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In: Economics

According to Richard Wolff, why did wages stop rising in the 1970s? How did workers react...

According to Richard Wolff, why did wages stop rising in the 1970s? How did workers react to stagnate wages? How did stagnate wages affect business?

Solutions

Expert Solution

Following are the reasons according to Wolff for the wages to stop rising in the U.S. since 1970:

  • Technological revolution due to introduction of computers. This greatly reduced the need for labor and with it their bargaining power.
  • By 1970 Europe and Japan had completely rebuilt their economies from the destructive effects of the World War and were now able to compete with the U.S both on cost and quality. U.S companies in order to compete with them moved manufacturing facilities to outside the U.S leading to massive export of jobs again reducing the demand for labor.
  • Thirdly, more and more women joined the labor force since 1970. Also, the wave of immigration lead to an increase in the supply of labor force their restricting the rise in the wages.

Americans responded to stagnating wage levels by working more hours (20% higher since 1970). They also began to borrow more heavily in order to maintain the standard of living. However, working more hours resulted in additional costs such as need for cars, household amenities etc.

Corporate profits increased because of the increased productivity due to use of computers and stagnating wages. They also expanded their business through mergers and acquisitions and then used their cash reserves to lend them to their employees (instead of increasing their wages) to increase consumption of goods and services.


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