Why Wages Are Going Nowhere


Why Do 80% of Americans Say They Are Living Paycheck to Paycheck?

By Robert Reich/ RobertReich.org/ July 30, 2018


The official rate of unemployment in America has plunged to a remarkably low 3.8%. The Federal Reserve forecasts that the unemployment rate will reach 3.5% by the end of the year.

But the official rate hides more troubling realities: legions of college grads overqualified for their jobs, a growing number of contract workers with no job security, and an army of part-time workers desperate for full-time jobs. Almost 80% of Americans say they live from paycheck to paycheck, many not knowing how big their next one will be.

Blanketing all of this are stagnant wages and vanishing job benefits. The typical American worker now earns around $44,500 a year, not much more than what the typical worker earned in 40 years ago, adjusted for inflation. Although the US economy continues to grow, most of the gains have been going to a relatively few top executives of large companies, financiers, and inventors and owners of digital devices.

America doesn’t have a jobs crisis. It has a good jobs crisis.

When Republicans delivered their $1.5tn tax cut last December they predicted a big wage boost for American workers. Forget it. Wages actually dropped in the second quarter of this year.

Not even the current low rate of unemployment is forcing employers to raise wages. Contrast this with the late 1990s, the last time unemployment dipped close to where it is today, when the portion of national income going into wages was 3% points higher than it is today.

What’s going on? Simply put, the vast majority of American workers have lost just about all their bargaining power. The erosion of that bargaining power is one of the biggest economic stories of the past four decades, yet it’s less about supply and demand than about institutions and politics.

Two fundamental forces have changed the structure of the US economy, directly altering the balance of power between business and labor. The first is the increasing difficulty for workers of joining together in trade unions. The second is the growing ease by which corporations can join together in oligopolies or to form monopolies.

What happened to unions

By the mid-1950s more than a third of all private-sector workers in the United States were unionized. In subsequent decades public employees became organized, too. Employers were required by law not just to permit unions but to negotiate in good faith with them. This gave workers significant power to demand better wages, hours, benefits, and working conditions. (Agreements in unionized industries set the benchmarks for the non-unionized).

Yet starting in the 1980s and with increasing ferocity since then, private-sector employers have fought against unions. Ronald Reagan’s decision to fire the nation’s air-traffic controllers, who went on an illegal strike, signaled to private-sector employers that fighting unions was legitimate. A wave of hostile takeovers pushed employers to do whatever was necessary to maximize shareholder returns. Together, they ushered in an era of union-busting.

Employers have been firing workers who attempt to organize, threatening to relocate to more “business friendly” states if companies unionize, mounting campaigns against union votes, and summoning replacement workers when unionized workers strike. Employer groups have lobbied states to enact more so-called “right-to-work” laws that bar unions from requiring dues from workers they represent. A recent Supreme Court opinion delivered by the court’s five Republican appointees has extended the principle of “right-to-work” to public employees.

Today, fewer than 7% of private-sector workers are unionized, and public-employee unions are in grave jeopardy, not least because of the Supreme Court ruling. The declining share of total US income going to the middle since the late 1960s – defined as 50% above and 50% below the median – correlates directly with that decline in unionization. (See chart below).

Perhaps even more significantly, the share of total income going to the richest 10 percent of Americans over the last century is almost exactly inversely related to the share of the nation’s workers who are unionized. (See chart below). When it comes to dividing up the pie, most American workers today have little or no say. The pie is growing but they’re getting only the crumbs.

What happened to antitrust

Over the same period time, antitrust enforcement has gone into remission. The US government has essentially given a green light to companies seeking to gain monopoly power over digital platforms and networks (Google, Apple, Amazon, Facebook); wanting to merge into giant oligopolies (pharmaceuticals, health insurers, airlines, seed producers, food processors, military contractors, Wall Street banks, internet service providers); or intent on creating local monopolies (food distributors, waste disposal companies, hospitals).

This means workers are spending more on such goods and services than they would were these markets more competitive. It’s exactly as if their paychecks were cut. Concentrated economic power has also given corporations more ability to hold down wages, because workers have less choice of whom to work for. And it has let companies impose on workers provisions that further weaken their bargaining power, such as anti-poaching and mandatory arbitration agreements.

