from David Ruccio

Will market forces solve the problem of stagnant wages and growing inequality?

Mark Thoma says no.

The idea that an improving economy will overcome the problem of stagnating real wages and rising inequality that has existed for decades is suspect. Why should this time be any different from the past? Sure, improvements in labor demand relative to supply could make some difference, and a tight labor market is certainly better for the working class than a labor market will high levels of unemployment and a large number of discouraged workers, but should we suddenly expect workers to receive a higher share of national income – income that has increasingly flowed to those at the very top of the income distribution – once we reach full employment?

The data in the chart above appear to confirm Thoma’s review. Yes, there are moments (such as in 1969 and 2000) when a low unemployment rate gave a boost—however temporary—to the share of national income going to labor. However, as a general trend, the wage share has been falling from 1970 onward (from 51.5 percent then to less than 42 percent today) across many periods of both high and low unemployment.

Today, even as the official unemployment rate continues to decrease, the falling wage share—and, with it, an increasingly unequal distribution of income—shows no sign of abating.

Hence Thoma’s reasonable conclusion:

So long as we continue to believe that market forces and the attainment of full employment will solve the problem of stagnating wages and rising inequality. . .inequality will continue to be a problem.