Institute for Research on Labor and Employment

In this essay I systematically incorporate empirical work on the increase in labor market insecurity and income inequality into a regulation theoretic framework for analyzing macroeconomic growth. In particular, I link well-known problems in the American labor market that have been increasing over the last four decades to the ongoing problem of slow macroeconomic growth. The rise of job polarization and income inequality coincides with a long period of stagnation, both continuing through to the present (with the exception of a brief period of strong growth and declining inequality in the second half of the 1990s). I argue that both sets of problems – labor market insecurity and slow growth – can be traced to a changing institutional configuration in the political economy whereby the institutions supporting upward mobility and middle-class incomes in the economy have been eroded by the twin forces of internationalization (leading to the reemergence of wage-based competition) and employment externalization (outsourcing, downsizing, antiunionism, etc). This growth regime, which may be characterized as Waltonist, based on the Wal-Mart model of buyer-driven global supply chains focused on cutthroat wage competition and deunionization, is not transitional but rather embedded in apparently long-term institutional settlements that amount to a dysfunctional regime.