Why So Much Inequality?

Answering Kennedy’s Call

Epi.org

There aren’t many economists that still debate the origins of our record income inequality, the worse in the developed world, and even in some of the developing world.

A loss of $10/hour in the typical worker’s compensation is the result of employers’ successful efforts to keep wage growth down over the past 40 years, according to a new paper by EPI distinguished fellow Larry Mishel and EPI director of research Josh Bivens.

Mishel and Bivens maintain that while productivity increased 69.6 percent from 1979-2018, employees’ compensation increased just 11.6 percent, per the EPI graph.

How did this happen? The obvious reasons are the growing strength of corporations and loss of labor union bargaining power that has allowed states to pass anti-labor laws and American corporations to ship many high-paying jobs overseas with little government regulation that would mitigate the job losses of domestic workers.

But it goes deeper. It goes back to the origins of the so-called economic sciences and the economic theories that politicians utilize to rationalize their policies.

They really derive from political economics, the original pseudo-science that attempted to understand human’s financial behavior, which is not that difficult to understand when we are talking about dollars and sense.

The owners of companies and the capital that controlled them wanted few regulations and lower taxes. So from 1980 onward Republican administrations and Big Business began to deregulation whole industries, and the labor lows and practices that guaranteed employees their fair share of the profits under what have been called Laissez Faire or free market economic theories.

Less government oversight and lower taxation, for instance, was based on the supposition that it encouraged greater growth, since corporations would create more jobs to produce more goods and services.

Industries have become more productive, but the increased profits were kept by the owners and chief executives of those companies rather than passed on to their employees; so much so that the gap has widened between employee’s hourly compensation and productivity that doesn’t guarantee the majority of service workers a livable wage.

That justified lower trade barriers in turn, so that consumers with their reduced incomes could afford the cheaper goods now made made overseas.

Even the Supreme Court got into the act by allowing public employees to avoid paying any fees if they so choose, even though receiving all the benefits of union membership—higher wages, pensions, worker safety, the list goes on and on.

The Supreme Court issued a sweeping ruling in 2018 that dramatically undermined unions for teachers, firefighters, police officers, and other public employees throughout the United States.

The case, Janus v. AFSCME, involved a challenge to the practice of public sector unions charging “agency fees” to employees who decline to join the union but who still benefit from the deals it bargains.

And twenty-eight states have ridden the free market banner that have “right to work” laws banning agency fees. Such laws create a free-rider problem: People don’t have to join unions or pay agency fees to get the unions’ benefits, so the unions lose members and political influence.

There is an ongoing dispute over how much of the economic pie should be going to workers vs. the owners of capital, but not the fact that it has happened. Our badly degraded infrastructure and a warming planet tell us that public works have been badly neglected that would prepare US for future catastrophes as well.

The ongoing political and economic debate is how to right the fact that most of the rewards of higher productivity have not increased the public good, but diminished it. Mishel and Bivens are helping us to see that labor must have a greater voice in that debate.

Harlan Green © 2021

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