In 1979, 27.0% of workers were covered by union contracts. By 2019, that number had dropped to 11.6%. New research finds that this single factor dragged down the typical full-time workers’ wages by over $3,000/year.

The Teacher Gap

Teacher strikes in several states over the last few years have highlighted deteriorating teacher pay as a critical issue. My colleagues Sylvia Allegretto and Larry Mishel find that average weekly wages of public school teachers have fallen over the last two decades and the teacher wage penalty continues to grow, reaching a record 21.4% in 2018. My colleagues Emma García and Elaine Weiss have further documented shortcomings and teacher shortages and recently how much teachers have to pay out of their own pockets for school supplies for their classrooms. Low pay makes it harder to attract and retain teachers who have the qualifications associated with teacher effectiveness in the classroom.

The costs of a significant teacher employment gap are high, and consequences measurable: larger class sizes, fewer teacher aides, fewer extracurricular activities, and changes to curricula. To solve this problem, state and local governments need to fund more teaching positions and raise pay to close the teacher pay gap and attract and retain the qualified teachers our children deserve.

When the minimum wage remains unchanged for any length of time, inflation erodes its buying power. As shown in the graphic, when the minimum wage was last raised to $7.25 in July 2009, it had a purchasing power equivalent to $8.70 in today’s dollars. Over the last 10 years, as the minimum wage has remained at $7.25, its purchasing power has declined by 17 percent. For a full-time, year-round minimum wage worker, this represents a loss of over $3,000 in annual earnings. Moreover, since its historical peak in February 1968, the federal minimum wage has lost 31 percent in purchasing power—meaning that full-time, year-round minimum wage workers today have annual earnings worth $6,800 less than what their counterparts earned five decades ago.

A simple way to fix this problem once and for all would be to adopt automatic annual minimum wage adjustment (or “indexing”), as 18 states and the District of Columbia have done. The Raise the Wage Act of 2019 would raise the federal minimum wage to $15 by 2024—boosting wages for nearly 40 million U.S. workers—and establish automatic annual adjustment of the federal minimum wage. Automatic annual adjustment would ensure that the paychecks of the country’s lowest-paid workers are never again left to erode.

Raising the minimum wage is always a pro-women, pro-mothers policy because women and mothers are disproportionately represented among low-wage workers. As state minimum wage increases have taken effect over the past 5 years, low-wage workers—especially low-wage women—in those states have had much stronger wage growth than their counterparts in states with no change in the minimum wage. Similarly, raising the federal minimum wage to $15 would disproportionately raise pay for women, while lifting pay for nearly 40 million men and women workers overall.

First, a quick refresher on the economic theory that links corporate tax cuts and workers’ wages. Higher after-tax corporate profits are passed down to shareholders in the form of dividends. Higher dividends incentivize households to save more (or attracts more savings from abroad) by putting more money in the stock market. Those increased household savings push down interest rates, which makes it easier for corporations to borrow money and invest in new plants, technology, and equipment.1 Those investments give workers more and better tools to work with, which boosts their productivity, and eventually that increased productivity is supposed to translate into wage growth.

That’s quite a long chain of economic events that has to happen before wages start to rise. Clearly, the media should’ve never taken the claims made by proponents of the TCJA and their corporate allies that workers would immediately see benefits seriously. Unsurprisingly, those cynical claims didn’t pan out.

We’ve long pointed out that every single link in that chain is likely to break down, and so there was little to no chance that the TCJA’s corporate tax cuts would trickle down to boost workers’ wages. But if American workers are going to have any chance at all from benefitting from the TCJA’s corporate tax cuts, capital investment has to take off first. With a year of data in, have we seen an investment boom? No. Instead, the upward trend of investment growth has stalled in the wake of the tax cut. The chart below shows the year-over-year growth in real, nonresidential fixed investment.

Figure

Investment growth had been trending upward prior to the passage of the TCJA, but that trend has stopped since. That’s not to say that the TCJA itself stopped the upward trend in investment growth—but it sure is nothing like the investment boom its proponents promised.

