What can be done to reverse rising economic inequality in America—not just for future generations, but right now?
Raise wages. That’s the conclusion of a new policy report from the Economic Policy Institute and the starting point for a multi-year research and education initiative that was launched on Wednesday with a keynote address by Secretary of Labor Thomas Perez. The paper’s central argument is that the root of America’s most pressing economic challenges lies in the disconnect between wages and productivity—and that government policy and business practices are in large part to blame.
“The clear connections between wages, income and living standards mean that progress in reversing inequality, boosting living standards and alleviating poverty will be extraordinarily difficult without addressing wage growth,” reads the introduction to the report, which was written by EPI President Lawrence Mishel and economists Josh Bivens, Elise Gould and Heidi Shierholz. “Indeed, converting the slow and unequal wage growth of the last three-and-a-half decades into broad-based wage growth is the core economic challenge of our time.”
According to EPI, wages for the entire bottom 70 percent of earners have been falling since 2002. The minimum wage is now 25 percent lower than its peak in 1968. Racial disparities in hourly wages for white, black and Hispanic workers have not narrowed with time. Most Americans depend on work-based income to pay their bills (rather than tax credits, pensions or social insurance), so these wage trends directly impact college graduates and high school dropouts alike. Even the bottom fifth of American households rely on earnings from work for more than two-thirds of their total income—meaning that stagnant wages have played a large role in keeping families poor.
As Perez put it, “Workers are getting a smaller share of the pie that they helped to bake.” The burden isn’t born only by workers: the whole economy suffers, Perez argued, when people don’t have money to spend.
Counterintuitively, the authors of the report say their data points to empowering conclusions. “The American people now are in an economic fetal position,” Mishel said in an interview. “But we argue that there is no deity or economic forces beyond our control that have put us in the position we are. We, through democratic means, can make it different.”
So what put American workers into the fetal position? One of the initiative’s goals is to provide an alternate narrative to the one that chalks up low wages to globalization and technological change. More important, according to EPI, are the cumulative effects of exploitative business practices like wage theft, the misclassification of employees as subcontractors, and keeping workers below the full-time threshold, along with successful attacks on labor rights, and a high unemployment rate, which makes workers easily replaceable and gives employers little incentive to raise wages. Other factors include the low minimum wage and a broken immigration system that renders undocumented workers vulnerable to abuse while robbing other legal immigrants of bargaining power by tying their visas to their employer.