Low Wages Crashed Economy

A broad new analysis at RealEconomy:

The Economic Crisis Was Caused by Reduced Labor Income

This article argues that the bursting credit bubble is not the core reason for the advanced economies’ sudden reduction in spending. The credit bubble delayed that reduction, but can no longer prevent it.

Rather, we assert that

  1. the advanced economies are experiencing labor shock as they fail to adequately adjust to the changes in labor supply and demand,
  2. that this shock is causing a severe wage income reduction in the developed economies, and
  3. that the result of reduced income has been reduced demand from the West that is not being taken up in emerging markets, and therefore
  4. that the reduction in developed economy labor income precipitated the credit collapse and is the fundamental cause of the current severe recession.

As Labor Incomes Fall, Advanced Economies Contract

So the bottom line rules today’s global markets, and as the biggest expense for most companies is labor, the labor pool bears the brunt of cost cutting.