It's difficult for me to buy Tyler Cowen's thesis that all of the huge gains in marginal productivity have been tapped. If you're a developer, you tend to see incomprehensible inefficiency everywhere, especially if you consult for larger organizations or work on applications that involve human collaboration. I think a more probable explanation for "The Great Stagflation" is the unprecedented level of market intervention and regulation that did not exist during the industrial revolution.
Certainly, that is true. Unemployment would drop a great deal if the price of low wage labor were allowed to decline to where demand would equal supply. But that's illegal.
And its not just wage that must be considered. There are hidden costs of hiring and possibly having to fire an employee, all of which have gone up in recent decades.
People imagine that employers can be made to do all kinds of costly things without effect on employment. Or take home pay. And in good times, it may seem like there are no such effects.
But its in the bad times that consequences are felt, long after the legislation has been passed. If an employer cannot make money hiring a particular worker at the minimum legal wage, the worker isn't going to be hired (legally, anyway).
