Study: Bad policies have hurt workers, good policies could help

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American workers have seen little to no real wage growth in the past three-and-a-half decades, and 2014 is no different, according to a new study from the Economic Policy Institute’s Raising America’s Pay initiative.

In the study, titled  “Why America’s Workers Need Faster Wage Growth—And What We Can Do About It”, economist Elise Gould finds that real (inflation adjusted) hourly wages fell for most Americans in the first half of 2014, compared with the same period in 2013.

The poor performance of American workers’ wages in recent decades—particularly their failure to grow at anywhere near the pace of overall productivity—is the country’s central economic challenge. Indeed, it’s hard to think of a more important economic development in recent decades. It is at the root of the large rise in overall income inequality that has attracted so much attention in recent years. A range of other economic challenges—reducing poverty, increasing mobility, and spurring a more complete recovery from the Great Recession—also rely largely on boosting hourly wage growth for the vast majority.

Gould analyzes the past six months of wage data (adjusted for inflation) from the Census Bureau’s Current Population Survey Outgoing Rotation Group. Key findings include:

  • Wages have fallen in 2014 for high-wage earners and those with a college degree – groups with the lowest level of unemployment. This is evidence that the economy is far from full employment and shows that the Federal Reserve should not consider raising interest rates.
  • Wages for the broad middle class declined over the last year, as they have for most of the past 40 years—dismal wage growth has been a key contributor to income stagnation and growing income inequality.
  • The lowest wage earners (those at the 10th percentile) were the only group to not suffer declining wages over the last year. This can be attributed to legislated minimum wage increases in the first half of 2014 in states where 40 percent of U.S. workers reside.

Gould suggests several policy changes that could strengthen workers’ leverage and lead to higher wages, including: raising the minimum wage, strengthening workers ability to form unions, cracking down on wage theft, expanding overtime provisions, and ending misclassification of employees as independent contractors.

Tackling the issue via policy is important Gould says, because past and current bad polices contributed to the wage stagnation. To address that issue, we need new, better policies in place to counteract that damage.

This is particularly true when it comes to labor market policies and business practices; reversing the deteriorating state of labor market standards and protections for low- and moderate-wage workers would be an ideal place to start rebuilding their ability to share in overall economic gains. Recent momentum to raise the federal minimum wage and restore some of the overtime protections lost in recent decades is a very encouraging beginning.

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Updated: August 29, 2014 — 3:52 pm

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