The economy finally kicked into second gear in the second half of 2014. Growth hit 5 percent in the third quarter and the economy added 321,000 jobs in November. Plummeting oil prices have also given—and will continue to give—U.S. consumers extra money to spend on dinners, clothing and other goods and services. Americans are finally showing confidence in the economy. But the recovery is still missing one big thing: wage growth.
At Gallaudet University in Washington, D.C., on Wednesday, labor activists and progressives are hoping to find a solution to that. The AFL-CIO is hosting a National Summit on Raising Wages to discuss ways to ensure that average Americans benefit from the economic recovery. Massachusetts Senator Elizabeth Warren and Secretary of Labor Thomas Perez are both scheduled to speak at the event, which will be livestreamed.
Two men with an intricate knowledge of the issue of stagnant wages are Lawrence Mishel and Ross Eisenbrey, the president and vice president of the Economic Policy Institute (EPI) respectively. In June, EPI launched a new initiative, called Raising America’s Pay, to uncover and address the underlying problems behind muted wage growth for the average Americans. Mishel, Eisenbrey and I spoke in early December about why wages haven’t grown and what policymakers can do to change that. They argue that the Obama administration has taken a series of actions over the past few years that can be characterized as an "Obama wage agenda." The conversation was edited for length and clarity.
Danny Vinik: It’s pretty well known at this point that wages for the majority of Americans have barely grown over the past few decades. But there’s a debate about why wages have stagnated. Is globalization the cause of that stagnation? Education?
Lawrence Mishel: The conventional wisdom frequently references technological change and globalization as responsible for our wage problems. By that, these folks mean that there are factors—which we neither can nor should control—responsible for our wage problems. But the basic facts no longer correspond at all to technological change or skill deficits driving poor wage performance. A good deal of scholarship, including a paper I wrote on robots with Heidi Shierholz and John Schmitt, showed that if you rank occupations by their wages and look at the employment growth by population, since 1999 there has been no expansion of employment in the occupations in the top half of the wage distribution. This was confirmed by the Massachusetts Institute of Technology’s David Autor in a paper this past August, that ‘polarization’ –expanding employment at the top and bottom of the wage ladder—has not occurred since 1999. It’s hard to argue that employers are demanding more workers with higher skills and education that they can’t find.
DV: Is that because if there were greater demand for high-wage workers, you would see higher wages necessary to attract those workers to the job?
LM: It’s because they’re not disproportionately adding employment to occupations which require a lot of education and skills.
Ross Eisenbrey: But the answer is yes. If there were higher demand and there were insufficient workers, then wages would be going up for those people and they are not.
LM: The last thing I would say is it is particularly the case that you can’t even blame the low wages of low-wage workers on their insufficient skills or technological change. The minimum wage sets the wage for the bottom fifth. It’s now 20-25 percent less than what it was in 1968 and wages are down in spite of the fact that productivity has more than doubled in that time period. And the educational levels of the people in the bottom fifth have gone up tremendously. Forty-eight percent had a high school degree in 1968. Now, it’s 79 percent. Back in 1968, 17 percent had gone to at least some college. Now it’s 46 percent.
RE: Globalization really is a huge cause of what’s happened to wages. When you make the Chinese work force available to U.S. employers, it obviously is going to have a depressing effect [on U.S. wages]. But we didn’t have to just let that run its course. We had policy choices and we still have policy choices about how to do deal with that. For any given employer, the employer has to make a decision to leave the United States—to give up its manufacturing plant, for example, and produce somewhere else. We could have put sand in the wheels of that operation instead of making it easy for employers to do that to their employees. We could have required them to bargain over those decisions with their employees. We could have international labor standards so that Apple couldn’t go to China and work people 70 hours a week, and work them 40 days in a row without a break. We could be part of an international effort on labor standards and we’re not. We continue to do nothing about currency manipulation, which is a huge factor in making our manufacturing less competitive.
DV: If globalization is part of the story and technology is not a big part, what are the other reasons wages have stagnated?
