Labour is no different from capital in how it is priced, it is just that price is incorrectly understood through demand and supply (as illustrated in Steve Keen's Debunking Economics). If on the other hand, you take the pricing kernal from Dr Tim Smith's exchange value price formula and Minsky's price equals cost structure plus market power and combine with behavioural economics, you get a true understanding on wage levels.



People will not work for less than their costs. If wage levels fall below costs (cumulative of housing, energy, food, plus socioeconomic expectations), then that person will not work. In behavioural terms, he has the choice of working and making a certain loss or not working and seeking larger gain (albeit at short term higher cost). I understand from a behavioural aspect, people choose the later rather than the former.



Raising and lowering interest rates will have an impact on these decisions on wages and employment. However these impacts can be slow as only margin cost reductions to a person's outgoings.



The West faces the problem where renters wish prices to remain high but also to pay labour at low costs. They have been able to seek these lower costs as low cost countries have provided an alternative pool of labour. This has created a bubble in house prices that is unsustainable in the long term and until resolved will have wage and employment problems. As house pricing can be a third to two thirds of people's outgoings not only do house pricing relative to wages have significant impact but also it absorbs consumption into certain housing industries and prevents growth of other industries.



As Richard Koo shows when underwater people pay back their debts first. This stifles economic growth as aggregate demand equals gdp plus the change in debt. As debt is paid back, the economy contracts.



All these aspects lead to a downward spiral enforced by the disparity of high asset prices and low incomes.



The solution would be government investment in education and training in productive jobs to increase aggregate demand whilst also dealing with the debt directly through bankruptcy proceedings and realigning the power relationship between creditors and debtors. This would be redistributive in nature recognising that creditors have as much a responsibility in societal economic health as debtors.