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An Economy That Works For The Middle Class Won’t Happen On Its Own

December 7, 2012   ·   0 Comments

Source: Economic Policy Institute

By Rebecca Thiess:

A vital goal of economic policy should be to raise the living standards of the millions of American households who have seen their wages and living standards stagnate or decline over the last few decades. Fundamental to this is an economy that produces good, well-paying jobs. The biggest obstacle to this, currently, is the jobs crisis driven by a shortfall in aggregate demand. Additional factors though, written into our current policies, mean that even when the economy does recover, there is no reason to believe that the jobs it produces will actually be well-paying jobs.

The New York Times business section ran a story yesterday on low-wage workers and declining unionization rates, making the key points that:

1. We are neither building an economy in which most workers earn enough to adequately support their families nor are we sufficiently using government tools to help subsidize the lower class
2. The decline in unionization rates is adding to the woes of low-wage workers

The article draws from an EPI paper, The Future of Work: Trends and challenges for low-wage workers, specifically pointing to a table in the paper that breaks down the distribution of workers in the 22 major occupation groups by the wage multiple of the poverty wage. In other words, it shows the percentage of people in each occupation group who earn between 0-100 percent of the poverty wage, 100-200 percent, 200-300 percent, and more than 300 percent. (The analysis defined poverty wages at $10.73 per hour, which is the U.S. Census Bureau’s annual poverty threshold for a family of four in 2010, adjusted to an hourly rate.)

The Times article, which focused in part on striking workers in the fast food industry, noted that workers toiling in food preparation and serving related occupations have the largest share of people earning between 0-100 percent of the poverty-wage level, at 73.6 percent. Only 3.1 percent of those workers earn over 200 percent of the poverty-wage level category. These workers, as the article points out, are “unlikely to have ever contemplated joining a union,” and as a result, far too often work irregular and uncertain hours and are less likely to receive benefits like paid sick leave or employer-sponsored health insurance.

The Future of Work paper also documents how the share of workers by occupation group is projected to change in the coming years. The data, from the Bureau of Labor Statistics, does not project a dramatic change in the share of workers employed in any of the major occupation groups by 2020. As the table below shows, none of the occupation groups are projected to experience noticeable growth or decline in the near future.

Additionally, in analyzing occupation shifts, the paper found that we cannot depend on such shifts to change the projected share of workers in wage categories in the coming years. The paper found that in 2010, 28.3 percent of workers earned at or below this particular definition of poverty-level wages; by 2020, this is only projected to drop to 28.0 percent of workers, a small drop in the distribution. And, the distribution of workers in the more than 300 percent of poverty wages category is also only projected to increase marginally due to occupation shifts, from 12.7 percent of workers in 2010 to 13.2 percent of workers in 2020; an increase of half of a percentage-point.

So what is the point? Better jobs are not projected to materialize out of thin air. Each occupation group is projected to have a very similar share of workers in the future as it has today. Thus, any focus on increased access to good jobs for low-wage workers must be concerned with a range of policy-related issues that affect job quality. These include the stagnant value of the minimum wage, the erosion of health and retirement benefits, and declining bargaining power for the typical American worker. In other words, workers’ wages and well-being will be determined primarily by how much their earnings rise, the extent of their benefits (assuming such benefits exist at all), and whether they have the power to bargain on behalf of their livelihoods. These three factors in particular will be more important to workers’ futures than issues like increased educational attainment or possible changes in the mix of occupations.

Policymakers must recognize that while more training and education are certainly important, they cannot by themselves create an economy that provides enough Americans with well-paying jobs; after all, college graduates have not seen their real wages rise in 10 years. Instead of facing a skills deficit, workers are facing a wage deficit. Economic policy can focus on supporting good jobs, but doing so would require a shift from the policy status quo to a focus on more-progressive tax and transfer policies, increases in the real value of the minimum wage, a reversal of falling unionization rates, an expansion of publicly financed social insurance programs, and, crucially, a commitment to full employment.

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