The latest theory, which seems to have some evidence to back it up, is that wage growth is being restrained by increasing monopolization of industrial sectors.
There are four types of markets: perfect competition, monopolistic competition, oligopoly and monopoly. Three of them are fairly self explanatory including perfect competition, but a brief explanation of perfect competition.
This form of market doesn't fully exist, the closest is said to be wheat production. A simple rule of thumb on this is that if the largest single wheat farmer in the world stopped producing wheat, would that have any impact on the price? Almost certainly not.
Monopolistic competition is many markets, if not most, though this is the one type of market with which most people probably aren't familiar with the term. This is a market with similar products that each try to differentiate themselves. A good example of this is razors. They all do the same basic function, but there are dozens, if not hundreds of slightly different razors. Of course, advertising attempts to make these slight differences seem enormous so as to allow the producer their own little monopoly in an otherwise highly competitive market.
Most producers, especially large producers (and this isn't just in manufacturing) attempt to make themselves monopolies in a number of ways, advertising is just one. Undercutting other competitors is another and so is regulatory capture. New businesses or other competitors try and undercut these monopolies and would be monopolies with, in the best spirit of competition, new products.
This is the 'creative destruction' that Joseph Schumpeter argued made capitalism dynamic and ultimately the only successful economic system. Think of the near monopoly that Microsoft had in the Personal Computer market that was ultimately undercut by smart phones.
'Creative destruction' is the natural push and pull of capitalism. Businesses seek to monopolize and other businesses seek to undercut monopoly or attempts at monopoly by undercutting them. So, in many sectors there has been a push towards monopolization and a pull of new inventions that, at best, open up the sector again to greater competition and new innovations.
So, what has changed since the great recession and going before that?
A single producer in a consumer market is known as a monopoly. A single employer in a labor market is called a monopsony. There have been a lot of new economic arguments and research that this is the reason for stagnant wages.
The paper"written by Jos" Azar of IESE Business School at the University of Navarra, Ioana Marinescu of the University of Pennsylvania, and Marshall Steinbaum of the Roosevelt Institute"argues that, across different cities and different fields, hiring is concentrated among a relatively small number of businesses, which may have given managers the ability to keep wages lower than if there were more companies vying for talent.
So, what is causing this increase? monopolies and monopsonies should be undercut by 'creative destruction' as had been the case up until the 1980s at least.
I used to think the cause of the lack of innovation was the great recession itself. When I was a private investor looking over corporate financial statements, during a downturn it was easy to notice that one of the easiest things for businesses to cut back on was spending on research and development. This was compounded by the Great Recession itself being caused by a capital crisis which caused lending to freeze, making it more difficult for new businesses to start.
However, my theory may not have been correct: https://www.mckinsey.com...
But, I do think the basic argument of very few new innovations being introduced is largely true, at least easily noticeable ones. The smart phone business and the fairly significant change to society caused by 'apps' seems to be slowing down (though some apps are getting increasingly sophisticated) and all I've read about in terms of major new innovations (of course there are steady improvements in some areas like alternative energy) is 3D printing and Virtual Reality and Augmented Reality, which, at least for a consumer market, still hardly any consumer seems to be interested in. Even the hyped Artificial Intelligence market both for consumers and business to business is still very small ($8 billion worldwide in 2016 https://www.forbes.com...)
This article looks into the reasons why innovations likely are slowing down:
The cost of innovation has risen, and productivity has suffered
And this is the research paper the article is based on: https://web.stanford.edu/~chadj/IdeaPF.pdf
Are Ideas Getting Harder to Find?
From the article:
That, for instance, is the view of Robert Gordon, an economist at Northwestern University, whose bleak book, “The Rise and Fall of American Growth”, reckons that the era of economic revolution is behind us.
Is it? A recent paper by Nicholas Bloom, Charles Jones and Michael Webb of Stanford University, and John Van Reenen of the Massachusetts Institute of Technology, provides relevant evidence. Though striking an agnostic position as to whether humanity has used up all its eureka moments, they nonetheless conclude that new ideas are getting more expensive to find. The authors consider four different case studies, within which they compare research “inputs” (such as the money spent on researchers and lab equipment) and outputs...Yet they reckon that, across the economy as a whole, the notion that the cost of ideas is rising holds true. Since the 1930s, the effective number of researchers at work has increased by a factor of 23. But annual growth in productivity has declined
So, this would provide one clear reason why not only are many businesses in monopolistic markets not all that interested in investing in their businesses and why it's increasingly difficult for new businesses to come along and displace them. When I was going to college a frequently heard phrase was "you grow or you die." That may not be so true anymore.
It may take additional breakthroughs in artificial intelligence to again lower the costs of research and especially development.
Until that time, there are a number of ideas of dealing with monopsonies similar to breaking up the trusts but let's not forget old fashion redistributive policies: simply increase the taxes on dividends and capital gains that are mostly received by those who have captured most of the wealth based on productivity gains to the 'normal rate.'