Introduction and executive summary

There is now widespread agreement across the political spectrum that wage stagnation is the country’s key economic challenge. As EPI has documented for nearly three decades, wages for the vast majority of American workers have stagnated or declined since 1979 (Bivens et al. 2014). This is despite real GDP growth of 149 percent and net productivity growth of 64 percent over this period. In short, the potential has existed for adequate, widespread wage growth over the last three-and-a-half decades, but these economic gains have not trickled down to the vast majority.

The Agenda to Raise America’s Pay

Because wage suppression stems from intentional policy choices, it can be reversed by making different policy choices. To boost Americans’ wages, policymakers must intentionally tilt bargaining power back toward low- and moderate-wage workers.

As this paper explains, wage stagnation is not inevitable. It is the direct result of public policy choices on behalf of those with the most power and wealth that have suppressed wage growth for the vast majority in recent decades. Thus, because wage stagnation was caused by policy, it can be alleviated by policy. In particular, policymakers must address two distinct sets of policies:
  • One set of policies that have stifled wage growth are aggregate factors that have led to excessive unemployment over much of the last four decades, and others that have driven the financialization of the economy and excessive executive pay growth.
    • Policymakers can help to deliver broadly shared wage growth through monetary and budgetary policy that prioritizes full employment—thereby tightening the labor market so that employers have to offer pay increases to get and keep the workers they need—and tax and other policies that help ensure economic gains do not accrue mainly to the top 1 percent.
      • Policies that will help create jobs and reach full employment include keeping interest rates unchanged until wage growth reaches 3.5 to 4 percent; enacting employment programs targeted toward hard-hit communities; increasing public investment in transportation, broadband, R&D, and education; and reducing the U.S. trade deficit.
      • Policies that will not help create jobs or reach full employment include corporate tax reform, lowering tax rates on individuals or corporations, raising interest rates, and pursuing trade deals harmful to U.S. workers.
  • Another set of policies concerns the business practices, eroded labor standards, and weakened labor market institutions that have reduced workers’ individual and collective power to bargain for higher wages.
    • Policymakers can help to grow wages by raising the minimum wage; updating overtime rules; strengthening rights to collective bargaining; regularizing undocumented workers; ending forced arbitration; securing workers’ access to sick leave and paid family leave; closing race and gender inequities; awarding government contracts only to firms that adhere to wage, health, and safety laws; and tackling workplace abuses such as misclassification and wage theft.
    • Policies that will not help to raise wages include individual or corporate tax cuts, austerity, increasing college or community college completion, deregulation, and policies aimed at increasing long-term growth.

Creating jobs and reaching full employment

The good news is that 246,000 jobs were created on average each month in 2014, faster than any year in the last recovery and since 2000. This job growth lowered unemployment to 5.6 percent in December. Unfortunately, we still have far to go before we recover from the financial crisis of 2008 and the recession that started after December 2007. Specifically, the Great Recession and its aftermath have left us with a jobs shortfall of 5.6 million—that’s the number of jobs needed to keep up with growth in the potential labor force since 2007—and current job creation rates will get us to pre-recession labor market health in August 2016 (Gould 2015). And even attaining this pre–Great Recession labor market health is an insufficiently ambitious goal. Instead, we should strive to reach genuine full employment with roughly 4 percent unemployment. Much is at stake (Katz 2014). If we do not attain robust full employment, many communities, particularly those of color, will be left out of the recovery. Moreover, under current policy conditions, significant wage growth for the vast majority may only occur when we achieve much lower unemployment than we now have. The reason for this is simple: Employers do not need to offer significant wage increases to attract and retain employees because the number of willing workers is far greater than the number of available jobs.

Policies that will help to achieve full employment are the following:

1. Monetary policy that targets full employment, with wage growth matching productivity gains

2. Targeted employment programs

3. Public investment and infrastructure

4. Reducing our trade deficit

Policies that do not help us reach full employment include:

1. Corporate tax reform

2. Cutting taxes

Top federal marginal tax rates, 1952–2009

corporate gains
corporate gains

BLS Latest Job Numbers

  • 12.3 million - unemployed,
  • 14.4%(U6) - out of work,
  • 4.7 million (40%) 6 months or longer,
  • 8.0 million "involuntary" partime workers,
  • Over 4 million for a year, (WSJ)
  • 2.0  million over 99 weeks, the 99ers!
  • 4.7 jobless for every job. EPI

~ U.S. January 2013 -Bureau Labor Statistics

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