Identifying the policy levers generating wage suppression and wage inequality | Economic Policy Institute
Larry Mishel and Josh Bivens, Economic Policy Institute
There is now widespread acceptance across the political spectrum that the typical worker’s wages have grown very slowly or been stagnant for several decades but a consensus narrative explaining wage stagnation has not developed yet. [togglable text="expand abstract"]
The frequently invoked conventional explanations attributing wage problems primarily to automation and, somewhat, to globalization, cannot actually explain key wage developments over the last several decades. Moreover, portraying wage stagnation and growing wage inequality as the unfortunate byproduct of inevitable, positive forces such as automation that one neither can nor would want to alter is deeply misleading and, sometimes intentionally, is meant to absolve those with the most power—corporations and the most wealthy people—from their responsibility for the outcomes of their actions and to ignore the impact of racism and sexism.
Any explanation of wage stagnation must grapple with three key features of wage trends over the last four decades. First, wages and benefits for the typical worker have risen very slowly—frequently characterized as stagnant—and much more slowly than the productivity of the average worker. Second, the gap between the typical worker’s compensation and average productivity primarily results from two types of inequalities, primarily a growing inequality of wages and benefits but also a shift of income from labor to capital. Finally, while racial wage disparities grew, and gender wage disparities did shrink, the failure to eliminate these disparities and continue the progress achieved in the 1960s and 1970s has led for there to be higher inequality today.
This paper offers a narrative and supporting evidence on the mechanisms that suppressed wage growth over the last four decades since the late 1970s. We label this wage suppression rather than wage stagnation because it was an actively sought outcome—engineered by the political power and organizational strategies of corporate management and its political and judicial allies to suppress labor costs and wages and maintain gender and racial hierarchies—and was not the passive, unavoidable outcome of a "bad economy" or the byproduct of positive forces such as automation.
The key forces driving wage suppression have been changes in management practices/strategies and shifts in public policy, including both policy actions and omissions, that systematically undercut individual workers’ options and ability to obtain higher pay, job security, and high-quality jobs, along with a lack of action to counteract the racism and sexism that undercut the prospects of particular groups of workers. These dynamics are primarily located in the labor market and the strengthening of employers’ power relative to their white-collar and blue-collar workers. It is "as if" a team of corporate executives, lobbyists, and lawyers designed corporate strategies, reset government policies toward labor standards (e.g., minimum wage) and unions, shaped judicial opinions and the legal environment and weakened enforcement of existing labor standards and laws with the goal of limiting workers’ options in the labor market, limiting wage growth, and undercutting workers’ individual and collective bargaining power relative to their employers. These decisions were most adverse for workers with low and moderate wages, especially for African Americans so situated, thereby generating wage inequality whereby high earners and, especially those in the top 1.0% and 0.1%, fared far better than those in the bottom 90%. It was this growth in wage inequality, including the failure to close gender and racial disparities, and a shift of income from workers to owners of capital that explains the failure of wages for the vast majority to improve adequately.
This paper elaborates and empirically assesses the specific factors and mechanisms that developed since the late 1970s to undercut workers’ individual and collective bargaining power. We offer assessments of the impact of particular mechanisms on wage growth and wage inequality to demonstrate that their aggregate and cumulative impact can readily explain wage suppression and wage inequality. In particular, we examine the wage impacts of factors such as: excessive unemployment, resulting from faulty monetary (and budget) policies; eroded collective bargaining, resulting from corporate practices and adverse judicial and policy choices; weaker labor standards, resulting from a declining minimum wage, eroded overtime protections, and weaker enforcement of standards leading to greater "wage theft"; globalization, resulting from policy choices that undercut wages and job security of non-college-educated workers; gender and race/ethnic discrimination; shifts in corporate structures such as fissuring (or domestic outsourcing), industry deregulation, privatization, dominant buyers affecting entire supply chains, and increases in concentration of employers. [/togglable]
