A third factor, not discussed very often, might have been inflation. In most economic models, workers know how fast prices are rising and understand how this erodes their paychecks, and bargain with their employers accordingly. In real life, however, many workers may simply not pay attention to inflation or understand how to negotiate for cost-of-living adjustments. Thus, the higher inflation of the 1970s and early 1980s might have allowed employers to effectively cut workers’ pay.
A final possibility is that wage stagnation might have simply been a combination of a whole bunch of things, with workers taking hits from different directions in different decades. Inflation in the 1970s; slow productivity growth in the 1970s, 1980s and early 1990s; rapidly rising health-care costs layered on top in the 1980s and 1990s; Chinese competition and pressure for automation in the 2000s. And all throughout the period, there was the steady pressure of de-unionization and a shift away from manufacturing.
In other words, the history of U.S. wage stagnation might have been, as the adage goes, just one damn thing after another. But that also means that when the deluge eventually ends, wage stagnation might end with it. Since about 2010, wages have largely kept pace with productivity:
This doesn’t mean the U.S. doesn’t need policies to boost wages. Workers lost a lot of ground between 1973 and 1994, and didn’t make up enough of it between 1994 and 2009. Stronger worker representation within companies, as well as government health care, would help restore some of those losses.
In the meantime, slow productivity growth may be the last thing that's holding back wage growth. Even as they try to make up for past rises in inequality, policy makers shouldn’t forget the importance of technology and economic efficiency. But regardless of what policy does, workers may finally be getting more of the raises they’ve been missing out on for more than a generation.
This article provided by Bloomberg News.