Raising Wages in US – Policies that work

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.

Chosen excerpts by Job Market Monitor. Read the whole story at How to Raise Wages: Policies That Work and Policies That Don’t | Economic Policy Institute.