Wage stagnation and secular stagnation

Mark Setterfield
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Mark Setterfield: Department of Economics, New School for Social Research, USA

No 2601, Working Papers from New School for Social Research, Department of Economics

Abstract: Slow growth and decline in the wage share of income are prominent stylized facts of US macroeconomic performance over the past 3-4 decades. Most explanations of these phenomenon trace their origins to structural change -- such as deunionization, globalization, or increased corporate concentration. This paper suggests that observed wage stagnation and secular stagnation in the US economy can also be thought of as path-dependent products of policy-induced macroeconomic outcomes in the 1970s/80s. A Marx-Keynes-Schumpeter (MKS) model is developed, in which the coincidence of wage stagnation and secular stagnation is shown to arise from an intial decline in the equilibrium rate of growth, which lowers both the steady-state rate of growth and accompanying wage share. It is then shown that the predictions of the model, following an intial reduction in the equilibrium growth rate, are consistent with a number of other secular macroeconomic pathologies that have afflicted the US economy since 1990.

Keywords: Wage stagnation; secular stagnation; Marx-Keynes-Schumpeter model; path dependence; structural change (search for similar items in EconPapers)
JEL-codes: E11 E12 E60 O41 O51 P17 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2026-01
New Economics Papers: this item is included in nep-inv
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