The single most important action economic policymakers could take would be to use monetary and fiscal policy to return the economy back to full employment and keep it there for several years. When jobs are scarce, workers have very little bargaining power. Why doesn't the President tell the whole story?[It] does involve challenging powerful economic interests including ones with important influence within his own party.

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My guest today is John Schmitt, research director at the Washington Center for Equitable Growth , a non-partisan research and grant-making institution. He is also co-author of the piece, "Don't Blame the Robots: Assessing the Job Polarization Explanation of Growing Wage Inequality." Welcome to OpEdNews, John.

JB: President Obama just gave his last State of the Union speech and you have a bone to pick regarding his statement about income inequality. Let's start at the beginning. You do agree that we suffer from that condition, correct?

JS: Yes --we have experienced an enormous increase in economic inequality since roughly the end of the 1970s. You can see that increase along almost every dimension that economists measure. The difference between wages at the top and bottom has risen dramatically. The differences in family incomes --which include wages, but also other forms of incomes such as stock returns-- have grown even larger. The inequality of wealth --the total value of assets owned, such as a real estate, stocks, and bonds, minus any debts owed such as mortgages, credit-card balances, and student loans-- is worse than wages and incomes and it is also way up. So, the president is right about that, but where I disagree in an important way is with his explanation for why inequality has been rising.

JB: Okay so far. You and the president agree about the basic income inequality. That's the easy part. Can you tell me and our readers why that inequality has worsened?

JS: The core reason for the long-term increase in inequality is the decline in bargaining power for workers in the middle and the bottom. In the 1970s, before inequality started to rise, almost one fourth of the workforce was in a union, today it's half that and only about 7 percent of workers in the private sector. The minimum wage was also much higher then than it is now, even though the economy is much more productive now than then. We've privatized many state and local activities, putting downward pressure on wages and benefits. We've deregulated industries such as trucking and airlines, greatly reducing the quality of jobs in those sectors. We've signed trade deals that put middle-wage workers especially in direct competition with low-wage workers in other countries. All of these policies and more reduce the bargaining power of workers at the middle and the bottom relative to those at the top and that is what is driving inequality.

The President alluded to some of this when he said that it is "boardrooms" where the decisions about wages are decided. But, that was largely an aside in the speech. He did not tell the full story and we need to know the full story in order to turn things around.

JB: With the weakening of the unions, workers have lost their champions and, in many cases, their jobs and whole sectors altogether. I get that. What else do we need to know "in order to turn things around," as you put it? Also, do you believe that President Obama didn't tell the whole story for any particular reason? Do you think it's possible that he simply doesn't understand the whole story either?

JS: The key is to take actions that raise the bargaining power of workers at the middle and the bottom, relative to those at the very top. In the short-run, the single most important action economic policymakers could take would be to use monetary and fiscal policy to return the economy back to full employment and keep it there for several years. When jobs are scarce, workers have very little bargaining power. They have to settle for whatever job they are offered, whatever the wages and benefits. But, when demand for workers is high, and employers have to scramble to find workers to fill orders or staff counters, then workers have a lot of bargaining power. Employers have to compete to attract and retain workers. We saw this in the second half of the 1990s, when the unemployment rate went to five percent and then to four percent and remained there for a couple of years. That is the only time since the late 1970s when workers at the bottom experienced any significant wage growth.

There are additional ways forward, all of which have an element of strengthening the bargaining power of workers or weakening the bargaining power of employers. To highlight two of them: the local, state, and national level movements to raise the minimum wage and organized efforts to rein in the financial sector through a financial transactions tax and related reforms.

Why doesn't the President tell the whole story? I'm not a mind reader, so I can't say. But, the whole story does involve challenging powerful economic interests, including ones that have important influence within his own party.

The good news is that President Obama, like any sensible politician, has shown that he will respond to sustained pressure. On the minimum wage, for example, a couple of years ago, he announced his support for a $9 per hour federal minimum wage, a decent increase from its current $7.25. Only a few months later, under pressure from activists, activists, progressive economists, and Congressional Democrats, he upped his number to $10.10. More recently, as campaigns for much higher minimum wages has spread, especially at the state and local level, the President has come out in favor of a $12 federal minimum. He's not at $15 yet, and he might not ever get there for the national level, but that is tremendous movement over the course of only two years --all in response to political organization.

JB: Agreed. And kudos to Seattle, San Francisco, San Jose and many other cities, that have stepped up. What happens when municipalities raise the minimum wage or commit to doing so? Have the dire predictions come true in terms of job loss and other metrics?

