Building a High-Wage America

America is a low-wage society by choice, not by accident or purely the result of inevitable economic forces. The Bernard L. Schwartz Rediscovering Government Initiative (RGI) at The Century Foundation (TCF) will direct its efforts over the next two years to policies that can make America a high- wage society once more.

 

Low-wage America is characterized by wages that for forty years have stagnated for most Americans, especially for those with no more than high school educations. A 35-year-old man with a job typically makes no more than did a 35-year-old male four decades ago and often makes less, especially for those in the middle and low end of the pack. According to Figure 1, those at the top of the wage distribution have seen their pay increase, while those at the middle and bottom have remained stagnant or declined after a brief surge in the late 1990s. Meantime, the costs of education, health care, and housing have grown rapidly. Incomes have become much more unequal over that same period, a small portion near the top taking the vast majority of gains in earnings. Technology played a role too, making numerous skilled and unskilled occupation obsolete, and widening the gap in wages between those with and without college educations. Off shoring has become a favored policy for big business, aided by U.S.tax policy, and has led to much a weaker manufacturing sector than other advanced nations. America has some of the highest levels of inequality and poverty among OECD nations, including child poverty.

 

Much of this could have been avoided. In particular, the nation’s policy levers were designed to keep workers down. The Federal Reserve’s obsession with low inflation led to policies that were too tight, arguably since the 1980s under Alan Greenspan, and then under Ben Bernanke, a pioneer of inflation targeting. Simultaneous to these low inflation policies was a political fixation with a rising federal budget deficit virtually paralyzed fiscal policy as well. A blind belief in free trade devastated the nation’s industrial capacity and community after community in the heartland. From the late 1970s on, workers were left without protection and with little help from Washington to find new jobs or protect wages for old ones. Rent-seeking by big companies and Wall Street bankers produced fabulous riches for a few, along with inefficient monopoly profits in industry after industry, but workers were hostages to business unregulated by anti-trust oversight or pro-competitive financial regulations. These policies were reinforced by sharply reduced progressive income taxes, favoring the rich by far, during the Ronald Reagan administration. The minimum wage today is no higher, adjusted for inflation than it was in 1968. The sharp decline in union representation hollowed out the middle class and allowed companies to drive down wages. Fortunately the expansion of policies like the earned income tax credit and the child tax credit benefited lower-income Americans, but these policies as well as other anti-poverty measures have not gone far enough.

 

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