What policies could the Obama administration pursue to reduce inequality?
I was asked that question for a conference held last Friday at the Chicago Federal Reserve Bank. Here’s a quick summary of my answer.
First, to summarize: U.S. inequality has become extreme over the past 35 years or so, especially the gap between the richest Americans and everyone else. As University of California at Berkeley economist Emmanuel Saez wrote recently, from 1993 to 2006 the richest one percent of Americans took half of all the income growth of the country, mainly from “an explosion of top wages and salaries.”
Second, there are two basic public policy approaches to the issue of rising inequality: First, reducing inequality directly, and second, increasing opportunity or economic mobility. The latter policies certainly are good, but they are not adequate, nor are they likely to work optimally without also reducing inequality itself.
As income inequality increased over the past three decades, mobility declined. And many European countries with policies that maintain more egalitarian incomes also have higher social mobility. If we want more equal opportunity, we need more equality.
More education — the universal response — would be good for individuals as well as society. But it is not enough.
While wages of more educated workers have grown relative to less educated workers, wage inequality has also grown within educational levels. Increased education does not always pay off. For example, while the minimum wage has shrunk in real terms, the typical minimum wage worker has more education than her counterpart 30 years ago.
If society tackles inequality directly, it will need to both reduce top incomes and raise incomes of the vast majority of people, especially those at the bottom. Here are some partial solutions worth implementing.
- First, make the tax system more progressive.
- Then regulate the financial sector much more rigorously.
- Use legislative and cultural pressure to restrain top incomes. For example, at least prohibit companies from deducting as a business expense any executive compensation over $500,000 or 25 times the lowest company salary.
And from the other direction, there are some obvious strategies, most of which have worked to reduce inequality in the U.S. and Europe.
- To raise wages, especially for low- to middle-income workers, public macroeconomic policy should give high priority to maintaining full employment.
- Longer term, the federal government should use the increased progressive tax revenue for healthcare, education, active labor market transition programs, expanded social security, and other policies that increase the social wage and support higher, more secure market wages.
- It should raise the wage floor, setting the minimum wage at no less than half the average production non-supervisory wage, or $9.20 an hour instead of the current $7.15 – a modest target considering the French minimum wage is $12.54 an hour (plus guaranteed national health insurance).
- And it should enforce existing labor laws, preventing the theft of untold millions of dollars annually from workers, usually the most vulnerable.
Two other modest proposals also involve the federal government giving life and force to policy goals that are already enshrined in federal law but undermined in practice.
First, the federal government should live up to its long-established goal of not driving down wage levels when it contracts out work or when its funding creates jobs. This is what the Davis-Bacon Act, which requires federal construction contractors to pay the “prevailing wage,” aims to do.
Beyond better enforcing and strengthening existing laws covering service and manufacturing work, the federal government could, as state and local governments do increasingly, contract with the company that provides not the lowest bid but the best value, with credits given to employers for being socially responsible.
It also should live up to federal policy under the National Labor Relations Act (NLRA) by encouraging unionization and collective bargaining. Not just permit, but encourage.
The immediate legislative Employee Free Choice Act would be a big step forward, but it also would be a return to the early days of the NLRA, when workers could win recognition for a union when a majority expressed support – and when all employer communication about a union was considered inherently coercive and unfair.
EFCA only restores majority sign-up, and even that provision almost certainly will not be in the final bill.
Increased unionization raises wages and benefits of organized workers by about 28% on average, but the more densely an industry is organized, non-union workers’ wages also rise – about 5% in an industry that is 25% organized.
Economic Policy Institute economists Lawrence Mishel and Matthew Walters also concluded that “unions reduce wage inequality because they raise wages more for low- and middle-wage workers than for higher-wage workers, more for blue-collar than for white-collar workers, and more for workers who do not have a college degree.”
By inference, we can also conclude unionization would disproportionately help minorities.
But beyond collective bargaining’s impacts on inequality, increased unionization would give workers more power through political action to pass legislation and insure enforcement of policies that would reduce inequality and help minorities.
Indeed, whatever the merits of policies targeted to minorities alone, policies to reduce inequality overall — such as using the government’s influence as a funder and contractor or encouraging greater unionization — are essential for minority economic progress.
David Moberg, a former senior editor of In These Times, was on staff with the magazine from when it began publishing in 1976 until his passing in July 2022. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.
