Press Releases

News from EPI Workers would be earning $10 more per hour if their wages had kept up with the increase in productivity

A loss of $10/hour in the typical worker’s compensation is the result of employers’ successful efforts to keep wage growth down over the past 40 years, according to a new paper by EPI distinguished fellow Larry Mishel and EPI director of research Josh Bivens. Their study, which is the first to aggregate and analyze all of the research to date, explains why workers’ pay has lagged far behind the growth in productivity over the period from 1979 to 2017.

When policy was oriented more strongly to sharing productivity growth more widely across income classes in the 30 years following World War II, typical workers’ wages kept pace with productivity growth. When this orientation changed, wage growth for nearly all workers faltered. This highlights clearly that policy matters for the pace of wage growth for the vast majority. Mishel and Bivens also show that a “rigging of the system” that empowered employers over workers was due to policy changes and changes in business practices that systematically undercut workers’ ability to get higher pay, job security, and better-quality jobs—which generated wage suppression and wage inequality.

In doing all of the above, the paper refutes claims that the attack on policies and institutions bolstering wage growth resulted in a more efficient or competitive economy, or that the deceleration of wage growth was just the unfortunate result of apolitical market forces that one neither can nor would want to alter such as technological change and automation.

The research provides empirical assessments of specific factors, the best-measured of which explain 55% of the productivity-wage divergence: excessive unemployment, eroded collective bargaining, and corporate-driven globalization. The paper also identifies half a dozen additional factors, including misclassification, noncompetes, and supply chain dominance, which account for another 20%. This shows that policy choices drove the vast majority of the divergence between productivity and pay for the typical worker.

Besides excessive unemployment, eroded collective bargaining, and corporate globalization, the paper assesses the wage impact of: weaker labor standards (including a declining minimum wage, eroded overtime protections, misclassification, nonenforcement against instances of “wage theft,” or discrimination based on gender, race, and/or ethnicity); new employer-imposed contract terms (noncompetes, forced private, individualized arbitration, anti-poaching agreements); and shifts in corporate structures such as fissuring (or domestic outsourcing), industry deregulation, privatization, buyer dominance affecting entire supply chains, and increases in the concentration of employers.

The paper also shows how policy decisions, primarily excessive unemployment and the failure to raise the minimum wages, lowered wages for the bottom third absolutely and relative to the median wage.

The failure of automation to explain wage suppression and wage inequality also represents the failure of competitive labor market analyses based on the assumption of equal bargaining power between employers and employees to adequately explain one of the most salient features of the economy over the last four decades.

Their research highlights that inequality came from developments in the labor market, not product markets. The key dynamic undercutting a typical worker’s wage growth was the strengthening of employers’ power relative to their white-collar and blue-collar workers in labor markets, not because monopoly firms exercised their power in product markets by charging higher prices to consumers. Monopolization has indeed contributed to wage suppression, but largely through the effects of concentration on the labor market, as monopoly firms squeezed supplier chain firms who in turn ground down their own workers’ wages (and saw a profit-squeeze as well). This means policymakers need to focus on the labor market to generate faster and more broadly shared economic growth. Crucially, the constant role of employer power means that the key challenge is not to remove “imperfections” in the labor market that will make it more competitive, but instead to restore balance between employers and employees.

The paper highlights how these insights can inform how we interpret wage trends by race, gender, and ethnicity as well: “The systemic gender and race discrimination that slots minority and women workers into lesser-paid jobs also has made these workers the primary victims of the systematic weakening of worker power. Consequently, one of the key mechanisms to lessen racial and gender inequities is to restore worker power and to provide everyone access to good jobs.”

The research lays out the basic facts about wage inequality: the soaring wages of the top 1.0% and top 0.1%, the erosion of labor’s share of income, and the ever-growing gap between middle and high earners.

A bonus is an appendix focused on rebutting the skill-biased technological change/skill deficits/automation explanation of wage inequality: All of the indicators for automation and corresponding wage gaps show that automation has played no role in wage suppression or wage inequality in the last 25 years.