In fact, Galbraith does use - in one place - the same argument on market positions ! Namely:
“(…) a change in the relative market power of skilled and less skilled workers can occur for reasons not connected in any direct way to political decisions. (…) firms (…) allocate the squeeze in their cash flow occasioned by the rise in price of an important input, in such a way that a disproportionate share of the burden falls on less skilled, less powerful, more readily expendable workers. (…) When changes such as these are run through an analysis that has been constructed from the beginning to be blind to the presence of monopoly power, these kinds of changes would, and do, [sic] show up in the data as “skill-biased technological change.” Skill bias is thus a phrase that can account, with perfect plausibility but equally perfect meaninglessness, for many different phenomena (…)” (p46)
So the wonder is why Galbraith does not stick to this - sufficient - argument, and later drops it and continues on ‘middle class values’.
Note too that elsewhere he explains - quite correctly - that ‘skill’ is an abused term, since someone can be very skilled (e.g. in making typewriters or other obsolete objects) and still be displaced. What counts is the ‘economic empty box’ of ‘productiveness’ - for which an education is only an indicator.
Similarly, it was a pleasant surprise to me that Galbraith (p48) also found the ‘sheltered - exposed sector’ argument. He does not refer to the impact of taxes (of course) but uses an example of a change in the terms of trade.
Galbraith is of the opinion that you can only see these mechanisms if you drop the assumptions of a fully competitive labour market, and allow for monopolistic power. I am not entirely sure of this. Heterogeneous labour might be congruent to monopolistic competition - but, anyhow, I’d rather take heterogeneity as the starting point, and then proceed with the model, and stay away from the - perhaps ideological - debate on market type. This actually might provide a test for our two theories: it the tax approach would not work, then monopolistic competition might be a force too strong - and the next candidate for the ‘main cause’.
I was very much surprised about Galbraith’s rejection of the NAIRU concept. On second thought, I think that he has some argument. But it is convoluted, and needs to be straightened out.
Note first of all that I have been using the NAIRU myself consistently, and have been arguing since at least 1989 that it shifts. The use of the concept is quite natural for an econometric model that is used for prediction and policy analysis. I also have been quite critical about tax policy, and have been arguing that the NAIRU may be as low as 2% if policies are correct.