The 1980s will be recorded by economic historians as the decade the postwar social contract broke down. A look back at Figure 1.3 shows this vividly. Wages have flatlined since then. Nothing has yet replaced the broken social contract.
Three events converged at the beginning of the 1980s that broke the inertia in the labor-management relations of the 1970s.
1. The country replaced Jimmy Carter, a Democrat, with Ronald Reagan, a conservative Republican.
2. The economy fell into a deep recession in large part induced by Paul Volcker, a strong-minded chair of the Federal Reserve Bank who single-handedly took up the task of breaking the back of inflation, even if it meant breaking ...