Compared to previous recoveries, the recovery following the 2008 economic crash has seen lagging wage growth despite falling unemployment and steady economic growth.[1] Economists point to a confluence of factors to explain this phenomenon, such as: automation, globalization, lagging minimum wage, and outsourcing.[2] Poor wage growth fosters greater income inequality,[3] which in turn is highly correlated with political polarization.[4] It logically follows that adopting policies aimed at growing wages will help to bring people together and create economic opportunity.
This is not the first time that technology has created a headwind for wage growth in the United States. At the turn of the 20th century, the benefits of the Industrial Revolution were shared by a select few while the burden of rapid technological innovation was felt by a great majority of people.[5] Progressive reforms, such as the introduction of the income tax and anti-trust regulation, helped reform capitalism in the 20th Century.[6] The government’s successful response to the Industrial Revolution provides an instructive blueprint for using government to reduce inequality through well-considered reforms.
Today, policy makers from all sides of the political spectrum are considering proposals that could help grow wages and thereby decrease economic inequality. This article will discuss the types of proposals being considered by politicians to address this growing problem. Some of these proposals include reforming corporate governance, tax reform, job retraining programs, criminal justice reform, raising the minimum wage, and regulatory reform.
- Increased Employee Input in Corporate Governance
American law traditionally requires that directors of corporations carry on business organizations primarily for the profit of the stockholders.[7] Boards of directors are tasked with management and oversight over corporations.[8] Board members are selected through a shareholder vote and typically represent the interests of shareholders and management.[9]
Recently, Democrats in the Senate have proposed allowing employees to serve on corporate boards.[10] Polls show that a majority of Americans support allowing employees to gain representation on the boards of their companies.[11] Proponents of this policy believe it would help increase wages, while detractors argue that it would lead to inefficiency.[12] Opponents would also argue that such a proposal would run contrary to laws that requires directors to operate companies for the benefit of shareholders.[13]
In Germany, a government policy known as “co-determination” requires that 50% of corporate boards must be comprised of employee representatives if a company has greater than 2,000 employees.[14] Many other European countries have similar laws.[15] These programs are useful models for policymakers in the United States as they illustrate one viable means to enhance economic opportunity for workers domestically.
- Expand the Earned Income Tax Credit
The Earned Income Tax Credit (“EITC”) is a federal tax policy which decreases the federal income tax burden for workers whose income is in a certain range.[16] In 2018, working families with incomes below $40,320 and $54,844 are eligible for the EITC (depending on marital status and the number of children in the household).[17] In 2016, the average EITC was $3,176 for a household with children and only $295 for families without children.[18] Lawmakers at the state level have also implemented their own version of the EITC in many parts of the country.[19] Members of both parties support the EITC because it has been shown to reduce poverty and provide supplemental income to families who can put it to good use.[20]
In recent years, members of both parties, such as former President Obama and House Speaker Paul Ryan, have put forth ideas on how the EITC can be expanded to help more people e.g., by allowing individuals without children to take greater advantage of the EITC.[21] Currently, Republican lawmakers are considering expanding the availability of the EITC for workers with no children.[22] It is estimated that this policy could help lift 700,000 individuals out of poverty at a cost of $95 billion to the government over 10 years.[23] Because it has garnered bi-partisan support, the EITC is an appropriate place to start when fighting poverty in the short-term.
- Increase Funding for Job Retraining Programs
It is estimated globally that by 2030 between 400-800 million individuals will need to obtain new jobs due to automation.[24] In the future, as new job categories emerge, it will be necessary to transition workers who have been displaced by automation into new roles.[25] Job retraining programs will be essential for countries to successfully transition their workforce to meet the labor demands of the future.[26]
Automation is not a problem that will be felt in the distant future; its effects are being felt today.[27] In 2014, President Obama signed the Workforce Innovation and Opportunity Act into law, which allocated $10 billion annually towards the modernization of the workforce.[28] More recently, President Trump signed an executive order creating the Council for the American Worker, which is designed to consolidate retraining programs to address a shortage of skilled workers.[29] Given the headwinds posed by automation, job-retraining programs will likely be essential to growing wages in the future.
