Read it and weep.
For those less inclined to do the intellectual heavy-lifting, here's a summary from the windyanabasis blog [full text here]:
Compensation was rising above productivity in the first half of the post-war era; after the Volcker intervention, productivity took off whereas compensation stagnated. There is no plausible theory of wages being equal to the marginal revenue product of labor that can be consistent with this data. It was government policy that drove wages above productivity in the first period, and government policy drove them below productivity in the second period.
To put things into perspective, between 1980 and 2011, output per hour worked increased by a factor of 1.8, but median real earnings were unchanged (they actually declined somewhat) and median household income increased by a factor of 1.13. The latter due to more women joining the labor force, bolstering total household income.
Consumer expectations of median income growth (taken from the University of Michigan surveys), census bureau measurements of median income growth, and BLS measurements of median wages all show the stagnation, even as real GDP continued to grow.
But if consumers were aware of this income stagnation, why did they continue to purchase output at the current prices?
First, women’s participation allowed total the income of the majority of households to increase somewhat, and second the majority was effectively selling portions of their assets to the top 1%. This was justified because they believed that their remaining assets were appreciating in value sufficiently to maintain their target wealth levels.
To be clear, we are talking about housing, as most households hold an insignificant portion of bonds or equities. As women’s participation began to level out in the early 1990s, mortgage equity withdrawals began to increase, peaking at around 9% of disposable household income. Consumer credit and auto credit also increased, but the dominant source of demand was equity withdrawal.
When the house bubble burst there was no additional source of demand left. In order to increase demand now, the government must either supply it via deficit spending, or real compensation needs to approximately double in order to restore the balance between pay and productivity. The problem with only using deficit spending is that the underlying wage issues are not addressed — so there is no end to the deficit spending.
Without a class-based interpretation, you will be looking for what accident went wrong in 2008 that we can fix to get “back on track”. A sudden rush of regulatory uncertainty! A liquidity crisis! A shortage of safe bonds! But a class-based interpretation of this crisis is that we are at the end-game of a 30 year period of unsustainable wage deterioration, and the specific triggers of the financial crisis were not the underlying cause. The underlying cause was a three decade period of market failure in which one imbalance was hidden by another and then another. If the former interpretation is correct, then the provisioning of liquidity or more safe bonds will allow employment to get back to normal. If the latter interpretation is correct, then these interventions wont work. Employment will continue to stagnate and output will continue to be constrained by the level of deficit spending stimulus.
Only a long period of grinding deflation, combined with nominal wage rigidity, or a short period of massive redistribution and substantially higher median wages will allow the economy to continue to grow at its historical rate. Note that we do not require a higher total wage bill, but higher median wages, and lower superstar wages.
We need a new grand bargain, but unfortunately we are not allowed to talk about this bargain, economists do not want to model class conflicts, and the politicians do not want to discuss 30 years of wage stagnation.
It is a silent labor day.When you're done crying, stand up and join the fight to restore the American Dream.
[Hint: Electing turd-polishers from the right who prescribe ever greater doses of conservative ['neo-liberal' for you Europeans] economic policy, notwithstanding the fact that their foundational theories are both provably wrong on their own terms and demonstrably contrary to the vast preponderoance of empirical evidence, is NOT the solution.]