JS: Many of the cities that currently have plans to increase the minimum wage are aiming for levels that are above where we have historical experience of the minimum wage. So, we can't be sure beforehand exactly what the impact will be. In almost every case, though, the increases are being phased in over several years, which will help employers to adapt to the new, higher wages.

As the higher minimum wage is phased in, I would focus on two things. First, the benefits to workers who receive pay increases are very large. Even if the level of employment falls off, minimum-wage increases can have very large positive effects for the large majority of low-wage workers, who will be receiving substantial pay increases. These benefits will carry over to their families and their communities. As with any policy, we want to weigh benefits and costs.

The second thing I would focus on is that the way the low-wage labor market operates, any reductions in employment are likely to take the form of workers having to take somewhat longer to find a new job. When they find that new job, it will pay a lot more. The typical low-wage worker cycles in and out of jobs in retail or restaurants (or similar). Raising the minimum wage will actually help to lower turnover, but it will remain high relative to the rest of the economy. Even if employers want to reduce employment, they'll almost certainly do that by not replacing workers when they leave, rather than by actually laying workers off. As workers cycle through jobs, the jobs they do get will pay substantially more after the increase. The evidence strongly suggests that even if there is a reduction in the total number of low-wage jobs, the increase in the wages will leave low-wage workers as a group much better off.

JB: Is it safe to say that, on the whole, from an economist's point of view, that raising the minimum wage is a good thing?

JS: Workers have a lot to gain from a higher minimum wage. We've seen a lot of success on this front in recent years and there is a lot of momentum. But, a lot of the most serious problems that low-wage workers face are not low wages. We need to push for a complete restructuring of the low-wage labor market. That would include changes in scheduling regulations to provide predictability and flexibility for workers. Access to free or inexpensive high-quality child care. Paid sick days. Paid family leave (ideally done through social insurance, not a direct requirement on employers). Raising the minimum wage is necessary but not sufficient and after a certain point, I would want to focus on these other issues rather than getting an extra dollar out of the minimum-wage fight.

JB: I'm with you. Affordable, high-quality child care is a biggie that is available in virtually all the other industrialized nations, I believe. And is there anything you'd like to add before we wrap this up?

JS: We have terrible problems in the low-wage labor market, but the broad middle of the work force has also been taking it on the chin for almost 40 years. Inflation-adjusted wages for the typical worker have barely changed since the late 1970s. Recent college graduates --young people who did everything they were told to do-- make less now than their counterparts did 15 years ago. If we want to raise wages at the bottom, it will help if we raise them at the middle, too.

To do that, we'll need policies such as full employment, unions, paid family leave, higher (not lower) Social Security benefits, increased taxation at the top, and a restructuring of the financial sector. Recent experience on the minimum wage suggests that organizing can yield results, so I'm hopeful that we'll make headway on this broader agenda, too.

JB: Amen to that, John. Thanks so much for giving us a larger context for our understanding of the current economic situation. It's been a pleasure.

Authors Website: http://www.opednews.com/author/author79.html

Authors Bio:

Joan Brunwasser is a co-founder of Citizens for Election Reform (CER) which since 2005 existed for the sole purpose of raising the public awareness of the critical need for election reform. Our goal: to restore fair, accurate, transparent, secure elections where votes are cast in private and counted in public. Because the problems with electronic (computerized) voting systems include a lack of transparency and the ability to accurately check and authenticate the vote cast, these systems can alter election results and therefore are simply antithetical to democratic principles and functioning.



Since the pivotal 2004 Presidential election, Joan has come to see the connection between a broken election system, a dysfunctional, corporate media and a total lack of campaign finance reform. This has led her to enlarge the parameters of her writing to include interviews with whistle-blowers and articulate others who give a view quite different from that presented by the mainstream media. She also turns the spotlight on activists and ordinary folks who are striving to make a difference, to clean up and improve their corner of the world. By focusing on these intrepid individuals, she gives hope and inspiration to those who might otherwise be turned off and alienated. She also interviews people in the arts in all their variations - authors, journalists, filmmakers, actors, playwrights, and artists. Why? The bottom line: without art and inspiration, we lose one of the best parts of ourselves. And we're all in this together. If Joan can keep even one of her fellow citizens going another day, she considers her job well done.


When Joan hit one million page views, OEN Managing Editor, Meryl Ann Butler interviewed her, turning interviewer briefly into interviewee. Read the interview here.

While the news is often quite depressing, Joan nevertheless strives to maintain her mantra: "Grab life now in an exuberant embrace!"


Joan has been Election Integrity Editor for OpEdNews since December, 2005. Her articles also appear at Huffington Post, RepublicMedia.TV and Scoop.co.nz.