I think everyone’s seen the famous graph from the Economic Policy Institute, that show that while Productivity has been growing in a steady and linear fashion decades after decades, wage began to stagnate in the 70s.
Since the 70s, wage have grown about +0.6% per year, while productivity has grown at an average of 1.4% per year. That gap is enormous and it is compounding over time.
Can someone me why it’s happened?
In: Economics
Wages are not tied to productivity. Wages are tied to the labor market.
To Capitalists, labor is a commodity that can be bought in the market. The capitalist wants to purchase labor for as little as possible in order to maximize profits. If there is a shortage of labor in the market then that means laborers can be picky and demand more in wages and benefits.
Conversely, if there is an excess of labor in the market then laborers will have to accept lower wages and benefits as they have to compete with other laborers for less positions.
Add to this the fact that capital is being concentrated into fewer and fewer hands over time leading to larger businesses in effect becoming monopsolies. A monopsoly is similar in concept to a monopoly but essentially means they have too much leverage when buying a commodity, in this case labor.
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