Gov’t policies caused ‘pay collapse’ for 90% of us

Bill Knight column for 5-27, 28 or 29, 2019 

U.S. households have lost almost $11,000 each since 1979 because of policies enacted by business-cozy government, according to a recent analysis of wage stagnation by the nonprofit Economic Policy Institute.

“Since 1979, the bottom 90 percent of the American workforce has seen their pay shrink radically as a share of all market-based income in the American economy,” said EPI’s Heidi Shierholz and Josh Bivens. “The amount of money this loss represents is staggering. Had the 1979 share held constant, the bottom 90 percent of the American workforce would have had roughly $1.35 trillion in additional labor income in 2015, or about $10,800 per household.”

That “collapse in pay for the bottom 90 percent” of wage earners in the last 40 years mostly stems from political decisions by elected officials, the researchers said.

Conceding that some wage stagnation may have been caused through the years by factors such as technological change or “free trade” agreements, Bivens and Shierholz said that that specific policy decisions like attacks on unions, the drop in value of the minimum wage, and overall monetary policies that focused on inflation instead of employment all helped tilt power away from workers and toward bosses.

That erosion in power can be seen in a consolidating economy, a market where there are few buyers of services (a “monopsony,” compared to a monopoly, where there are few sellers). Just as consumers have little power in monopoly situations, workers offering their skills in a monopsony are at a great disadvantage.

Economists’ research into monopsony power helps explain some of the wage stagnation over the past four decades, EPI reported. Many job markets are dominated by a few employers. However, over the last 40 years, wage stagnation has resulted not just in markets with few remaining employers, such as coal mines, but across the board. Wage stagnation also has occurred in low-income jobs such as restaurants and retail, which means additional causes were influential, too.

Shierholz and Bivens said that poor wage growth is less a function of increasing employer power and more a result of deliberate attempts to undermine worker power. They reported:

* Companies have made it harder for workers to organize and assert collective bargaining power, not only weakening unions, but all workers;

* the Federal Reserve has added to wage stagnation by stressing lower inflation instead of higher employment; and

* despite popular support for raising the minimum wage, legislatures in Washington and many states have been hesitant to increase the minimum wage, which would at least help entry-level and low-skilled workers.

If policymakers want to boost wages and workers’ purchasing power as consumers – which benefits the whole economy – they should work to increase the power of workers compared to employers by supporting organized labor, higher minimum wages and full employment.

“In short, the policy movement to disempower workers not only led to less equal growth, but was also associated with significantly slower growth,” they wrote. “We certainly do not mean to imply one should ignore potential policy opportunities that could erode employer power (e.g., through more robust antitrust enforcement). But the larger opportunities are likely those that lead to more labor market balance in the power between employers and workers by increasing worker power – not trying to move the labor market toward a competitive ideal that is not attainable.”