- Criminal Justice Reform
For individuals with a criminal record, finding a job can be difficult.[30] Considering that 70 million U.S. adults have some form of a criminal record and 9 out of 10 employers conduct criminal background checks, a criminal record can be a lifetime barrier to employment.[31] In fact, it is estimated that only 55% of formerly incarcerated individuals report any income at all within one year of leaving prison.[32] Lawmakers throughout the country have taken notice and are taking corrective action. Here are some examples of current programs which provide a path for individuals with a criminal record to seek meaningful employment:
- In Los Angeles, CA, Mayor Eric Garcetti has partnered with the California Department of Transportation to provide employment and other supportive services to formerly incarcerated individuals.[33]
- In Boston, MA, Mayor Martin Walsh established a program which helps young individuals obtain internships with the city government if they have broken the law or are deemed high-risk.[34]
- In New York, NY, Manhattan District Attorney Cyrus Vance and Brooklyn District Attorney Eric Gonzalez have vacated thousands of warrants for low-level marijuana offenses and are exploring a path towards expunging low-level marijuana convictions from criminal records.[35]
- Increase the Minimum Wage
Today, the federal minimum wage ($7.25/hour) is lower than it has been in the past.[36] When adjusted for inflation, the federal minimum wage peaked at $11.27/hour in 1968.[37] At the state level, the minimum wage is higher in some places. For example, California has raised the minimum wage to $11.00/hour.[38] Local governments have raised minimum wages to as high as $15/hour.[39] This is a powerful tool for lawmakers to directly affect wages.
In 2016, Democrats added a $15/hour federal minimum wage to the Democratic Party platform.[40] Opponents of the minimum wage argue it will hurt job growth and reduce the number of hours worked.[41] Given the economic diversity of the United States, this is likely an issue that will be better addressed at the state and local levels, as opposed to a one-size-fits-all national policy.
- Revisit Regulations to Ensure They Still Make Sense
Conservative lawmakers often argue that the administrative state’s economic regulations should be curtailed as a means of spurring economic activity.[42] In early 2017, President Trump issued an executive order establishing task forces within federal agencies for the purpose of “removing job killing regulations and increasing economic opportunity.”[43] Calls for slashing regulation are opposed by those, such as American Sustainable Business Council CEO David Levine, who argue that, “Regulations exist for a reason . . . [regulations protect businesses and the public]from a range of real risks and threats that markets cannot adequately address.”[44] The water crisis in Flint, MI, is a potent reminder of the importance of environmental regulation.[45] Before moving too quickly, it is important that policymakers carefully consider the long-term costs and benefits of removing regulations.
There can be no doubt that a rising tide lifts all boats. Economic growth is essential to addressing poverty in the long term. President Trump’s approach to regulation has been met with optimism in the business community.[46] This positive sentiment in the business community is beginning to spur job creation and could help wages grow as a result.[47] This type of growth could help to expand opportunity and bring people together by decreasing political polarization caused by income inequality.[48]
_________________________________________________________________________________________
[1] Karl Russell et al., 6 Reasons That Pay Has Lagged Behind U.S. Job Growth, N.Y. Times, (Feb. 1, 2018), https://www.nytimes.com/interactive/2018/02/01/business/economy/wages-salaries-job-market.html.
[2] Id.
[3] Carmen Reinicke, US income inequality continues to grow, CNBC (Jul. 19, 2018), https://www.cnbc.com/2018/07/19/income-inequality-continues-to-grow-in-the-united-states.html.
[4] See Ana Swanson, These Political Scientists May Have Just Discovered Why U.S. Politics Are a Disaster, Wash. Post (Oct. 7, 2015), https://www.washingtonpost.com/news/wonk/wp/2015/10/07/these-political-scientists-may-have-discovered-the-real-reason-u-s-politics-are-a-disaster/?utm_term=.853dadad01dd.
[5] See Eduardo Porter, The Politics of Income Inequality, N.Y. Times (May 13, 2014), https://www.nytimes.com/2014/05/14/business/economy/the-politics-of-income-inequality.html.
[6] Id.
[7] See, e.g., Ford Motor Co., 204 Mich. at 507 (standing for the proposition that directors are to carry on a business for the profit of its stockholders).
[8] Cf. Board of Directors (B of D), Investopedia, https://www.investopedia.com/terms/b/boardofdirectors.asp, (last visited Oct. 5, 2018) (discussing how a board of directors should be “a representation of both management and shareholder interests . . . . ”).
[9] Id.
[10] Dylan Matthews, Workers Don’t Have Much Say in Corporations. Why Not Give Them Seats on the Board?, Vox (Apr. 6, 2018), https://www.vox.com/2018/4/6/17086720/poll-corporate-board-democracy-worker-council-codetermination-union-labor.
[11] See id. (See chart showing likely voters response when asked, “In many countries, employees at large companies elect representatives to their firm’s board of directors in order to advocate their interests and point of view to management. Democrats say this gives regular workers a greater say over how their companies are run and will increase wages, while Republicans claim that this makes companies less efficient and be bad for the economy. Would you support letting employees at large companies elect representatives to their firm’s board of directors?” Likely voters response to this question was: 53% approve, 22% disapprove, 25% don’t know).
