15 Steps the Democratic Party Must Take to Reverse Wage Stagnation Across America
The causes and remedies for the economic stagnation facing most American households are no mystery and should be clearly stated in the Democratic Party’s 2016 platform. That was the message from Lawrence Mishel, president of the Economic Policy Institute's Policy Center, as he testified this month at hearings in Washington and said the nation’s key economic challenge was generating “robust wage growth for the vast majority.”
Mishel’s comments, which listed trends and solutions Democrats should call out and embrace, run counter to the oft-cited resignation that economic trends are larger than government can address. The 2016 campaign has brought inequality center stage, he said, underscoring that federal and state government have big roles to play in rebalancing the economy.
“There is now nearly universal recognition that wage growth for nearly all workers, both white-collar and blue-collar, has been inadequate,” Mishel stated. “Unfortunately, too many people believe that wage suppression is an inevitable consequence of immutable forces such as globalization and technological change. In actuality, it is the predictable result of policies implemented over the last four decades that have eroded workers’ ability to command higher pay. The good news is that we can raise Americans’ pay with different policies that increase their economic leverage.”
What follows are 15 trends and remedies Mishel cited to the platform committee.
1. Wage Growth Has Been Stagnant For Decades. This is not just low-income households, but also the middle class. “It is instructive to establish some of the basic facts about what I refer to as wage suppression,” Mishel said. “Between 1979 and 2014 the wages of the top 1 percent of earners grew 149 percent, while the wages of the bottom 90 percent grew just 16.7 percent, with most of that growth occurring in the late 1990s. Had the highest-earning 10 percent not received a disproportionate share of wage growth, wages for the bottom 90 percent would have grown twice as fast.”
2. Wage Suppression Also Hits College Graduates. This is a new factor that has come into focus in the past dozen years. “Since 1973, [employee] productivity has grown 72.2 percent, yet the compensation (wages and benefits) of a typical worker grew far less, just 9 percent (again, mostly in the latter 1990s),” Mishel said. “It is important to note that there has been widespread wage stagnation for the last dozen years or so, affecting both blue-collar and white-collar workers and both high school and college graduates. Wage stagnation occurred over the last recovery from 2002–2003 until 2007, as well as during the Great Recession and its aftermath.”
3. Employment and Labor Practice Changes Are to Blame. Over the past several decades, elected policymakers have deliberately weakened the individual and collective rights of workers, while expanding the authority and power of business executives and investors to redistribute income upward, he said. “This is a marked contrast with the early postwar [WWII] period, a time when prosperity was broadly shared.”
The factors cited are federal policies that tolerate higher than necessary unemployment, which suppresses wages, and the erosion of many labor standards. The top example is “a far-too-low minimum wage,” but also “fewer workers covered by overtime protections,” millions “misclassified as independent contractors,” and “wage theft by employers that is three times greater than all the money stolen in robberies each year.” Other key trends are the rise of the gig economy, based on subcontracting and temporary employment, the GOP-led legal attack on collective bargaining—especially for state workers outside the public safety sphere—and the emergence of globalization that has “hollowed out manufacturing and undercut wages for non-college educated workers.”
At the same time wages and legal protections for employees have been undermined, the corporate and financial sector has embraced “an exorbitant growth of executive pay” and has “redistributed money upward that otherwise would have been available for the vast majority.”
4. Solutions Start With Not Hiking Interest Rates. Notably, the most important short-term response has to do with ensuring that household incomes are not siphoned to banks because of oft-cited fears of inflation—which would prevent people with few assets from building savings. “The most consequential decisions affecting job and wage growth in the next few years will be made by the Federal Reserve Board,” Mishel said, saying that a new breed of official should be appointed to that body. “It is important that higher interest rates do not prematurely shut down the recovery before it reaches disadvantaged communities and generates decent wage growth. Changes in board governance to ensure decision-makers are representative of the American people can help to improve future policy decisions.”
5. Government Needs to Act When Capitalists Don’t. This is another key point because champions of the so-called free-market like to believe that the private sector will always do a better job addressing public needs, even if that is demonstrably not true. As important, a critical step in raising wages is lowering persistent unemployment. “Bold investments in infrastructure, clean energy and scientific and medical research can raise future productivity while supplying needed jobs in the near term,” Mishel said. “Additionally, a public service employment program targeted at high-unemployment areas (which will disproportionately be communities of color and rural areas) can provide needed services and lower unemployment.”
6. Rebuild and Modernize Labor Standards. Basic protections for employees have eroded greatly and need to be restored and then updated to address contemporary issues—such as the reality of two working parents, lack of parental and sick leave, and growing contractor economy. However, the first and most important reform is raising federal minimum wages, which varies in different fields—it’s now $7.25 per hour for most jobs, but $2.13 per hour for tipped work. "The most prominent labor standard is the minimum wage, which is now at least 25 percent below its 1968 level, even though the economy is twice as productive,” Mishel said. “We need bold proposals—far more aggressive than those of the past three decades—to overcome the dramatic erosion of the minimum wage that occurred in the 1980s. We should follow the lead of several states and cities and target $12 or $12.50 by 2020, and $15 several years later. This would lift wages for at least the bottom third of the workforce.”
7. Adopt Policies That Support a Living Wage. But a higher minimum wage is not enough, he said. “Together with an expansion of the earned income tax credit (including adding childless workers), this policy would move us closer to providing an adequate standard of living to full-time workers. Improving work supports such as a universal, comprehensive child care program would further improve families’ living standards and help them balance work and childrearing.”
