Labor & Business

Rising inequality and stagnant wages was the goal of government policy says EPI report

Far from being the unfortunate and unavoidable result of apolitical market forces such as technological change and automation, wage stagnation is the direct result of a rigged system – policy choices made by the government in collusion with business and corporate opportunists.
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Published on May 19, 2021
By Steve Ahlquist

If you’re struggling financially, you might take some comfort from the fact that it’s not your fault. Rich people in the United States, using the power of the government, established policies and laws that stole up to $10 and hour from you for every hour you’ve worked over the last 40 years – a staggering amount of money.

For the past four decades, worker compensation has not been keeping up with worker productivity. The typical worker earned $23.15 an hour in 2017, but had wages kept up with productivity, wages would have been $33.10 an hour.

In the 30 years following WWII, typical worker wages kept up with productivity growth. But from 1979 to 2017, wages have flattened. Where did that $10 an hour, for every worker in the United States, go? There’s a new economic paper that explains it, Identifying the policy levers generating wage suppression and wage inequality from from Economic Policy institute (EPI) distinguished fellow Larry Mishel and EPI director of research Josh Bivens. Mishel and Bivens show that “policy changes and changes in business practices that systematically undercut workers’ ability to get higher pay, job security, and better-quality jobs – which generated wage suppression and wage inequality.”

The research “lays out the basic facts about wage inequality: the soaring wages of the top 1.0% and top 0.1%, the erosion of labor’s share of income, and the ever-growing gap between middle and high earners.”

Far from being the unfortunate and unavoidable result of apolitical market forces such as technological change and automation, wage stagnation is the direct result of a rigged system – policy choices made by the government in collusion with business and corporate opportunists.

Mishel and Bivens claim that 55% of the productivity-wage divergence can be explained by excessive unemployment (supported by the Fed to fight inflation), eroded collective bargaining (anti-union legislation), and corporate-driven globalization (such as NAFTA). Another 20% can be explained by employee misclassification, noncompete contracts, and supply chain dominance.

Add to this things such as:

  • Weaker labor standards (including a declining minimum wage, eroded overtime protections, misclassification, nonenforcement against instances of “wage theft,” or discrimination based on gender, race, and/or ethnicity);
  • New employer-imposed contract terms (noncompetes, forced private, individualized arbitration, anti-poaching agreements); and
  • Shifts in corporate structures such as fissuring (or domestic outsourcing), industry deregulation, privatization, buyer dominance affecting entire supply chains, and increases in the concentration of employers.
Grand Theft Economy

In the EPI paper the authors seem seem to rediscover an important, basic fact about labor. Wages are not determined by market forces – They are determined by bargaining power. Weak or nonexistent unions leave workers with little bargaining power. Powerful corporations can set the length and breadth of wage negotiations.

“The key dynamic undercutting a typical worker’s wage growth was the strengthening of employers’ power relative to their white-collar and blue-collar workers in labor markets, not because monopoly firms exercised their power in product markets by charging higher prices to consumers,” write Mishel and Bivens.

The paper also provides insights into combatting racial and gender disparities in employment and wages:

“The systemic gender and race discrimination that slots minority and women workers into lesser-paid jobs also has made these workers the primary victims of the systematic weakening of worker power,” write the authors. “Consequently, one of the key mechanisms to lessen racial and gender inequities is to restore worker power and to provide everyone access to good jobs.”

And what about automation, the classic neoliberal explanation / lie for wage stagnation? “All of the indicators for automation and corresponding wage gaps show that automation has played no role in wage suppression or wage inequality in the last 25 years.”

So if policy makers are the cause of wage stagnation, can they also reverse this trend? It seems so. One way would be to make it easier to unionize and for laws to be written that favor and support unions. We could also tax the rich, take back at least some of the money stolen from workers over the last four decades. We can also set a strong and robust minimum wage, one that sets a high bar. $15 was barely enough ten years ago when the meme first took off. There’s talk of $25, but if we wait ten more years to get there, we’ll need $30, or $35.

What we also need is a guaranteed living wage, and social services such as childcare, education (through college) affordable luxury housing, free transportation, Medicare for All that includes full dental and mental health care, and more. We also need to look at the rules and regulations that dictate how workers and bosses bargain, and reassess trade treaties to ensure the protection of workers.

Though much needs to be done on the Federal level, state lawmakers can start unravelling some of this too. We can tax the rich in Rhode Island, make sure that a large number of cannabis licensees under the new legalization scheme are worker-owned coops, make sure that people of color are prioritized for cannabis licenses, start a funding stream for affordable housing, and so much more – too much to list.


More coverage:

People interested in theories of wage should check out Part II of Economics for the Rest of Us: Debunking the Science that Makes Life Dismal by Moishe Adler.

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