Final answer:
The growth of real wages in the U.S. since 1973 slowed down due to an unexpected productivity decline rather than consistently being tied to inflation rates. Wages continued to rise while the demand for labor did not, leading to higher unemployment. Over time, an adjustment of wages to reflect productivity changes was needed, but this process can be lengthy.
Step-by-step explanation:
The slowdown in the growth of real wages in the United States since 1973 is attributed to various factors, including changes in productivity and inflation rates, rather than a consistent correlation with a speedup in the rate of inflation. During the 1970s, the U.S. experienced a phenomenon known as stagflation, marked by high inflation and unemployment rates. While there have been occasions where rising inflation rates were followed by lower productivity rates, this correlation is not consistent over time as demonstrated in various economic periods.
In the period from 1960 to 1973, U.S. labor productivity saw an annual growth of 3.3%, leading to the expected increase in equilibrium wages. This pattern was disrupted from 1973 to 1982 when productivity growth slowed to 0.8% annually, causing equilibrium wages to rise without a corresponding uptick in demand for labor. As a result, a gap emerged where wages outpaced the demand for labor, leading to a higher natural rate of unemployment.
Over time, wages would need to adjust to match the slower productivity gains, which could lead to a reduction in the unemployment rate. However, due to the unexpected slowdown in productivity and subsequent slow wage adjustments, the national unemployment rate remained above 7% for several years. Furthermore, the relationship between inflation rates and productivity is not always clear-cut, indicating the complexity of economic dynamics and the multifactorial contributors to the slow growth of real wages.