President Obama Needs to Ground “Middle-Out” Economics in Broad-Based Wage Growth

Tomorrow at Knox College, President Obama will kick off a series of speeches outlining his vision for rebuilding the U.S. economy. He is expected to talk about how the economy works best when it grows from the “middle-out,” not from the top down.

Growing from the middle out is indeed the right approach to economic growth. I hope that President Obama will get to the heart of the matter, which is that, adjusted for inflation, wages and benefits for the vast majority of workers have not grown in ten years. This is true even for college graduates, including those in business occupations or in STEM fields, whose wages have been stagnant since 2002. Low and middle-wage workers, meanwhile, have not seen much wage growth since 1979. Corporate profits, on the other hand, are at historic highs. Income growth in the United States has been captured by those in the top one percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector.

The real challenge is how to generate broad-based real wage growth, which was only present during the last three decades for a few short years at the end of the 1990s.

To generate wage growth, we will need to rapidly lower unemployment, which can only be accomplished by large scale public investments and the reestablishment of state and local public services that were cut in the Great Recession and its aftermath. The priority has to be jobs now, rather than any deficit reduction (which under current conditions will sap demand for goods and services and slow job growth). This means an aggressive increase in the minimum wage that eventually grows to half of the average workers’ wage. It means reestablishing the right to collective bargaining for higher wages and addressing workplace concerns. It means not allowing guest workers to undercut wages in both high-wage and low-wage occupations, which can be done by giving full rights to any ‘guests’ and by scaling such programs to the limited situations for which they are needed. It means taking executive action to ensure that federal dollars are not spent employing people in poverty-level wage jobs. Overall, it means paying attention to job quality and wage growth as a key priority in and of itself, and as a mechanism for economic growth and economic security for the vast majority.

If we choose not to take this path, we will fail to achieve shared prosperity and return to relying on debt and asset bubbles to fuel growth. I have seen that movie already, and I didn’t enjoy it.


  • benleet

    Income distribution has shifted since 1979, the lower-earning 80% of households were receiving 57% of the income pie, now they receive 47%, a drop of 10% of total income, or $1.3 trillion a year. Most of the shift went to the top 1% of households who increased their after-tax and after-transfers incomes from 8% to 17% of all income. The CBO report Trends in the Historical Distribution of Income between 1979 and 2007 is where I draw the above numbers. Well, divided evenly among all 92 million households in the lower 80%, each household would be earning $14,130 more each year if the 1979 distribution were in effect. That would mean a lot more discretionary income for most Americans, and a lot more income security, and higher paying jobs, etc. There was not a compensating increase in taxes on the top 1%, just the opposite, their tax rates were halved. Here’s a link to a study that says 22.2% of workers are now part-timers, not the former 2007 level 16.7%, a jump of 5.5%: http://www.ebri.org/pdf/PR-1026.22May13.Notes-P-T.pdf — Maybe the BLS has to readjust its figures. It seems like an insidious squeeze is on, and the wealthier members are arguing selfishly that their taxes are too high, not that their incomes are too high. Here’s a report that shows the top1% have more income collectively than the lower-earning 60% of households and that their effective taxes aren’t that much higher: http://ctj.org/ctjreports/2013/04/who_pays_taxes_in_america_in_2013.php#.Ue7MpODFUdN

  • Tyler Healey

    Growing from the bottom up is the right approach to economic growth.