Wages today constitute the lowest share of both corporate revenue and the nation’s economy since World War II, while profits make up the highest share of gross domestic product in decades. The decline of labor income and the rise of capital income are nothing new: The decoupling of wages from the fortunes of big business has been going on for the past 40 years. It was 1973 when Americans’ median household income began to fall behind the economy’s productivity gains. With the wage decline of recent years, this gap has finally become too obvious to ignore. As a January report by Cal-Berkeley economist Emmanuel Saez documents, while the income of the wealthiest 1 percent of Americans rose by 11.2 percent during the recovery years of 2009-11, the incomes of the bottom 99 percent declined by 0.4 percent. That’s some recovery.
There is no shortage of reasons why Americans’ wages have declined. Many employers complain that the economy suffers from a skills gap (though it’s hard to believe that the entire workforce is underskilled). Obviously, globalization has taken its toll on the 40 million or so workers whose jobs can be performed abroad (though that doesn’t explain why the 90 million workers whose jobs can’t be exported haven’t seen their incomes rise).
High and enduring levels of unemployment depress wages. In many cases, so does shareholder pressure on business leaders. And then there is the who-goes-first problem: In an economy in which nobody is increasing employees’ wages, the first employer in a given industry to do so immediately assumes a competitive disadvantage.
All this makes clear why raising the minimum wage, as President Obama has proposed, is necessary, now more than ever. None of the factors that have progressively eroded American workers’ income and security will diminish anytime soon, if at all. If the government does not mandate a higher minimum standard, there is no reason to think that wage increases will magically reappear.
But it’s not just incomes at the bottom that have gotten stuck — it’s incomes all the way up to the top percentiles. Indeed, the same logic that argues for setting a minimum wage also argues for the government setting wage standards more generally. The government could require businesses above a certain size to increase employees’ wages in line with the economy’s productivity increases, for example, exempting those companies that experienced losses the previous year.
That will never happen, of course (and might be a bureaucratic nightmare if it did). But what are more plausible scenarios for jump-starting Americans’ earnings? A better-educated workforce might command more income, but incomes in most professions have been stagnating as well.
If wages are to rise, the only alternative to giving the government wage-setting authority is giving employees the power to bargain. Today, that power has just about vanished. With union membership down to just 6.6 percent of the private-sector workforce, the overwhelming majority of U.S. workers have no power to bargain for their share of company revenue, and those few who do have a weak hand. Reforming labor laws so that workers could join unions or workers’ associations without fear of firing might ultimately compel chief executives to invest some of that $1.7 trillion on hand to training and rewarding their workers, even if it means they can’t buy back as many of their own shares.
But that’s for tomorrow. Today, the only way to raise Americans’ incomes is to raise the minimum wage, which Congress should do forthwith.
Read more from Harold Meyerson’s archive or follow him on Twitter.