LM: Everything we’re talking about really has to do with the ability of people to get a better deal from their employer. What are the ways they’re going to do it? One is, can they quit their job and get a better job, which is not very possible to do when you have high unemployment and when most jobs being created are poor quality jobs. If most people believe, as I think they do, that if they’d leave their current job, they’d get a worse job, then exit does not give you much leverage. So, the single most important policy response right now should be to get to a vigorous full employment. That makes the decisions of the Federal Reserve board over the next few years the most consequential economic policy decisions to be made on wages and income inequality.
Then there’s your ability to change your wages, hours and working conditions by addressing your employer along with your peers. That’s called collective bargaining. That’s not something people are able to do so much these days because of outdated laws.
Third, if in fact you were mistreated and there were violations of the law where you work and your wages are therefore suppressed, can you go to a court and get relief? The answer is that this right has been dramatically eroded over time through forced arbitration systems.
The fourth factor is the legislative standards that affect your ability to earn a decent paycheck. Where are the people enforcing safety and health, enforcing overtime and where are the standards that give you things that in modern life we think are appropriate—to be able to stay at home with your child when they’re sick, be able to have some vacation, be able to stay at home after your spouse or you have a child? These are standards we’ve never adopted or standards that we have that are inadequately enforced or are too low.
DV: Let’s talk about collective bargaining. How have policies in the past few decades eroded the ability of workers to bargain collectively?
RE: The biggest thing beyond that bottom 20 percent that affects wages was unionization and we basically don’t have it. When we had 35 percent unionized, the union sector set wages for the entire economy. The manufacturing sector, unionized or not, followed what the UAW won and what Big Steel negotiated with the Steelworkers. There was a massive effort through policy to weaken unions and it succeeded. Now we have less than 7 percent coverage in the private sector and in the auto industry, instead of the Big 3 leading, they now follow the non-union Japanese transplants in the South.
Federal law weakened the right to strike, prohibited secondary boycotts, allowed employers to lock out and replace workers. Federal policy gives the states the right to pass right-to-work laws, and 24 states now have them. An EPI study shows that a state having right-to-work is associated with a $1,500 wage depression. And we’re going to see more of that—I think West Virginia and New Mexico are going to have fights in the next five months over right-to-work. Recently, we have governors openly getting involved in collective bargaining situations, telling employees don’t vote for the union and organizing communities to oppose having a union, saying it’ll hurt the state, other non-union employers won’t come. All of this is very effective. It’s working to prevent unionization and squeeze wages down. The erosion of collective bargaining has not been due to a lessening of the demand for it by rank-and-file workers.
DV: When I read about unionization, there’s almost a depression about how we can respond to the deterioration of labor protections over the past few decades. Is there a way to rebuild unions at all? Or do we have to develop a new system altogether to regain worker protections and build it back up again?
RE: It’s going to be a political process one way or the other. It could either be done by trying to reverse all of these decisions and reestablish the model that was originally set forth in the Wagner Act—or something different. Some new bargaining mechanism for an entire industry rather than employer by employer would probably be more efficient and would avoid all of these different techniques that employers have developed for escaping responsibility.
DV: How have changes in U.S. labor standards hurt workers and contributed to wage stagnation?
RE: We have effectively reduced our enforcement of the other labor standards that have a huge and measurable impact on wages for people in the bottom and the middle. Wage theft results from failure to have sufficient investigators in the federal government and at state governments who are enforcing the minimum wage and overtime laws. There’s the problem of misclassification where the labor standards of workers compensation and unemployment insurance and the Social Security safety net system are all being undermined by employers treating people as independent contractors instead of as their employees. That not only hurts those workers and steals tax revenues but it’s a real competitive advantage for the cheating employers and hurts the employers who treat their employees well, or decently or according to the law at least.
We’ve been doing a lot of research on overtime and you can see the erosion since 1975 when 65 percent of salaried workers were covered by overtime to today when it’s only 11 percent. It’s a scheduling issue but it’s a pay issue too since you would be paid time and a half for your overtime if you were covered.
DV: Explain that a bit. Employers are only required to pay time and a half for overtime pay for certain employees, right?
LM: Yeah, you’re exempt, for instance, if you’re the manager of a dollar store and you spend 5 percent of your time supervising other workers but the rest of your time is spent packing shelves and unloading trucks. If you earn less than $24,000 a year, you are automatically eligible for overtime regardless of occupation. The president has instructed the Department of Labor to raise that threshold to expand eligibility. We think if you raise it to $1,000 a week, more than six million workers would have overtime protection.
