Wage Stagnation and Secular Stagnation

Slow growth and decline in the wage share of income are prominent stylized facts of US macroeconomic performance over the past three to four decades. Most explanations of these phenomena trace their origins to structural change — such as deunionization, globalization, or increased corporate concentration. This paper suggests that observed wage stagnation and secular stagnation in the US economy can also be thought of as path-dependent products of policy-induced macroeconomic outcomes in the 1970s/80s. A Marx–Keynes–Schumpeter (MKS) model is developed, in which the coincidence of wage stagnation and secular stagnation is shown to arise from an initial decline in the equilibrium rate of growth, which lowers both the steady-state rate of growth and accompanying wage share. It is then shown that the predictions of the model, following an initial reduction in the equilibrium growth rate, are consistent with a number of other secular macroeconomic pathologies that have afflicted the US economy since 1990.