Wages and Inequality:How resetting rules of labor market

generated wage stagnation and inequality

Larry MishelPresident, Economic Policy Institute

@larrymishel

June 2015

CUNY/Luxembourg Income StudyJune 2016

The basic facts

The Wage Patternsto be

Explained

Wage Gaps1. Top 1% vs. top;2. Top vs. middle; and3. Middle vs. bottom

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Decomposing Productivity-Median Hourly Compensation Gap

The Productivity-Pay Gap

1. Stagnant Compensation (wages & benefits)stagnation not due to failure of economy toexpand productivity. There was lots ofincome and wealth produced.

2. Gap primarily due to rising inequality,especially in 2000s:

a. Inequality of compensationb. Decline of labor’s share

The Cause?

Conventional Wisdom says:1.Globalization;2. Technology/Skills Deficits;3. and ?????

Summers on SBTC

“And I am concerned that if we allow theidea to take hold that all we need to do isthere are all these jobs with skills and if wejust can train people a bit then they will beable to get into them and the whole problemwill go away. I think that is fundamentally anevasion of a profound social challenge.”

1. The 2000’s Do Not Fit theStories

2. The Slowdown in RelativeDemand for ‘Skill’/Education

Why the ‘Skills Deficit’Explanation Fails

Two Stories

1. Education—need for college graduates—driven by technology/computers

2. Occupations—job polarization computerserode middle, expand relative demand fornon-routine, cognitive skills expands at topand do not affect routine, manual work atbottom

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Marxist Explanation

‘Are you going to believe me, or what yousee with your own eyes?’

Groucho Marx

Examples: unpaid internships,stagnant college wages, especiallyyoung, and underemployment

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What about Occupations?

1. No evidence of job polarization in 2000s2. Slowdown in relative demand started inmid-90s

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Technology

Changes inoccupation

employmentshares

Changes inoccupation

wages

Changes inoverall wagedistribution

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Missing Pieces

Policy choices, on behalf of those withmost wealth and power, that haveundercut wage growth of a typical worker:1. Excessive unemployment;2. Weakened labor standards;3. Eroded institutions: collective bargaining4. Top 1.0% wage/income growth

Context

• Vast majority live paycheckto paycheck

• Little or no wealth• No staying power• Safety net eroded

Drivers of Top 1% Incomes

• Executives, escalating pay• Financial sector, larger and

better paid• Lower marginal income tax

rates

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Macroeconomic Failure

• Excessively highunemployment, 1979-2015

• Depresses wage growth,drives up wage inequality

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Labor Standards

Weakened1. Minimum wage2. Misclassification/wage theft/enforcement3. Undocumented workers/guest-workers4. Overtime5. Franchising/subcontracting6. Deregulation7. Forced Arbitration of disputes

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Labor Market Institutions

Weakened1. Collective bargaining;2. Spillover effect3. Political voice

…….Not simply endogenous

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Quantitative Change leads to Qualitative shifts

These policy shifts have impacts by:1. Spillover effects on those not directly

affected, e.g., undocumented workers, lowerunion density; and2. Changes Norms: revising standards in themarketplace; and3.Factor shares: Loss of labor’s share of

income

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