Question

Nearly five years into the recovery (the recession ended 2009) corporate profits are up 50%, the S&P is up 80%, but household income is down 3%. "Dropped, during the recovery," which is rare or unprecedented in economic theory. How does the actions of Congress (re-write the Constitution) to effects on labor and income distribution in the macro-economy?

Geoghegan, T. (2014). Only One Thing Can Save Us. New York: The New Press.

Answer 1

When the economy was suffering from the recession, there was, higher level of unemployment, weakening demand, lower capital investment and poor investor’s confidence in the economy. It led the government and the Federal Reserve to take initiatives such as lower federal fund rates, higher government spending and special funding schemes for different sectors of the economy. It led to the increases in capital investment, new demand creation and new employment creation. But, the supply of labor force was already in the market and it was more than the demand of these labors in the economy. Besides, the firms were restructured and consolidated so that efficiency is improved. It led to the catering of demand, but at lower wages to the employees. The lower wage took place due to downward pressure upon wages as the supply of labor force exceeded demand. It is the reason that economy recovered, but household income came down.
Here, the congress can set the guidelines regarding the minimum wage laws (already in place) or issuing other fringe benefits to improve the overall income of the household. But, it is required to create new government opportunities as the congress can force the firms to give minimum required wage, but it will lead to the further deduction in the employment opportunities.