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Real Sector Imbalances and the Great Recession

Trinity College Economics Working Paper No. 12-01

22 Pages Posted: 2 Feb 2012  

Mark Setterfield

New School for Social Research

Date Written: January 2012

Abstract

While much attention has been focused on the financial woes of the US economy in the wake of the Great Recession, this chapter focuses on an important real sector imbalance: the failure of real wages to keep pace with productivity growth over the past three decades. This imbalance is shown to create a structural flaw in the aggregate demand generating process that threatens to undermine future macroeconomic performance. The chapter reflects on the policy responses necessary to remedy this situation, and the likelihood that the US will succeed in avoiding a future of secular stagnation.

Keywords: Real wage growth, productivity growth, aggregate demand, household debt, Great Recession

JEL Classification: E21, E24, E25, E61, E66

Suggested Citation

Setterfield , Mark, Real Sector Imbalances and the Great Recession (January 2012). Trinity College Economics Working Paper No. 12-01. Available at SSRN: https://ssrn.com/abstract=1997519 or http://dx.doi.org/10.2139/ssrn.1997519

Mark Setterfield (Contact Author)

New School for Social Research ( email )

6 East 16th Street
New York, NY 10003
United States

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