7 ways to address wage stagnation and income inequality
Despite steady job growth, rising productivity and declining unemployment in recent years, it is clear that broadly shared prosperity has not rebounded in Colorado.
According to CCLP’s State of Working Colorado 2015-16, the median hourly wage has remained virtually stagnant since the economic recovery began in 2009. In fact, wages for most Colorado workers are lower than they were in 2000. Meanwhile, economic gains are increasingly concentrated among a small share of high earners in the state.
Growing income inequality produced by stagnant wages for the vast majority of workers is not just a product of the Great Recession. This trend emerged over the last 35 years — driven by a series of policy choices that have reduced the power of workers (both individually and collectively) and bolstered the power of already-affluent corporate executives and shareholders.
Policy choices that have contributed to wage stagnation and income inequality include failure to update the minimum wage, eroded labor standards, right to work laws that have weakened labor unions, corporate tax cuts, and Federal Reserve policy favoring low inflation over low unemployment.
Realizing that these dynamics in the job market and the economy are unsustainable for Colorado’s long-term economic health, we identified seven policies that reform business practices and labor standards and could make a difference in closing the gap in income inequality and increasing wages:
1. Raise the minimum wage — Wages at the lowest level lag behind those in the middle because the minimum wage has not been adequately updated. Low-wage workers earn less today despite being more educated, more productive and working more hours. Updating the minimum wage would lift the standard of living of many low-wage workers in Colorado — most of whom are adult women and people of color.
2. Restore and protect collective bargaining — The decline in collective bargaining has been a significant factor in stagnating wages for low- and middle-income workers. Reviving and protecting the rights of workers to organize and bargain for wages and benefits is an important part of restoring their lost power. A temporary victory for workers came with the recent 4-4 split decision of the U.S. Supreme Court in Friedrich’s v. California Teachers Association, which upholds a lower court decision permitting public employee unions to collect fees from non-members who benefit from collective bargaining and union representation.
3. Update overtime rules —The share of salaried workers covered by overtime protections has fallen from 65 percent in 1975 percent to 11 percent today. The salary threshold (the level below which workers are guaranteed overtime) has eroded to the point where the Fair Labor Standard Act only covers those who earn less than $23,660. President Obama directed the Department of Labor to update the salary threshold to the 1975 value — setting the threshold to about $50,000. Such a move would provide overtime protections to over 6 million workers. The rulemaking process is nearly complete and the Department of Labor is expected to issue a final rule soon.
4. Provide earned sick leave and paid family leave — The U.S. has been slow to update labor standards to meet the changing needs of the modern labor force — namely earned sick leave and paid family leave — so workers do not have to make the difficult choice between caring for sick family members and losing income or even their job.
5. Address worker misclassification and wage theft — Employers increasingly misclassify workers as independent contractors to skirt workplace protection laws, shift the burden of payroll taxes and reduce labor costs. Misclassification denies workers the protections offered by labor laws including overtime protections and results in substantial losses in state workers’ compensation, unemployment insurance and income tax payments. Efforts on this front include improving enforcement of labor standards and vigilance against policies that would make misclassification easier.
6. Regularizing undocumented workers — Undocumented workers earn lower wages and have fewer legal protections in the workplace — making them particularly vulnerable to exploitation. Providing a path to legal work and residency for these workers will lift their wages and other workers in the same field.
7. Close gender and racial pay gaps — Though the aforementioned policies will impact the gender and racial pay gap, additional work is needed on enforcement of antidiscrimination laws in hiring, promotion and pay.
Not coincidentally, Colorado legislators have attempted to address six of these seven policy areas in recent years – without success. While it might be tempting to blame the top 1 percent of income earners for the disparities that hurt a vast majority of American workers, the root of the problem isn’t that simple.
The need to update overtime laws, and provide paid sick and family leave, pay equity, and protection against misclassification all stem from the power of business in state legislatures and Congress and a shortage of labor advocates. Fortunately, Coloradans have the power to insist that their lawmakers implement policies that help their constituents and to hold them accountable. And, in the case of raising the minimum wage, they might get a chance to vote in favor of such policies through a ballot initiative.
Transforming the slow and unequal wage growth of the last several decades into broad-based wage growth is the central economic challenge facing Colorado. Thoughtful policy changes can help us chart a course that is focused on broadly shared economic growth and prosperity.
– Michelle Webster