[12] Id.
[13] Id.
[14] See Justin Fox, Why German Corporate Boards Include Workers, Bloomberg (Aug. 24, 2018), https://www.bloomberg.com/view/articles/2018-08-24/why-german-corporate-boards-include-workers-for-co-determination.
[15] Id.
[16] Policy Basics: The Earned Income Tax Credit, Ctr. on Budget & Pol’y Priorities (Apr. 19, 2018), https://www.cbpp.org/research/federal-tax/policy-basics-the-earned-income-tax-credit.
[17] Id.
[18] Id.
[19] Id.
[20] See id.
[21] Elaine Mag, Tax Reform 2.0 Should Expand Childless EITC To Reduce Poverty, Forbes (Aug. 6, 2018), https://www.forbes.com/sites/elainemaag/2018/08/06/tax-reform-2-0-should-expand-childless-eitc-to-reduce-poverty/#232a12972f38.
[22] Id.
[23] Id.
[24] Manyika et al., Jobs Lost, Jobs Gained: What The Future of Work Will Mean for Jobs, Skills, and Wages, McKinsey Global Institute (Nov. 2017), https://www.mckinsey.com/featured-insights/future-of-work/jobs-lost-jobs-gained-what-the-future-of-work-will-mean-for-jobs-skills-and-wages.
[25] See id.
[26] See id.
[27] Claire C. Miller, The Long-Term Jobs Killer Is Not China. It’s Automation., N.Y. Times: The Upshot (Dec. 21, 2016), https://www.nytimes.com/2016/12/21/upshot/the-long-term-jobs-killer-is-not-china-its-automation.html.
[28] Obama Administration Announces New Regulations to Strengthen Employment and Training Opportunities for Millions of Americans, U.S. Dep’t. Educ. (Jun. 30, 2016), https://www.ed.gov/news/press-releases/obama-administration-announces-new-regulations-strengthen-employment-and-training-opportunities-millions-americans.
[29] Glenn Thrush, Amid Worker Shortage, Trump Signs Job Training Order, N.Y. Times (Jul. 19, 2018), https://www.nytimes.com/2018/07/19/us/politics/trump-worker-training.html.
[30] See Betsy Pearl & Lea Hunter, Second Chance Cities: Local Efforts to Promote Re-Entry Success, Center for American Progress (Apr. 19, 2018), https://www.americanprogress.org/issues/criminal-justice/reports/2018/04/19/449474/second-chance-cities-local-efforts-promote-re-entry-success/.
[31] Id.
[32] Id.
[33] Id.
[34] Id.
[35] Jan Ransom & Tyler Page, District Attorneys Dismantle Legacy of Tough Marijuana Enforcement, N.Y. Times (Sept. 7, 2018), https://www.nytimes.com/2018/09/07/nyregion/nyc-marijuana-laws.html.
[36] Russell et al., supra note 1.
[37] Id.
[38] Id.
[39] Id.
[40] Alex Seitz-Wald, Democrats Add $15 Minimum Wage to Platform, NBC (Jul. 8, 2016), https://www.nbcnews.com/politics/2016-election/democrats-add-15-minimum-wage-platform-n606351.
[41] Russell et al., supra note 1.
[42] Cf. Ryan Fuhrmann, Republican and Democratic Approaches to Regulating the Economy, Investopedia, https://www.investopedia.com/ask/answers/regulating-economy.asp (last updated Mar. 19, 2018) (discussing how the Republican Party is generally considered to be business friendly and favors limited government regulation of the economy).
[43] Juliet Eilperin, Trump Establishes Task Forces To Eliminate ‘Job Killing Regulations, Wash. Post (Feb. 24, 2017), https://www.washingtonpost.com/news/powerpost/wp/2017/02/24/trump-establishes-task-forces-to-eliminate-job-killing-regulations/?noredirect=on&utm_term=.f4400f05f1fa.
[44] Id.
[45] See Mitch Smith and Lisa Friedman, After Flint, Watchdog Urges E.P.A. to Monitor Drinking Water More Closely, N.Y. Times (Jul. 19, 2018), https://www.nytimes.com/2018/07/19/us/flint-water-crisis-epa.html.
[46] Binyamin Appelbaum & Jim Tankersley, The Trump Effect: Business, Anticipating Less Regulation, Loosens Purse Strings, N.Y. Times (Jan. 1, 2018), https://www.nytimes.com/2018/01/01/us/politics/trump-businesses-regulation-economic-growth.html.
[47] Id.
[48] Cf. Swanson, supra note 4 (discussing how income inequality is a cause of political polarization).
