Wages - It's All About the Leverage

Last week, the New York Times’ David Leonhardt presents an article talking about the all-too-real disconnect between family bottom lines and the growth in the economy. The story is familiar, real wages have stood still from 2003 to the second quarter of 2007 as the economy has grown gangbusters. What little gains we’ve since then are likely to be erased if job growth continues to slow. This astounds economists like Lawrence Katz who throw up their hands and say that we just need white hot growth and truly full employment to get higher wages. I don’t disagree with the need to have macroeconomic policies geared towards full employment – and that full employment in today’s super deregulated workplace is something at 4.0% or below.

While I really like David’s reporting, what disappointed me about the article was the lack of perspective on why this has happened and potential solutions – with the article meekly pointing to a potential decline in the number of college degrees in the country. In my mind, its not really a mystery why economic growth is not going to workers. The disconnect has occured through a precipitous decline in wage-setting power of US workers and the government through wage floors.

On one hand, you have the precipitous drop in unionization rates in the economy which allows firms to attract employees at lower prices at lower and middle ends of the spectrum. On the other hand, you have a tremendous weakening of the wage floor. Not only do workers face a declining value of the minimum wage but the watering down of overtime rules. To make matters worse, one in ten companies misclassify their workforce as independent contractors which totally exempts them from any kind of wage rules. But perhaps most importantly, you have the impact of fear. Companies of all stripes can point to globalization and the availability of cheaper workers overseas to instill an omnipresent anxiety that parallelizes workers from demanding pay raises. NAFTA and the WTO have aided and abetted the destruction of living wage jobs to the benefit of the very top of the economic spectrum.

We need sympathetic reporters to start identifying these causes—because they lead to potential prominent solutions that can rebalance the economy, rather than pointing to more nebulous economic forces. There are proposals all over Congress that would get us on the right traack-- Employee Free Choice Act, the increase in the minimum wage, various proposals to cut off scofflaw employers, and tough stands on unfair trade deals could start to rebalance the economy to give workers the leverage to turn their productivity into real gains in their paycheck. But, we still have a long way to go in convincing the media and the public that these solutions can start to reverse the tide. Editorial after editorial talks about the decline in the middle class but rarely mention even big ticket items like EFCA. When liberal pundits pine for the ‘natural economic gains’ produced when the economy becomes red hot like it did in the late 1990s, we are going to be sorely disappointed. Today’s workforce needs the tools to fight for its fair share of the pie in all stages of the business cycle.