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.