This should come as no surprise. The previous history of corporate tax cuts gave us absolutely no reason to believe that these cuts would trickle down to average workers.

The TCJA is set to exacerbate decades of rising economic inequality. The bill blew apart the individual and corporate tax codes with egregious new loopholes tailor made for the rich and big corporations. And the data offers no reason to think any of this will start trickling down to typical workers. All while the president’s budget leverages the deficits created by the TCJA to claim that cuts must be made to public investments, education, Medicaid, the Affordable Care Act, and other programs working families rely on. The evidence continues to pile up against the TCJA; it’s high time it was repealed.

1. One important note is that because the TCJA increased deficits, putting upward pressure on interest rates, this already shaky theoretical foundation collapses.

Wage growth at the 10th percentile in states with at least one minimum wage increase from 2013 to 2018 was more than 50 percent faster than in states without any minimum wage increases (13.0 percent vs. 8.4 percent). As expected—given women’s greater likelihood of being in low-wage jobs and thus greater likelihood of being helped by minimum wage increases—this result is even stronger for women (13.0 percent vs. 6.0 percent). However, men also experienced much faster 10th-percentile wage growth in states with minimum wage increases than in those without (12.0 percent vs. 8.6 percent).

Figure A

Raising the federal minimum wage to $15 by 2024 would disproportionately raise pay for women. Although men make up a slightly larger share of the overall U.S. workforce, the majority of workers who would be affected by a raise to the federal minimum wage (57.9 percent) are women. Raising the federal minimum wage would also disproportionately benefit black workers because they are overrepresented among low-wage workers and are less likely to live in states or localities that have passed a minimum wage that is higher than the current federal minimum. As a result, increasing the minimum wage to $15 by 2024 would mean a pay increase for 38.1 percent of all black workers.

This disproportionate effect on black workers comes not just because they are more often employed in jobs that currently pay less than the proposed new minimum wage, but also because they are less likely to work in states or localities that have passed a state minimum wage that is higher than the federal minimum wage.

As the chart below shows, 21.8 percent of all black workers and 11.1 percent of all white workers will be affected by the Raise the Wage Act because they work in states where the minimum wage is set by the federal minimum. This includes a subset of states with no minimum wage law or where the state minimum is below the federal minimum. The share of black workers affected by the bill because they work in a state with no minimum wage law is three times higher than the share of whites.

Figure A

State differences in minimum wage laws function in a way that is similar to the effect of early sectoral exclusions in the Fair Labor Standards Act (FLSA) of 1938. These exclusions were later eliminated by amendments to the FLSA that extended the minimum wage to those working in agriculture, nursing homes, laundries, hotels, restaurants, public schools, and hospitals in February of 1967.

According to a 2018 working paper by Derenoncourt and Montialoux, those newly covered sectors employed nearly a third of all black workers and about 18 percent of all white workers in the United States at the time. As a result, they estimate that this 1967 extension of the minimum wage had a significant effect on raising the wages of African American workers, accounting for 20 percent of the decline in the black-white earnings gap between 1967 and 1980.

There are important parallels between the sectoral exclusions of the original FLSA of 1938 and the current “state exclusions” to progressive minimum wage policy.

Just as black workers were significantly overrepresented in the industrial sectors originally excluded from minimum wage coverage, black workers today are significantly overrepresented in states that have not raised their minimum wages as the purchasing power of the federal minimum has eroded. In both instances, these were intentional policy decisions rooted–at least in part–in indifference if not outright hostility toward black workers.

In the 1960s, it took the large sectoral expansions of the 1966 FLSA amendments to allow more black workers to benefit from the federal minimum wage. Today, it will take a significant increase in the federal minimum wage to achieve a similar goal.

Now House Republicans are hoping to solve a political problem—the unpopularity of their signature tax cut in 2017—by centering a second round of tax cuts on making the individual cuts in the TCJA permanent to achieve parity with the already-permanent corporate rate cuts. Republicans are marketing this as a tax cut for the middle class, but it’s nothing of the sort.

