Prominent Nodes of the Network

by Reihan Salam

Kindred Winecoff, a graduate student at the University of North Carolina, connects the peculiar labor market conditions created by the Second World War to the Great Stagnation:

World War II left industrialized societies with two main features: a lot of industrial capacity, and a lot of dead men. These combined to drive up wages for workers, and for cultural and pragmatic (high wages mean no need for dual income households; high fertility was encouraged to replenish the population) reasons workers were overwhelmingly men. The marginal unit of labor was thus very valuable and labor supply was restricted since the baby boom generation needed twenty or so years to grow up.

By the end of the 1960s the baby boomers were entering the workforce but industrial capacity had not grown at the same rate as the population. Thus, new entrants into labor markets — which increasingly included women and minorities as well as young white men — put downward pressure on wages. The marginal unit of labor was no longer very valuable. Median wages began to stagnate at the same time that over-crowding of cities was leading to social unrest. Governments did not do a good job of managing these duel pressures. The 1970s are a period of stagflation and urban decline.

The interesting part is what happens next. The increase in labor supply suppressed gains in compensation for most workers. But it created opportunites for those in a position to sell the product of their labor to a large, relatively affluent customer base, e.g., “the heads of major corporations, financiers, professional athletes,” all of whom benefit from the rise of information technology and globalization. Winecoff suggests that the real contrast isn’t capital-versus-labor, but rather between labor that occupies a central position in the economic network of late capitalism and labor that occupies the margins. It is an interesting thesis, and it complements Scott Winship’s recent work

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.