How do we get rid of income inequality and poverty?
One rather obvious way, according to the Economic Policy Institute, is to pay people more.
“Raising wages is the central economic challenge of our time—essential to addressing income inequality, boosting living standards for the broad middle-class, reducing poverty, and sustaining economic growth,” according to the briefing paper announcing the “Raising America’s Pay” initiative that the EPI is launching Wednesday. Secretary of Labor Thomas Perez is scheduled to deliver the keynote address at EPI’s Washington offices.
“It’s easy to see why,” says EPI president Lawrence Mishel, who co-authored the paper with Josh Bivens, Elise Gould and Heidi Shierholz. “If we don’t boost wages, then we’re not going to get middle class income growing and we’ll never lift people out of poverty.”
The EPI identifies the culprit in this disparity: Worker compensation hasn’t kept up with worker productivity.
In “normal” times, compensation is linked to productivity. When workers make more things during a day’s work, they get paid more for that day’s work.
Yet, as the EPI notes (see the above chart), that link broke about 30 years ago. Although worker productivity is up 65 percent since 1979, hourly compensation has risen by just 8 percent for production and nonsupervisory workers during that time.
Moreover, when we look at the details of the wage picture, it turns out that not everyone’s wages have gone up over the past 34 years. For example, wages for everyone at or below the 30th percentile of the income distribution have essentially been flat, while wages for the poorest 10 percent of workers have fallen during that time period. At all income levels, women earn less on average than men do.
Since wages for the lowest income group have fallen while wages at the highest income group have grown, income inequality has also increased.
However, while there’s lots of talk about the adverse consequences of growing income inequality, it’s really poverty, not income inequality, that’s the problem. And, poverty is a particularly big problem for women and girls, who make up more than half the people living in poverty.
Since wages at the bottom are falling, they would still live in poverty even if wages at the top stopped growing.
Many of the women in poverty are working women. For example, the policy group Demos reported that of the 7.2 million women working in the retail industry, 1.3 million of them live in or near poverty (defined as within 150 percent of the poverty line).
Poverty has harmful consequences for women. Economist Barry Bosworth at the Brookings Institution looked at life expectancy for people who have reached age 55 and found that, for example, a 55-year-old woman at the bottom of the income distribution can expect to live a decade less — 80 years rather than 90 — than a woman of the same age at the top of the income distribution.
These consequences are getting worse over time for low-income women. As The Wall Street Journal reported, while life expectancy generally increases over time, that’s not the case for low-income women. A woman born in 1940 who is at the bottom of the income distribution has seen her life expectancy shrink by 2.1 years relative to the same low-income women born 20 years earlier.
Given these adverse consequences from poverty, it would seem a good idea to raise wages.
Raising the federal minimum wage is one way to do this.
According to the EPI, the inflation-adjusted federal minimum wage is 25 percent below its peak level from 1968, and this erosion of the minimum wage explains about two-thirds of the gap between the earnings of low- and middle-wage workers. With women accounting for about two-thirds of all minimum wage workers, according to the National Women’s Law Center, this policy would be a definite benefit for them.
Another way to raise the wages of American women is to raise the education levels of American women. The more educated a woman is, the more income she earns.
Economist David Autor of the Massachusetts Institute of Technology found that the median woman with a college degree earned about $23,000 more a year than a woman who terminated her education once she earned her high school diploma.
As Autor writes, this differential “is arguably even more consequential than the rise of the 1% for the welfare of most citizens.”
It’s not just earnings that rise with education. As the EPI shows, 55 percent of workers with a college degree received pension benefits from their employer in 2012, compared with just 35 percent of workers with only a high school degree.
There’s a third way to increase wages. According to the EPI, there are some unpleasant explanations for low wages. Some employers inappropriately classify workers as independent contractors and some employers engage in “wage theft.”
Employers don’t have to pay unemployment insurance or workers’ compensation for independent contractors, while workers who are classified as independent contractors must pay their own payroll taxes and aren’t covered by minimum wage laws.
Congress is attempting to do something about this. Last fall, Sen. Bob Casey (D-Penn.) introduced the Payroll Fraud Prevention Act, which would curb the misclassification of independent contractors. Sens. Tom Harkin (D-Iowa), Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Elizabeth Warren (D-Mass.), Jeff Merkley (D-Ore.) and Al Franken (D-Minn.) are co-sponsors.
Wage theft occurs when employers do things like pay less than the minimum wage, don’t pay overtime rates, and require unpaid work, and seems to be a wide-spread problem. Employees at McDonald’s in California have filed a lawsuit alleging wage theft at more than 100 company-owned and operated restaurants in the state.
Since women make up two-thirds of workers in the fast-food industry, they’d likely benefit from reduced wage theft.
What all this means is that its poverty and low wages that hurt women more than income inequality.