It's also true that during the past few decades, Americans have benefited from improvements in product quality and the invention of new gadgets – new medical technology, personal computers, cellphones, the Internet, MP3 players, e-readers, and so on. These enhance quality of life. Maybe this trend will continue, but it doesn't seem wise to assume it will. Nor would that be enough. iPhones are great, but owning one won't help pay a mortgage or college tuition.
In the 1990s and 2000s, borrowing helped to substitute for rising wages and household incomes. With home values appreciating, middle-class families could take on more and more debt in order to fund rising consumption. But for many, that option is now foreclosed.
A second view holds that wage stagnation actually is healthy, because low wages spur job creation. This seems plausible in the abstract; low wages should make it more attractive for employers to hire. Is it true in practice?
If it's correct, the lack of wage growth over the past three decades should have resulted in increasingly strong job growth. But that hasn't happened. The rate of employment growth has slowed in each successive business cycle from the 1980s to the 1990s to the 2000s. Job growth was especially lackluster during the 2000-07 business cycle; the country's employment rate did not increase at all.
A third approach is to hope that wage growth will return. Alas, I suspect that's unlikely.
The key to rising wages prior to the 1980s was that many firms faced limited global competition, little pressure from shareholders to maximize short-run profits, and significant pressure from unions to pass a "fair" share of profits on to employees. These three features of America's postwar economy are gone, and it's unlikely that they will return.