How can you end wage stagnation?

It can seem hard for the average worker to affect change. In a way it’s true, as the only ones that can increase wages on a federal level are policy makers and other government actors. It is us that sign petitions and wave signs, but it is them that decide the direct actions that take place.

The average American advocating for policy change

In her report published for the Congressional Research Service, Jane G. Gravelle explores a multitude of factors behind the wage stagnation crisis. One of these factors include the decline of labour institutions that have historically protected earnings on the lower level of the income market. According to Gravelle, the deterioration of these wage setting institutions might have some explanation for the increasing inequality.

Minimum Wage

In her report, the first institution stated to add to wage stagnation was the minimum wage. Gravelle cites some early studies from 1980 that found a decline in minimum wage correlating to a decline in the relative wages near the bottom end of the income distribution of that time. However, Gravelle finds that over time, the inequality at the lower levels of wages have stabilized, overall inequality has grown. Through this, she finds that minimum wage has had little impact on increased inequality, with:

“growth in inequality was primarily in the upper half of the wage distribution at levels where it could not have been due to the minimum wage;” (Gravelle, 2020, p. 10).

That is not to say that increasing minimum wage would do nothing. Gravelle also writes about a 2019 CBO study, which found that raising the minimum wage to the fifteen dollar level would reduce unemployment, and increase incomes for families at and below the poverty level.

Unions

Historically, unions have been a net positive regarding worker’s wages. They allow members to argue collectively, instead of individually, and that can be the difference when advocating for higher pay. However, unions have declined as an institution since the 1970s. Gravelle states

“From 1973 to 1993, union membership in the private sector declined from 31% to 13%, and by 2018, it had declined to 6.4%,” and a slight increase in the public sector, “from 28.9% in 1973 to 33.9% in 2018.” (Gravelle, 2020, p. 10).

Gravelle posits that by strengthening unions, blue collar workers’ wages would be increased. She mentions a package of proposals, which include policies such as increasing penalties for those who violate labour laws, allowing all workers the rights to organize unions, and eliminating right-to-work laws.

References

Wage Inequality and the Stagnation of Earnings of Low-Wage Workers: Contributing Factors and Policy Options (R46212). (2020).

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In this Day and Wage

In this Day and Wage

As current UB Business Administration Student, I explore the causes and effects of the current wage stagnation crisis.