By GREGORY N. HEIRES
Technological change and inadequate education are often cited as the principal causes of our wage crisis.
This argument, in a certain sense, blames workers for their plight. They are unwilling to invest sufficiently in their education, and they lack the necessary skills for complex jobs in the Information Age.
Similarly, conservatives charge that the unemployed leach off the taxpayers, content to get by on generous unemployment benefits and to allow unskilled immigrants to do the low-wage work that they should be doing.
Blame the individual. It’s a very American concept. As the title of a song from the musical “Into the Woods” by Stephen Sondheim puts it: “Your Fault.”
Another argument is that we can’t do much about the wage decline.
Americans simply can’t compete with the low-wage workers of China and developing countries. This presumes a certain inevitability about our falling standard of living. So, let’s just give in.
But how true is this? Can we put a brake on our declining and stagnating wages?
Rising Inequality is No Accident
A recent study by the Economic Policy Institute, “Raising America’s Pay: Why It’s Our Central Economic Policy Challenge,” suggests that the economic squeeze on the middle class and the poor isn’t an accident. Largely it’s the result of a shift of greater economic and political power to the wealthy. Public policies account for much of our rising inequality and the wage crisis. And therefore public policies can address most of the problem.
“The causes of stagnant wages for the vast majority and unequal wage growth are, in our view, related to intentional policy decisions,” write the authors of the report, EPI President Lawrence Mishel and economists Josh Bivens, Elise Gould and Heidi Shierholz. “The connecting principle among them is that nearly every policy change had the completely predictable effect of reducing the bargaining power of typical workers (individually and collectively), and boosting the bargaining position of capital owners and corporate managers.”
The EPI report identifies several policies at the root of falling and stagnating wages, including:
(1) the dramatic drop in the top rate of taxes since the late 1970s: This has increased the pretax income share of the top 1 percent, and it has slowed the income growth of everyone else.
(2) skyrocketing corporate pay: In 1993, corporate tax law was changed to allow corporations to deduct only the first $1 million of executive salaries from corporate income taxes. But pay above the $1 million threshold could continue to be deducted as long as it was “performance based,” allowing corporations to boost executive compensation through stock options and profit-related bonuses.
(3) economic globalization: Trade agreements have protected corporate profits but done little to protect domestic wages.
(4) macroeconomic policy: The Federal Reserve Bank has focused on keeping inflation, rather than unemployment, low.
(5) regulatory policy: Financial deregulation has led the financial sector to double its size compared to the rest of the economy. The financial sector is overrepresented in the 1 percent. And,
(6) labor market policy and business practices: The decline in the minimum wage explains about two-thirds of the wage gap between low- and middle-wage workers. And weakened unions account for a fifth to a third of the rise of wage inequality from the 1970s to the late 2000s.
The Decline of Workers’ Share of Productivity
Progressive public policy must address the divergence between productivity growth and worker compensation.
From 1979 and 2013, productivity grew eight times faster than the typical worker’s compensation, according to the report. During that period, productivity went up 64.9 percent while the compensation of production and non-supervisory workers grew a mere 8.2 percent.
“Much of this productivity growth accrued to those with the very highest wages,” the EPI report says. “The top 1 percent of earners saw cumulative gains in annual wages of 153.6 percent between 1979 and 2012—far in excess of economy-wide production.” Between 1979 and 2007, the wages of the top 1 percent of earners increased by 156.2 percent—nearly 10 times as fast as the bottom 90 percent of the work force.
What steps should we take to restore share prosperity in the United States? We could simply begin by changing the policies cited by the EPI report.
Strengthening unions, boosting the federal minimum wage, supporting full employment, maintaining the competitive value of the U.S. dollar, adopting fair trade policies that protect workers, and implementing fairer taxes would significantly help reduce inequality.
Immigration reform would raise wages by bringing undocumented workers into the formal economy, where labor standards are higher than in the shadow economy.
Protecting government programs–Social Security, Medicare, Medicaid and unemployment benefits—must be a key priority. Public policies that aim to address inequality and our threatened standard of living should also include steps to restore pensions, resolve the foreclosure crisis and relieve the debt burden of college graduates. Creating good jobs and greater economic equality are the foundation of a shared prosperity.
“Inequality fueled by a broad wage stagnation is by far the most important determinant of the slowdown in living standards growth over the past generation, and it has been enormously costly for the broad middleclass,” the EPI report says.
Inequality is now at Great Depression levels and only seems to be getting worse. If we don’t support a progressive change in our public policies, how long will it take for our society to reach a boiling point?
