This suggests a double challenge for the nation’s workers. For starters, the American economy needs to recover some of its lost dynamism. For workers to reap a larger share of the spoils of growth, they must claw back the bargaining power they lost. While the goal doesn’t seem impossible, it requires pushing back against a view that has dominated economic policy over the last half century: that government should not stand in the way of corporate America’s forward march, and definitely not mess with its efforts to lower labor costs.
On Tuesday, the Hamilton Project at the Brookings Institution released a series of studies by some of the nation’s top economic thinkers on policies to revitalize wage growth. The good news is that plausible reforms could start tipping the labor market to benefit workers. But bringing the labor market back into balance will require a lot of them.
Jared Bernstein of the Center on Budget and Policy Priorities suggests that to begin with, policymakers could do more to keep labor markets tight. He argues that the Federal Reserve has worried too much about inflation and not enough about the lid it puts on workers’ well-being when it raises interest rates to slow growth.
Since 1980, he estimates, the job market has suffered from slack 70 percent of the time — periods when workers, rather than employers, are scrambling. That compares with only a third of the time from 1949 to 1980. To keep it closer to full employment, he proposes a set of policies, including raising the Fed’s inflation target from its current 2 percent, creating a fund to bolster job creation in moments of slack and engaging the government in job creation.
And yet, as Mr. Bernstein acknowledges, tight labor markets are only part of the solution. For starters, they eventually end when the cycle turns — and wages can get stuck for a long time. And tight labor markets don’t carry the power they used to.
A 1999 study by the economists Lawrence Katz of Harvard University and Alan B. Krueger of Princeton University estimated how far the unemployment rate needed to decline to prevent wages from falling. From the mid-1970s to the late ’80s, they found, an unemployment rate of 6.2 percent or lower would keep wages at the bottom tenth of the pay scale from declining. By the 1990s, however, unemployment had to dip to 5.7 percent to prevent wage losses at the bottom.
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Josh Bivens of the Economic Policy Institute replicated the exercise for the economic expansion that ended with the demise of the housing bubble in 2007: Unemployment, he found, had to fall below 4.6 percent to keep workers in the bottom 10 percent from losing ground.
At this pace, unemployment will soon have to hit zero for workers at the bottom to get a raise.
So what else can be done? There is obviously a role for training and education to help workers meet employers’ rising demand for skills, especially at the beginning of their career. Fatih Guvenen of the University of Minnesota notes that the income of 25-year-old men starting their careers has declined sharply since the early 1970s and is now about where it was in the late ’50s.
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But a strategy focused on education will not tip the balance. As Heidi Shierholz of the Economic Policy Institute points out, the list of remedies is long. It includes raising the minimum wage, increasing unionization, banning mandatory arbitration for employment claims, ending arbitrary and unpredictable scheduling, and ensuring that companies that subcontract their low-wage work remain in some way accountable for the workers.
Or how about restoring competition to labor markets? Mr. Krueger and Eric Posner of the University of Chicago write that the government could stop companies from forcing low-pay workers to sign noncompete covenants, which bar them from better-paid jobs elsewhere. It should also ban no-poaching arrangements of dubious legality among franchisees of the same company, which also close off workers’ options.
Over the last 50 years, employers have been allowed to exercise ever more sway over their workers. The share of private-sector workers covered by unions has dwindled to a sliver. Businesses have grown to imposing heft. All along, executives and policymakers have sold this rebalancing of power as a boon for competitiveness, efficiency and economic growth.
And yet unbalanced labor markets not only hold back wages but also stymie the American economy as a whole. As Mr. Krueger pointed out to me, a rigged labor market is not efficient. Barring anti-competitive hiring practices will increase economic efficiency and encourage both higher wages and more employment. Better training will improve workers’ productivity, but so will helping them relocate to better operations.
Rebalancing the labor relationship might not only improve the way the pie is shared but also make it bigger.
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Article source: https://www.nytimes.com/2018/02/27/business/economy/raises-jobs.html?partner=rss&emc=rss
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