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Inequality series: New report by the Century Foundation explodes myths about low-wage work and offers a vision for the future

The United States has experienced a low-wage recovery since the 2007-2009 recession. Many middle-income jobs that were lost have not been recovered and the fastest growing jobs tend to be lower wage. The fastest growing jobs are in sectors that tend to have lower wages.

A new report by The Century Foundation, a progressive think tank, lays out a framework for how to reverse many of these trends and create an economy that works for people other than top income earners. This will be the first in a series of NALC Economics Blog posts about inequality and how the United States is, to a substantial extent, a society no longer set up for the middle class.

The report sets out by emphasizing that the United States has essentially chosen to be a low-wage economy since the 1970s due to policy choices made over the past 40 years. This runs contrary to the widely held belief that the growth of low-wage work is the outcome of forces of nature beyond our control, such as globalization and technological change. Taken to its logical conclusion, it is only those who can best compete in the new global economy who will command high wages, an outcome no decent society should accept.

While the report looks at myriad ways in which the U.S. has transformed into a low-wage economy, the decrease in labor’s share of income and its relationship with productivity is one of the most important. As the below graph from the St. Louis Federal Reserve shows, labor’s share of income has been in a precipitous decline since the 2000s and has not regained its levels of previous decades (recessions highlighted in grey).

The decreasing share of national income going to workers is related to the widening gap between productivity and wages in the economy. Workers are producing more output than ever before, but almost all of the gains are captured by capital, reducing labor’s share of national income.

It was long believed that wages and productivity would grow together and, for a while, that was roughly true. However, as the below graph from the Economic Policy Institute shows, from 1973 to 2015, productivity increased by 73.4 percent and hourly compensation grew by just 11.1 percent.

The Century Foundation report points out that, had the minimum wage grown with productivity, it would be at least $20 per hour, compared with $7.25 today.

To counteract these trends, the Century Foundation proposes a three-pronged agenda:

  1. a full commitment to public investment and industrial policy.
  2. more aggressive and practical education and training programs.
  3. raised labor standards and social supports that have been purposely neglected for decades, such as making it easier for workers to organize a union and establishing a universal basic income for all citizens.

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