Reply To: Wages in relation to labor force participation


Wages, like all other prices, are determined by supply of and demand for labor services. Demand for labor services by entrepreneurs depends upon the productivity of workers, which in turn depends upon the capital goods workers have. It is correct (as you say) that a larger supply of labor will result in lower wages; but it is correct only with a given (or at least a not larger) demand for labor.

As you can see in the following graph, employment has been steadily rising from 1960 to 2000.

In the same time period, the percent of women in total employment only rose until 1990, since then it has been level.

As the labor force participation rate of women rose, that of men fell.

The stagnation of wages since the 1970s has been on the demand, not the supply, side of the market. There has been much slower capital accumulation than previously and the less rapid capital accumulation has been the result of the final breakdown of a gold-based, international monetary system that occurred in 1971.