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Time for a High-Wage Economic Strategy

February 27, 2013

There is something fundamentally wrong with the U.S. economy.  More than five years after the beginning of the Great Recession, economic growth is still weak and unemployment is still higher than it was during the depths of the last two recessions.  At the heart of the problem is a lack of demand—a symptom of the stagnation of wages and incomes that has crippled the American middle class for more than a generation.  If we want to fix what is wrong with our economy, we must organize workers and raise wages.  We have no choice but to abandon the low-wage economic strategy of the past 30 years and replace it with a high-wage strategy for shared prosperity.

Wage stagnation was a dominant factor behind the stunning spike in economic inequality between 1979 and 2007.  Flat wage growth in the first decade of the new century was the root cause of the unusual economic weakness leading up to the Great Recession, which was temporarily papered over by a bubble in real estate prices.  Today, middle-class buying power remains too weak to fuel the kind of robust growth we need to lift our economy out of the massive hole it fell into when the real estate bubble collapsed.

To fix what is wrong with the U.S. economy, we must urgently put in place three pillars of a high-wage strategy for shared prosperity: (1) restoring workers’ ability to bargain collectively; (2) restoring the historical value of the minimum wage; and (3) raising labor standards for all workers through comprehensive immigration reform.  These goals cannot be achieved unless workers organize, particularly in growth sectors of the economy.

The first pillar of a high-wage strategy is workers organizing and building higher union density, expanding the ability of workers to bargain collectively.  We know from the experience of working people in this country and in other countries around the world that only when workers have the right to effectively organize and collectively bargain, in a manner that creates economy-wide impact, do societies enjoy sustainable shared prosperity.

The rapid growth of unions after the Second World War was responsible in very large part for the “Great Compression” – an unprecedented reduction of economic inequality – and the shared prosperity of the postwar period.  The lesson to be learned from this history is that unions and workers have already solved this problem once before, and we can do it again.  Between 1973 and 2007, one third of the growth in wage inequality among men, and one fifth of the growth of wage inequality among women, was caused  by deunionization.

Restoring workers’ ability to bargain collectively is critical not only to raising wages, but also to reducing economic inequality, fueling consumer demand, and rebuilding the middle class.  Restoring bargaining rights and raising wages are not luxuries that can or must be postponed until after the crisis has receded; they are our only path out of the crisis.  Collective bargaining is essential to shared prosperity.

The second pillar of a high-wage economic strategy is restoring the historical value of the minimum wage.  An increase to $9 by 2015, as proposed by President Obama, would benefit 18 million workers, increase spending by lower-wage workers, and encourage job growth.  It is also critically important to index the minimum wage to average wages so that all workers benefit from increases in economic productivity.

We applaud the President for understanding that nobody who works full-time should be poor and for opening a robust conversation about the importance of raising wages.  However, in 1968 the minimum wage was worth $10.68 in today’s dollars.  And to restore the value of the minimum wage to 50 per cent of the average wage, we would need an increase to $12.00 per hour.  The Fair Minimum Wage Act of 2013, to be introduced by Senator Tom Harkin and Congressman George Miller, would increase the minimum wage to $10.10 and index it to inflation.   We are a much richer country than we were in 1968, and we can surely afford a minimum wage whose value is no lower than it was then.

As Congress moves to raise the regular minimum wage, it must also raise the minimum wage for tipped workers, which has been frozen at  $2.13 per hour  since 1991.  Almost three quarters of tipped workers are women, and 16 per cent of tipped workers live in poverty.  The poverty rate is lower for these workers who live in states with a higher minimum wage for tipped workers.

The third pillar of a high-wage economic strategy is comprehensive immigration reform that lifts up labor standards for all workers in America.  The current U.S. immigration system is broken.  It is a blueprint for employer manipulation and abuse and benefits corporate employers at the expense of everyone else. 

We support fixing this broken system with a comprehensive, worker-centered approach.   We agree with President Obama that a path to citizenship for 11 million aspiring Americans who already call this country home is an urgent necessity, because all workers must have rights if we are to have an economy that works for all.  And we must not allow immigration policy to be used to repress wages in the future, which is why we need a data-driven system for determining future flows that protects worker rights for all future immigrants.

We reaffirm our previous commitment to other policies that must also be included in any high-wage economic strategy: extending minimum and overtime protections to more workers; bolstering economic security through improvements in unemployment compensation, funding rules for pensions, Social Security benefits, and Medicaid eligibility; and increasing investment in workers’ skills training and education.

Finally, as we have also argued in previous statements, a high-wage economic strategy requires a fundamental rethinking of macroeconomic policy.  Specifically, we must put American back to work and make full employment the lodestar of all of our policymaking; forge a new model for engagement with the global economy so that we make things in America again; and shrink our bloated financial sector so that it serves the real economy.

Doing all these things is necessary to restore a “virtuous circle” in which wage growth leads to healthy consumer demand, which encourages business investment, which drives productivity growth, which—with revived worker bargaining power and low unemployment—leads us back to dynamic wage growth.

The failure of the “low-wage, high shareholder profit” economic strategy of the past 30 years has demonstrated that there is no alternative.  We can no longer rely on household borrowing, real estate bubbles, tech bubbles, stock bubbles, or any other kind of speculative bubbles to fuel our economic growth.

Instead, we must forge a new model of economic growth—one in which everybody who wants to work can find a decent job, everybody who wants to join a union is able to do so, nobody who works in America is vulnerable to exploitation by his or her employer, workers can afford to buy the things they make, we actually make things in America again, the U.S. economy produces as much as it consumes, and prosperity is broadly shared.

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