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Real Wages, Aggregate Demand, and the Macroeconomic Travails of the US Economy: Diagnosis and Prognosis

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Author Info

  • Mark Setterfield

    ()
    (Department of Economics, Trinity College)

Abstract

This chapter argues that, while much attention has been paid to developments in the financial sector as causes of the Great Recession, the ultimate cause of the crisis was, in fact, longer term trends in the real economy. Specifically, it is argued that the tendency for real wages to grow slower than productivity since the 1970s has not only generated ever-increasing income inequality in the US, but has also led to a structural flaw in the process that creates the demand necessary for high employment and rising living standards. Although household debt accumulation postponed the “day of reckoning” associated with this structural flaw, the effect of sluggish real wage growth on the incomes of working households now has the potential to create a future of secular stagnation, not just for workers, but for the US economy as a whole.

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File URL: http://internet2.trincoll.edu/repec/WorkingPapers2010/wp10-05.pdf
File Function: First version, 2010
Download Restriction: no

Bibliographic Info

Paper provided by Trinity College, Department of Economics in its series Working Papers with number 1005.

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Length: 37 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:tri:wpaper:1005

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Web page: http://www.trincoll.edu/Academics/MajorsAndMinors/Economics/Pages/default.aspx
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Related research

Keywords: Real wage growth; productivity growth; aggregate demand; household debt; Great Recession;

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Cited by:
  1. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Study Group (PKSG).
  2. Yun Kim & Mark Setterfield & Yuan Mei, 2012. "Aggregate Consumption and Debt Accumulation: An Empirical Examination of US Household Behavior," Working Papers 1204, Trinity College, Department of Economics.

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