This great shift in bargaining power, from workers to corporations, has pushed a larger portion of national income into profits and a lower portion into wages than at any time since the second world war. In recent years, most of those profits have gone into higher executive pay and higher share prices rather than into new investment or worker pay. Add to this the fact that the richest 10% of Americans own about 80% of all shares of stock (the top 1% owns about 40%), and you get a broader picture of how and why inequality has widened so dramatically.

What happened to politics

Another consequence: corporations and wealthy individuals have had more money to pour into political campaigns and lobbying, while labor unions have had far less. In 1978, for example, congressional campaign contributions by labor Political Action Committees were on par with corporate PAC contributions. But since 1980, corporate PAC giving has grown at a much faster clip, and today the gulf is huge.

It is no coincidence that all three branches of the federal government, as well as most state governments, have become more “business-friendly” and less “worker-friendly” than at any time since the 1920s. As I’ve noted, Congress recently slashed the corporate tax rate from 35% to 21%. 

Meanwhile, John Roberts’ supreme court has more often sided with business interests in cases involving labor, the environment, or consumers than has any Supreme Court since the mid-1930s. Over the past year it not only ruled against public employee unions but also decided that workers cannot join together in class action suits when their employment contract calls for mandatory arbitration. 

The federal minimum wage has not been increased since 2009, and is now about where it was in 1950 when adjusted for inflation. Trump’s labor department is busily repealing many rules and regulations designed to protect workers.

The combination of high corporate profits and growing corporate political power has created a vicious cycle: higher profits have generated more political influence, which has altered the rules of the game through legislative, congressional, and judicial action – enabling corporations to extract even more profit. The biggest losers, from whom most profits have been extracted, have been average workers.

America’s shift from farm to factory was accompanied by decades of bloody labor conflict.The shift from factory to office and other sedentary jobs created other social upheaval.

The more recent shift in bargaining power from workers to large corporations – and consequentially, the dramatic widening of inequalities of income, wealth, and political power – has had a more unfortunate and, I fear, more lasting consequence: an angry working class vulnerable to demagogues peddling authoritarianism, racism, and xenophobia.

Guide to Working Class Investing

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30 Responses to Why Wages Are Going Nowhere

  1. ragnarsbhut says:

    Arlen Grossman, a merit-based pay system would be better than a system where government dictates what people should pay their employees. Minimum wage is a bad idea.

  2. ragnarsbhut says:

    Arlen Grossman, raising the minimum wage will only cost jobs. It will increase already burdensome regulations on businesses. What happens if businesses are subjected to burdensome regulations? The business owner(s) will only reduce the hours of the employees. A system of pay based on merit seems to be more realistic than having politicians make laws regarding what businesses can pay their employees. Self-employed people don’t seem to have this problem insofar as I know. Why is that? Because they get to decide what they can pay themselves.

  3. ragnarsbhut says:

    Arlen Grossman, many people who argue for a $15.00 an hour minimum wage seem to have little, if any, understanding of economics or how a system of pay based on actual merit works. Why should the law mandate a $15.00 an hour minimum wage if employees’ efforts merit $25.00 an hour?

    • As you know, $15 per hour is the minimum. Nothing is stopping an employer from paying $25, if the employee deserves it and the employer wants to keep that worker.

      • ragnarsbhut says:

        Arlen Grossman, if the government mandates a $15.00 an hour minimum wage, however, the employer feels that his or her employee(s) deserve $25.00 in my example, should the government have any jurisdiction in that regard?

        • Ragnar,the employer can pay his worker whatever he thinks the employee is worth, as long as it doesn’t go below the minimum.wage. Anything less, in most cases, is not a living wage in the USA. The government’s role should be to enforce the minimum wage.

          • ragnarsbhut says:

            Arlen Grossman, here are 3 questions for you: 1: If the minimum wage increase had no negative impact on employment, why do some people seem to believe that it would? 2: Even though they both have a point, people on the Right who advocate a system of pay based on merit and people on the Left who do not want to see people screwed over by not being paid fairly, where is the middle ground? 3: Why can some people not see the fact that this may do more good than harm for people in some cases?

  4. ragnarsbhut says:

    Arlen Grossman, I do not buy into the argument that raising the minimum wage would cause significant damage to employment opportunities. You and I disagree on the tax issue, yes, so that will be readily acknowledged. However, I actually agree with you in this regard.

