aberdeen or Anchorage? Or that people who live in those places would not want to have bananas?

    Following the implications of that can you show how trade will be conducted if the people learn to be contented with the resources they have? For surely the trade in bananas and such will cease if that happens?

    Can you show that skill development helps people to “better” themselves? What I see is increased educational attainment leading to increased demand for qualifications to get low skilled jobs – graduates flip burgers and those who used to flip burgers are on the dole

    Can you cite any economist (or anyone else) who denies that we will never have perfect equality? If you cannot then I think that you are erecting a straw man, but I am very willing to be proved wrong

    You say that “some people with low income who are judicious with their resources live more happy and standard life than those with more wealth”. Can you name three; and a further three of those with more wealth who are willing to swop?

  4. January 25, 2015 at 6:51 am

    Markets are inherently redistributionalist, transferring money from parties with superior oligopoly or oligopsony power from those who are at the losing end of that power equation. In the case of the U.S. labor market, it is extremely oligopsonist, with relatively few buyers of labor and over 155 million sellers of labor. There are niche markets within the U.S. labor market where labor has sufficient market power to drive up wages, but overall, in the absent of outside intervention such as tax codes and externally imposed wage requirements, the U.S. labor market has obeyed what both models and experience show happen with oligopsonist markets — the relatively few buyers bid down the price of what they’re buying from the many sellers down to the marginal cost of goods (which, in the case of human labor, is the bare minimum required for physical survival of the provider of labor).

    In short, unless we imposed tax codes similar to those of the 1940’s and 1950’s to redistribute money from the oligopsonist class to workers, economic prosperity will suffice merely to continue what we’re currently seeing — asset inflation caused by the upper classes parking the money redistributed to them by their market power into assets, concurrent with continued monetary deflation of the incomes of the worker classes as larger and larger percentages of the product of their labor are transferred to the oligopsonist class in exchange for access to the capital necessary to produce goods and services. It doesn’t matter if they are actually creating more wealth, if they are not allowed by the oligopsonist class to keep it!

    • blocke
      January 25, 2015 at 9:05 am

      So what you are saying is that workers have no bargaining power with their employers, who work their workers for subsistence wages; profits earned above labor costs are then invested by the owners, which grows the economy (perhaps), creating employment for workers, which tends to subsistence levels. Is this all that economics has come up with in

      200 years of trying. Physics and chemistry has done much better; that is why we call them sciences. Give it up boys.

      • January 25, 2015 at 9:43 am

        Mainstream economics has devolved into an exercise in telling those in power what they want to hear, an exercise in creating excuses for unbounded greed.

        Marx was wrong about his solutions but he was an astute observer. The anarcho-socialists are wrong about their solutions, but they are astute observers when they talk about the problem of power and how relative power differences distort both politics and economies from what pure theory would predict.

        Any system of economics which does not include and account for those observations is not a system of economics, it is a system of providing solace to the powerful.

  5. Marko
    January 25, 2015 at 9:22 am

    “…unless we imposed tax codes similar to those of the 1940’s and 1950’s….”

    Sounds like a plan.

    I’m in.

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