8. Enforce Labor and Employment Law. This is another key point, because some of the fastest-growing fields in America consider their workers part-timers, which lets employers pay fewer taxes and benefits. The remedy starts with enforcing the laws now on the books, he said. “We also need more aggressive enforcement of our laws to prevent the extensive worker misclassification that has taken hold in trucking, construction and the taxi industry, and is now moving beyond those sectors. We need similar enforcement efforts to end pervasive wage theft that now reduces wages for the bottom 60 percent by 3 percent each year. Last, the Obama administration’s new rules on overtime have extended protections to roughly a third of salaried workers, up from just 10 percent—benefiting over 12 million middle-class workers. This new rule must be protected from congressional efforts to overturn it.”
9. Rebuild Collective Bargaining System. Mishel said “the single largest factor” undermining wage growth for middle-wage workers “has been the erosion of collective bargaining (which can explain one-third of the rise of wage inequality among men and one-fifth among women). One of the greatest impacts of the decline of collective bargaining has been that nonunion workers in industries or occupations that previously had extensive collective bargaining no longer receive the higher pay their employers used to provide (given concerns that their best workers might leave for a union job, or that their workers would choose to bargain collectively).” The solution, he said, was not just increasing penalties for labor violators reversing the GOP-led trend to gut union organizing. “We need to undertake a wholesale revision of labor laws to establish sectoral and occupational bargaining.”â€¨
10. Pass Comprehensive Immigration Reform. The system of using millions of exploitable undocumented workers creates ripples through the wider economy that suppress wages for many occupations, Mishel said. “Regularizing undocumented workers will not only lift their wages but will also lift wages of those in the same fields of work,” he said. “Similarly, we must improve labor standards in guestworker programs so that these workers earn at least the median wage in the relevant occupation and have the right to switch employers. There is no basis for expanding these programs when many Americans are still seeking jobs, especially low-wage workers.”
11. Restore Access to The Judicial System. One of the most pernicious corporate-led trends in recent years has been requiring employees to consent to forced arbitration to settle disputes, which keeps workplace issues out of the court system. “A majority of large firms force their workers to give up their access to court and government agency remedies and agree to settle disputes over wages and discrimination in arbitration systems set up and overseen by the employers themselves,” he said. “Collective action through class action suits is also denied to many workers. Such practices limit workers’ options and facilitate age, gender, and race discrimination and violations of wage and hour laws.”
12. Modernize Labor Standards. What’s especially needed is sick leave and paid family leave, Mishel said. “Not only have New Deal–era labor standards eroded, the United States has failed to adopt new labor standards that respond to emerging needs.” he said. “In particular, we need standards to help workers achieve a better balance between work and family. The most prominent examples are standards relating to sick leave, paid family leave, and work scheduling (particularly standards that address underemployment of part-time workers, on-call scheduling, and erratic scheduling). More support for child care is also necessary to assist workers and their families, especially low- and moderate-wage workers whose child care choices are limited and of uneven quality.”
13. Enforce Anti-Discrimination Laws. Here, too, Mishel focuses on what is not being done and needed, especially as it relates to race- and gender-based inequities. “Many of the policies already mentioned—though not overtly race- or gender-based—would disproportionately raise wages for women and people of color, who are more likely to work the kinds of jobs impacted by such policies,” he said. “We also need consistently strong enforcement of anti-discrimination laws addressing the hiring, promotion, and pay of women and minority workers. Additionally, we must tackle social issues such as mass incarceration that limit employment opportunities and pay for countless ex-offenders, particularly African-American men. Finally, improving adult education opportunities can help better integrate immigrant workers into our economy and our communities.”
14. Don’t Let the 1 Percent Off the Hook. Most of Mishel's remedies would improve working conditions and incomes, but they do not address the implicitly greed-driven culture at the top of the business world that has allowed the majority of new wealth generated to go to the very top. “We also must limit the ability of those at the top to capture a rising share of all income, which leaves less income left over for everybody else,” he said, then suggested a list of remedies to do that. “Policies to limit financialization of the economy are essential: This includes everything from strengthening Dodd–Frank, establishing a financial transactions tax, and limiting payday loans to ending tax preferences for unearned income. Likewise, it is essential to curtail runaway executive pay through changes in corporate governance and tax policies (such as ending the preference for ‘performance pay’). Higher marginal tax rates on top incomes will curtail the incentive to seek further 'rents' at the expense of others.”
15. No New Tax Cuts. Just as Mishel warns about raising interest rates, which would siphon off disposable income and undermine possible savings, he said it was imperative that elected lawmakers don’t cut tax revenues under the guise of stimulating the economy. “The erosion of paychecks over the last 40 years has not been due to what government has taken out of them, but from what employers no longer put in them,” he said. “Tax cuts are seen by some as a way to provide some cash to ease families’ financial struggles. The problem is that wage stagnation is an ongoing challenge—and one-time tax cuts are, at best, a short-term Band-Aid. We need those revenues for robust public investment programs, to enhance our safety net (including Social Security), and to provide expanded work supports such as child care subsidies.”
Mishel’s prescriptions are based on the reality that because wage stagnation has been caused by policy decisions, it can be reversed by lawmakers. He is hoping the 2016 Democratic Party platform will go further than previous platforms by articulating both the causes and the remedies of inequality in America, instead of touting a Democratic president’s intentions and achievements. His clear analysis and remedies lay out a path toward a fairer and more equitable economy.