Income Inequality

By GREGORY N. HEIRES

Rising inequality is a permanent fixture of our economy.

That bleak assessment of our economic landscape is one of the troubling conclusions of a new report by the United States Conference of Mayors.

“Unless policies are developed to mitigate these trends, income inequality will only grow larger in the future,” said the report’s author, Jim Diffley, who is the director of US Regional Economics at IHS, a global markets information and analysis company. What remains to be seen is how successful local initiatives can be in the face of federal inaction and anti-labor and anti-government initiatives in state legislatures.

The Abysmal Economic Recovery

The study found that inequality is rising in more than two of three metropolitan areas and that new jobs are paying nearly 25 percent less than the jobs lost during the Great Recession.

The annual wage in sectors where jobs were lost during the recession was $61,637. But the new jobs gained through the second quarter of 2014 showed an average gain of only $47,171. That gap represents a wage loss of $93 billion, according to the report,
“U.S. Metro Economies: Income and Wage Gaps Across the US.”

A similar report by the U.S. Conference of Mayors also found that many of the jobs lost during the 2001-2002 recession were replaced with lower paid ones. But the wage gap back then was 11 percent compared to the more recent 23 percent difference. Today’s twice as high wage gap is a clear sign that inequality continues to rise.

“While the economy is picking up stream, income inequality and wage gaps are an alarming trend that must be addressed,” said the president of the U.S. Conference of Mayors, Sacramento Mayor Kevin Johnson, when the report was released on Aug. 11.

The report describes the country’s “ongoing increase in income inequality” as a “structural feature of the 21^st century economy.” Actually, as the report itself shows, the trend began decades ago:

• The share of income captured by the richest 20 percent of households increased from 43.6 percent in 1975 to 51 percent in 2012.

• Most of the gain went to the top 5 percent of households, whose income share rose from 16.5 percent to 22.3 percent during that period. For those households, the gain amounted to $490 billion in 2012 income.

The lowest 40 percent of households took in just 6.6 percent of the country’s income growth since 2005. The share of the top 20 percent of households was 60.6 percent while that of the top 5 percent was 27.6 percent. The report forecasts that middle-income households will continue to fall behind as the top households captures a greater portion of the income growth.

Income inequality is rising while the purchasing power of most households is declining.

From 2005-2012, average household income fell 3.0 percent. Median income—the amount that divides the country’s income distribution into two equal groups—fell 5 percent during that period.

The conference has set up a task to address inequality. The action comes as Washington is in a state of gridlock, failing to act on President Obama’s proposal to increase the federal minimum wage. The annual minimum wage ($47.25 an hour) has eroded, plummeting by 32 percent from $22,235 in 1968 to $15,080.

The Conservative Attack

Around the country, some states and municipalities are adopting increases in the minimum wage in the absence of federal action.

Yet Republican-controlled statehouses have also passed legislation to ban local governments from approving laws setting mandatory wages and benefits, including health care and paid sick leave. The anti-government American Legislative Exchange Council has provided conservative legislators with blueprints for such legislation.

Since 2011, eleven states have banned localities from passing mandatory sick leave legislation, according to the Center for Media and Democracy. Alabama and Oklahoma enacted bans this year. Forty million workers, or 40 percent of the work force, are unable to take paid sick leave, according to the U.S. Bureau of Labor Statistics.

In 2013, state legislatures introduced nearly 200 bills– apparently based on model legislation crafted by ALEC–to restrict wages, benefits and worker rights, according to the Center for Media and Democracy.

“As working Americans speak out for higher wages, better wages and respect in the workplace, a coordinated nationwide campaign to silence them is mounting–and ALEC is at the heart of it, according to “ALEC at 40: Turning Back the Clock on Prosperity and Progress,” a 2013 report by the Center for Media and Democracy. “ALEC, corporations, right-wing think tanks, and monied interests like the Koch brothers are pushing legislation throughout the country designed to drive down wages; limit health care, pensions and other benefits; and cripple working families in the political and legislative process.”

The Economic Policy Institute in 2013 also issued a report on the legislative assault on labor standards, unions and workplace protections.

The report—“The Legislative Attack on American Wages and Labor Standards, 2011–2012”– said that, “In 2011 and 2012, state legislatures undertook numerous efforts to undermine wages and labor standards:

▪               Four states passed laws restricting the minimum wage, four lifted restrictions on child labor, and 16 imposed new limits on benefits for the unemployed.

▪               States also passed laws stripping workers of overtime rights, repealing or restricting rights to sick leave, undermining workplace safety protections, and making it harder to sue one’s employer for race or sex discrimination.

▪               Legislation has been pursued making it harder for employees to recover unpaid wages (i.e., wage theft) and banning local cities and counties from establishing minimum wages or rights to sick leave.

▪               For the 93 percent of private-sector employees who have no union contract, laws on matters such as wages and sick time define employment standards and rights on the job. Thus, this agenda to undermine wages and working conditions is aimed primarily at non-union, private-sector employees.”

“The consequence of this legislative agenda is to undermine the ability of workers to earn middle-class wages and to enhance the power of employers in the labor market,” the report said. “These changes did not just happen but were the results of an intentional and persistent political campaign by business groups.” Besides ALEC, those groups include theU.S.Chamber of Commerce, National Federation of Independent Business, National Association of Manufacturers, and corporate-funded lobbying organizations, such as Americans for Tax Reform, and Americans for Prosperity, both supported by the billionaire anti-government Koch brothers.

With a strong conservative anti-labor legislative push already underway, municipalities will clearly encounter obstacles to their initiative to combat inequality.

But the Mayors’ Cities of Opportunity Task Force potentially represents a major political initiative against the decades-long assault on the living standards of working families. The policies promoted by the task force include universal pre-kindergarten programs, increasing the minimum wage, retraining for displaced workers, expanding skills training in junior colleges and increasing the Earned Income Tax Credit, which would boost the after-tax earnings of low-wage workers.

“The inequality crisis facing our cities is a threat to our fundamental Americans values,” said New York City Mayor Bill de Blasio, who chairs the conference’s Cities of Opportunity Task Force. “The Cities of Opportunity Task Force is bringing mayors from all corners of the country together to work together and leverage the power of municipal governments to advance a national, common equity agenda, and to also encourage action on the federal level.”