As the great corporate engines of efficiency succeed by using cutting-edge technology with low-cost labour, ordinary, middle-class workers and their employers – whether they live in the American midwest, the Ruhr valley, Latin America or eastern Europe – are left out. This is the essential reason why median family incomes lag far behind productivity growth in the US, why average family incomes in Mexico have barely grown in the 13 years since the North American Free Trade Agreement passed, and why middle-income countries without natural resources struggle to define an area of comparative advantage.
As far as the U.S. is concerned, I am a longstanding skeptic of the notion of middle-class squeeze. I know less about other countries. But I suspect that populism and government management of the economy are more likely to be the problem than the solution.
Thanks to Greg Mankiw for the pointer.