  5. ragnarsbhut says:

    Arlen Grossman, you asked me how I would describe my political slant. I would not put myself in a single ideological box. On the issue of the minimum wage, I think it would be perfectly reasonable to increase it and it would not do as much harm to businesses as some would have us believe. What I would like to see is factual data on the end results of the minimum wage being increased.

  6. ragnarsbhut says:

    Arlen Grossman, I am of the belief that employee pay should be based on merit, not what the law says someone should be paid. An example: Joe owns a coffee shop and employs Steve, however, Joe has to layoff Steve because of burdensome business regulations being imposed by the government via minimum wage laws. Why should someone be paid a set dollar amount via legal dictate and not be paid according to their diligence and merit while on the job?

    • The answer is that the average person (especially those with families) cannot survive in our overpriced economy.There are so many people barely getting by. By the way, consumer spending drives our economy. If people have more money to spend, they will do so and improve the economy. Everybody wins.

      • ragnarsbhut says:

        Arlen Grossman, you make valid points. Production is the actual driving force behind our economy. Demand without supply to satisfy said demand does not work in the real world.

  7. ragnarsbhut says:

    Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=tRkz0HBCsyo I am sort of split on the minimum wage issue. Do I believe that an increase in the minimum wage will lead to increased unemployment? No, unless someone can provide statistics to me that say otherwise. I would look for areas of waste and cut that and the money being saved could go into the pockets of low income families. Where do you stand?

  8. ragnarsbhut says:

    Arlen Grossman, from the standpoint of political philosophy, I would consider myself as being somewhere between a Constitutional conservative and a libertarian. Basically, I believe that the Constitution should be something that we all abide by. From the libertarian side, I believe that any laws that government imposes that violate the liberties of the people should be seen as invalid.

  9. ragnarsbhut says:

    Arlen Grossman, I would have to describe my inclinations as being of a Constitutional conservative/libertarian mindset. I believe that we need rule of law in society. However, that which neither picks my pocket or breaks my leg is of no real concern to me. You may feel differently than I do, however, if I had more say-so in where my tax dollars went, I would not really care how high my taxes are.

    On the marriage issue, it is no business of mine who someone marries. Want to marry a person of the same biological sex? Have at it. Just don’t use your relationship as license to infringe upon the rights of people who object to same-sex marriage.

    As far as the minimum wage issue goes, it is absurd that small government conservative republicans do not see how it benefits them in the long run. On this issue, many conservatives get it wrong.

    The drug war is absurd, since many of its advocates have used drugs at one time or another. If someone said that they did it when they were younger and learned from that and owned their choice to use it that is one thing. If you have a disparity to the sentencing process, where one person get a pass and the other person is sent to jail, the abject hypocrisy is so obvious.

    • Ragnar, I share your libertarian views when it comes to social issues and foreign policy. But I consider myself a progressive, or even a democratic socialist.I can agree with your positions on marriage, minimum wage, and the drug war.

      • ragnarsbhut says:

        Arlen Grossman, I would consider myself as a Constitutionalist/Libertarian type. I believe in the rule of law. The problem we have is that there are so many laws.

  10. ragnarsbhut says:

    Arlen Grossman, for small government conservative republican types, raising the minimum wage benefits them as well. You could cut $7.6, 000, 000, 000.00 from government spending just by making the minimum wage a living wage.

  11. You sound like a very reasonable person, Jeffrey, and it appears there are quite a few things we can agree upon. And of course, a number of areas on which we will always differ. But that’s politics.

    • Arlen Grossman, I can be passionate about political issues. However, I am open to all opinions. Even though I disagree with his political slant, the videos I have seen from The David Pakman Show have been interesting.

      • It would be great if everyone could be open to all opinions. But that seems rarer and rarer these days. I can do better, but I occasionally read and watch a few conservatives for a different point of view than mine.

        • Arlen Grossman, I see the idea of a minimum wage as a good thing. However, I would definitely favor its being increased if the end result was less spending on government programs. Yes, some would still be kept intact, however, those programs would be less likely to go broke if spending was done in a more efficient manner.

  12. Arlen Grossman, I know that we have a difference of opinion on the matter of taxes. Regarding the issue of wages, I think it is distasteful for big CEO types to give themselves bonuses and screwing their workers by not paying them what they are merited. So, we should be able to find some degree of common ground on the minimum wage. The only area of difference is the speed at which we would raise it. Even if I was a business owner, I would not screw over any employees that I have by refusing to pay them what their efforts truly merited.

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