Why Stagnation?

by Craig S. Marxsen

Average real wage growth, like productivity growth, slowed in the early 1970s and has remained slow into the present decade. Price index bias cannot explain it away. Expanded trade with developing countries does not seem to be the cause. Instead, real wage and productivity growth appear to have been substantially disrupted by government regulation in general and, especially, by environmental regulation, in particular. Regulations were forged amidst compromise among special interest coalitions embracing motives at odds with economic efficiency. Though some investigators find benefits from regulations to outweigh direct compliance costs, stagnation of earnings growth might tip the balance in quite the other direction.

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