Figure A

While the TCJA’s individual tax cuts may be less tilted towards rich households than the extremely regressive corporate tax cuts, these individual cuts are still awfully regressive in their own right. According to the Tax Policy Center, the bottom 60 percent, households making under $95,000, would get just 20.2 percent of the benefits. While the top 20 percent, households making over $168,600, would receive 63.0 percent of the benefits.

Locking in further regressive tax cuts won’t fix the TCJA, it will only exacerbate its deep flaws. Congress should reject this second round of Republican tax cuts for the rich.

Recently, my colleagues Julia Wolfe, Zane Mokhiber, and I wrote about the prospects these new grads are facing in the labor market as well as in pursuit of higher education. In Class of 2018: High school edition, we found that young high school graduates have better prospects in the labor market that their older brothers and sisters had when they graduated in the more immediate aftermath of the Great Recession; however, compared to those who graduated into the 2000 labor market, these new grads face real economic challenges such as elevated levels of underemployment as well as lower wages and worsened wage gaps for black workers. Those high school graduates who wish to pursue further education also face significant challenges because of stagnating family incomes, the rising cost of college, and the subsequent rise in significant school debt.

The figure below shows that among young adults, 18- to 21-years-old, about one-third have a high school diploma. While many of the 18- to 21-year-olds with a high school diploma or some college will go on to obtain at least a bachelor’s degree, adults 18- to 64-years-old without a four-year college degree still make up the majority of the overall working-age population—68.2 percent.

Figure A

While the benefits to higher education should be made available to all those who wish to pursue them through increased state funding for higher education, stemming tuition hikes, support for the students who are most in need both financially and academically, and appropriate monitoring of loan terms as well as regulations to protect consumers from the predatory practice of for-profit colleges, the fact remains that the vast majority of working age adults do not have a college degree. Therefore we also need to pursue policies that will give young people with a high school degree a fighting chance as they enter the labor market—such as: raising the minimum wage, protecting workers from wage theft, providing undocumented workers with a path to citizenship, and ending discriminatory practices that contribute to race and gender inequities.

Over the past 30 years, large shares of U.S. workers have had jobs that have paid wages so low that, even with full-time, year-round employment, their earnings would still fall below federal poverty guideline for their family size. Figure A shows the share of workers overall, and the shares of men and women workers, who have been paid poverty-level wages since 1986—the first year for which Census microdata allow for this calculation. A poverty-level wage is an hourly wage that would leave a full-time, full-year worker below the federal poverty guideline for their family size if they are the sole earner in the family. In 1986, 17.3 percent of workers overall (more than one in six U.S. workers) were paid poverty wages, including nearly one in four (23.2 percent of) women workers. By 2017, the share of all workers earning poverty wages had fallen to 11.4 percent. This is a significant decline from the 1995 peak of 17.6 percent, yet it still means that more than one in nine workers are being paid too little to escape poverty for their family size.

Figure A

Since 1986, the largest declines in the share of workers earning poverty wages have occurred in periods when the labor market has been relatively tight, with low unemployment and jobs available for those that can work—such as from 1998 to 2001, and, more recently, from 2015 to 2017. From 2015 to 2017, the U.S. also had uncharacteristically low inflation, which made it easier for even tepid nominal wage growth to result in higher inflation-adjusted wages and thus fewer workers earning poverty wages.

Much of the overall decline has also been driven by a decrease in the share of women earning poverty wages. As women workers have grown as a share of the workforce, the relatively large improvement in their poverty-wage rate has had a growing impact on the overall poverty-wage rate. Indeed, the share of men earning poverty wages has been relatively flat. As recently as 2014, the share of men earning poverty wages was as high as it was back in 1986.

Any agenda to fight poverty should include labor market policies targeting each of the three factors affecting families’ incomes: jobs, hours, and wages. Higher minimum wages would boost hourly pay, especially for workers in low-income families; fair workweek policies would help to increase and stabilize workers’ hours; and monetary policy that prioritizes full employment, combined with a program of public job creation that targets areas of persistent high unemployment, would make jobs available to many more people.