The economic consequences of declining real wages in the United States, 1970-2010

Abstract

The present thesis is a study of the economic consequences of declining real wages in the United States. It proposes that, when the real wages of the majority of the U.S. workforce declined in the 1970s, 1980s and the first half of the 1990s, household labour supply increased. Consequently, real family income in the bottom eighty percent of the income distribution rose. Wage-earning households were not only struggling to maintain their acquired standard of living as real wages were declining, but they were also, perhaps more importantly, trying to raise their standard of living. It was precisely when household labour supply hit a ceiling in the second half of the 1990s, that household debt exploded. Surging household debt from the late 1990s until 2007 – driven primarily by home mortgage debt – suggests that the culturally powerful “American Dream” motivated wage-earning households to seek and expect a continuously rising standard of living via home ownership even in the face of topped out work hours and historically low real wages.