One of the most pressing questions in the economy is why wages for middle-income workers have risen only marginally since the 1970s, even though wages for workers have risen near the top.
The rough consensus among economists for years was that unstoppable forces like technology and globalization explained much of the trend. But in one new paperLawrence Mishel and Josh Bivens, economists at the Liberal Economic Policy Institute, conclude that the government is to blame. “Deliberate policy decisions (either commission or omission) have resulted in wage suppression,” they write.
These decisions include the willingness of policymakers to tolerate high unemployment and let employers fight aggressively against unions. Trade deals that force workers to compete with poorly paid workers overseas; and the implicit or explicit blessings of new legal regulations, such as employment contracts, that make it difficult for workers to find new jobs.
Together, Dr. Mishel and Dr. Bivens, these developments deprived workers of bargaining power, which kept their wages low.
“When you think of a person who is dissatisfied with their situation, what are the options?” Said Dr. Mishel. “Almost every possibility was ruled out. You can’t quit and get a quality job. If you are trying to organize a union, it is not that easy. “
The slowdown in worker wage increases has been rather abrupt. From the late 1940s to the early 1970s, the hourly pay for the typical worker grew about as fast as productivity. If the value of goods and services provided by workers increased by 2 percent within a year, their wages and services also tended to increase by around 2 percent.
Since then, productivity has continued to rise, while hourly pay has largely flattened out. According to the newspaper, the typical worker made $ 23.15 an hour in 2017, far less than the $ 33.10 the worker would have made if pay had kept pace with productivity growth.
In the 1980s and 1990s, economists increasingly argued that technology largely explains this flattening of wages. They said computers made non-college workers less valuable to employers, while college graduates became more valuable. At the same time, the growth in the number of university graduates slowed. These developments depressed wages for those in the middle of the income distribution (such as factory workers) and raised wages for those near the top (such as software engineers).
The technology thesis relied largely on a standard economic analysis: as the demand for low-skilled workers fell, their wages rose less rapidly. In recent years, however, many economists have gradually scaled back this explanation, focusing more on the balance of power between workers and employers than on long-term shifts in supply and demand.
The idea is that setting pay means sharing the wealth that employee and employer create together. Workers can claim more of this wealth when institutions like trade unions give them leverage. You get less if you lose such leverage.
Dr. Mishel and Dr. Bivens argue that decades of loss of leverage largely explains the gap between the wage increases workers would have received had they benefited fully from rising productivity and the smaller wage and performance increases workers would actually have received.
To arrive at this conclusion, they examine numerical measures of the impact of several developments affecting workers’ bargaining power – some of which have been generated over the years, many of which other economists have generated over the years – and summarize those measures then effect together to get an overall rating.
For example, Dr. Mishel and Dr. Bivens, examining the economic literature on the unemployment rate, found that it was often below what is known as the natural rate – the rate below which economists believe that a tight labor market could lead to an uncontrolled acceleration in inflation. in the three decades after World War II, but often above the natural rate in the past four decades.
This is due, on the one hand, to the fact that the Federal Reserve placed greater emphasis on fighting inflation after Paul Volcker took office in 1979 and, on the other hand, to the fact that the federal and state governments stopped following the great recession of 2007-09 gave economic impetus.
Dr. Mishel and Dr. Bivens suggest that this excessive unemployment has cut wages by about 10 percent since the 1970s, which explains nearly a quarter of the gap between wages and productivity growth.
They do similar exercises for other factors that undermine workers’ bargaining power: the Fall of the unions;; a number of trade agreements with low-wage countries; and increasingly common arrangements such as “Cracks, “In which companies outsource their work to companies with lower wages, and Non-compete obligations in employment contracts that make it difficult for workers to go to a competitor.
Dr. Mishel and Dr. Bivens conclude that these factors explain more than three-quarters of the gap between actual increases in pay for the typical worker and their expected increases in the face of productivity gains.
When that number is in the right stadium, this is a crucial finding. Most of the anemic wage explanations Dr. Mishel and Dr. Bivens cite the underlying idea that wage growth depends on political decisions, not on technological advances or other irreversible developments. Government officials could have been less concerned about inflation and wrong on the lower unemployment side by setting interest rates and providing economic stimulus. They could have taken action against employers who aggressively fought unions or forced non-compete agreements on fast food workers.
And if policymakers are responsible for wage stagnation, there is much they can do to reverse it – faster than many economists once thought. Among other things, the paper’s conclusion would suggest that President Biden, who has provided a huge economic stimulus and sought to increase union membership, may be on the right track.
“One of the biggest things about the American bailout plan,” said Dr. Mishel, referring to the Pandemic Relief Act signed by Mr Biden, “is primarily his obligation to get to full employment quickly.” It is ready to risk overheating. “
So is the number of the paper plausible? The short answer from other economists was that it was pointing in the right direction, but it may have exceeded its mark.
“I feel like things like cracks and non-compete agreements became very important in the 2000s, along with unions that became so weak,” said Lawrence Katz, a labor economist at Harvard who is a long-time proponent of the idea that higher graduate wages have increased inequality.
But dr. Katz who has also written About unions and other reasons workers have lost their leverage, said the portion of the wage gap that Dr. Mishel and Dr. Ascribing Bivens to such factors likely overrated their effect.
The reason, he said, is that their effects cannot simply be added up. If excessive unemployment explains 25 percent of the gap and weaker unions explain 20 percent, it’s not necessarily that they together explain 45 percent of the gap, as Dr. Mishel and Dr. Bivens imply. The effects overlap somewhat.
Dr. Katz added that education plays a complementary role to bargaining power in determining wages, citing a historic rise in wages for black workers as an example. In the early decades of the 20th century, philanthropists and the N.A.A.C.P. worked to improve Educational opportunities for black students in the south. This helped increase wages after a major policy change – the Civil Rights Act of 1964 – increased worker power.
“Education alone was not enough in the face of the Jim Crow apartheid system,” said Dr. Cat. “But it’s not clear that you could have got the same wage increase if there hadn’t been activism for the provision of education earlier.”
Daron Acemoglu, an M.I.T. The economist who studied the technology’s impact on wages and employment said Dr. Mishel and Dr. Bivens would have rightly urged the field to think deeper about how institutions like trade unions affect workers’ bargaining power.
But he said they were too dismissive of the role of market forces such as the demand for skilled workers, noting that the premium for college degrees, although the so-called college premium has largely flattened out over the past two decades, has continued to rise most likely on inequality contribute.
However, other economists cautioned against changing the general trend that Dr. Mishel and Dr. Highlight Bivens, not to lose sight. “There is just an increasing body of papers trying to quantify both the direct and indirect effects of a decline in workers’ bargaining power,” said Anna Stansbury, co-author of a well received paper on the subject with former Treasury Secretary Lawrence Summers. After completing her doctorate, she will be transferred to the faculty of the M.I.T. Sloan School of Management this fall.
“Whether it explains three quarters or half of the slowdown in wage growth,” she continued, “the evidence to me is very compelling that it is a non-trivial amount.”