Why aren’t wages rising more?

by on April 14, 2005 at 8:27 am in Economics | Permalink

Matt Yglesias asks.  Brad DeLong answers:

Well, there are three hypotheses:

  1. Improvements in firms’ ability to squash unions, and thus shift wage bargains toward employers (the Wal-Mart hypothesis).
  2. A slack labor market–much more labor-market slack than the level of the unemployment rate would lead one to expect–in which firms find it easy to hire workers and workers find it hazardous to ask for higher wages.
  3. Changes in the international economy that boost the wages of the skilled and educated (whose products can be sold abroad for more) and put downward presure on the wages of the less-skilled and less-educated (who now face much stronger competition from abroad).

I’ll add a fourth:

4. Information technology has become a substitute for many low-wage workers, including those who shuffled papers or performed rote calculations.  Note that the gains from the new technologies are often reaped by equity holders.  Read more here.

Quite separately, on the consumer side, the Internet has resulted in significant welfare benefits, most of which are not reflected in measured real wages.  Admittedly the distribution of these gains is skewed away from the poor.  Many years ago Alex and I wrote a paper called "Who Benefits from Progress?"  In the early years of progress, most of the benefits are reaped by the relatively wealthy.  It is only over time that new innovations become used by, or affordable to, poorer segments of society.

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