Is the High Cost of Housing Crushing Wages?

The authors’ thesis doesn’t explain the 47-year downtrend of labor’s share of the economy.
A provocative essay, Don’t Blame the Robots, makes the bold claim that “Housing Prices and Market Power Explain Wage Stagnation.” (Foreign Affairs) In other words, the stagnation of the bottom 95% of wages isn’t caused by automation or offshoring, but by the crushingly high cost of housing: “Yet recent academic work in macroeconomics suggests that current wage stagnation has less to do with robots and more to do with real estate and market power. Real wage growth is a function of two things: changes in productivity and changes in the share of national output attributed to labor. If the share of GDP going to workers doesn’t change, then real wages simply track productivity.” The market power argument is straightforward: as competition declines, cartels and quasi-monopolies scoop up a larger share of the national income, leaving relatively less for labor.

This post was published at Charles Hugh Smith on WEDNESDAY, SEPTEMBER 06, 2017.