DV: How have other policy changes affected wages that aren’t directly wage related?
RE: Immigration has had a big impact—having eight million undocumented workers who are effectively locked out of all labor standards. They can’t come forward and bargain collectively because they have no protection under the NLRA. They’re essentially locked into a single employer.
LM: It’s a way of undercutting labor standards—to bring in guest workers in programs which have very weak labor standards. That’s the point. You can bring in guest workers with labor standards that require that they be paid at or above the prevailing wage in the industry and they would not have a wage suppressing effect.
But we haven’t talked about our inability to update our labor standards. So things that are being talked about today include the issue of mandating paid sick days for people who don’t get it otherwise, getting paid family leave and the newest issue, work scheduling, where people are told to be on call but aren’t paid. An employer calls them and says “I need you that day” or they even show up at work having obtained childcare and travelling for an hour and a half and the employer says, “I only need you for an hour or two. Go home.”
DV: What has Obama done about this? He’s pushed the minimum wage hard. He has faced a very hostile Congress, certainly. But what has he actually been able to achieve unilaterally.
LM: We believe that the Obama administration has pursued and is pursuing a series of initiatives that could be categorized as an Obama wage initiative, although the administration doesn’t package it as that, which is something that which we think is a mistake.
RE: For instance, DACA—giving employment authorization to those young people—was a big help and his expansion of deferred action should be a big help. If it gives employment authorization to let’s say 3-4 million more people, that’s going to raise wages in those fields where immigrants cluster, in services and construction for instance.
Some of them are forthrightly wage things, like the executive order raising the minimum wage to $10.10 for anyone who works for a federal contractor. The Obama labor department issued rules to lift the prevailing wages for H2B guest workers and U.S. workers who might want those jobs. They did it fairly early and it’s been the subject of litigation and Congressional interference ever since. The fair pay and safe workplaces initiative, which I think Obama talked about in terms of fairness and taxpayers not subsidizing evil, is also a wage initiative. It requires employers to disclose what the wages are that they’re paying to people, and another DOL rule removes the ability of contractors to have gag rules on employees to prevent finding out what other people are being paid. The fair pay order says employees can’t be forced into arbitration over employment issues like civil rights issues and Fair Labor Standards Act violations.
LM: That means the Obama administration is saying that if you’re going to be a federal contractor, you cannot force your employees into an employer dominated arbitration system. OK, going back to fair pay, in January, the president directed the Secretary of Labor to update the white-collar salary threshold for overtime pay.
DV: And that’s still in the works, right?
RE: Yeah, we expect to at least see something sent to OMB next month. It might be spring before we actually see the proposed rule. But I expect that to be a pretty good help.
In his last budget, Obama asked for 300 more investigators for the wage and hour division and a budget increase to pay for them. That would be a big deal. That would increase the number by 30 percent. When the FLSA was enacted in 1980, there was one investigator for every 11,000 covered workers. Today, it’s one for every 164,000 workers. You can see why enforcement isn’t everything it could be.
DV: And that needs Congressional approval?
RE: That needs Congressional approval, unfortunately.
DV: Are there other things Obama could be doing?
RE: We’ve asked him to do more on collective bargaining through his executive order authority over federal contractors but that’s not an economy-wide thing. He can do more to prevent misclassification of workers as contractors. He’s raised the minimum wage and dealt with repeat labor law violators. He could go further and do something to prefer contractors who engage in collective bargaining.
DV: We’ve talked a lot about those at the bottom of the income ladder. But can you touch on the income of those at the top. How does the top 1 percent play into this?
LM: Some people would like to say that looking at the incomes of the top is just a matter of envy. But the fact is that the processes by which the top 1 percent have gained exorbitant increases in income have not been through activities that have actually expanded the pie. So for instance, one of the main drivers of top 1 percent wages and incomes has been the large-scale increase of executive pay. I don’t think there’s evidence that this executive pay corresponds to some corresponding increase in the productivity of these executives, and their firms are producing more goods and services because of their efforts. If that’s not the case, then their having less wage growth or earning less really allows there to be more income for other people.