Wages in relation to labor force participation

Home Forums Discuss What’s Wrong with Textbook Economics Wages in relation to labor force participation

Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
  • #21487

    Many Keynesians out there like to point to the alleged wage stagnation since the 1970s as evidence of the failures of supply-side “neoliberalism” (or something).

    Matching that up with the trend of women entering the workforce en masse in the 70s they sometimes say that it was the wage stagnation that forced women to enter the workforce in the first place, to increase the household bottom line.

    But in an unhampered market economy, wouldn’t the opposite be the case? Is it generally true that a large increase in the supply of laborers would lead to a general decrease in wages? Are there any further implications of that which would help explain the labor market in recent decades?


    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.



    Thank you!

Viewing 3 posts - 1 through 3 (of 3 total)
  • You must be logged in to reply to this topic.