CEOs used to make 30 times their average employee’s salary -- now it's more than 300 times, with no sign of a significant slowdown. With income inequality near a record high and wages failing to keep up with inflation, many government leaders say it's obvious there's a problem.
The solution, however, is less clear.
Minimum-wage hikes mandated by the government are championed by progressives as a necessary part of the puzzle but decried by conservatives as harmful to private employers. Instead, conservatives tend to favor programs like the Earned Income Tax Credit (EITC) for low- to moderate-income households. There is evidence that the EITC is effective, at least in that it provides work incentives, aids families according to their need and creates better educational and health outcomes for children.
But many researchers continue to emphasize the importance of increasing real wages. They attribute skyrocketing inequality to the decline of collective bargaining, tracing current trends back to the defeat of the Labor Reform Act of 1978. Among these economic scholars are David Madland and Alex Rowell, whose new report for the left-leaning Center for American Progress focuses on what states and localities can do to protect workers and raise wages.
Madland says state and local commitment to this issue is particularly crucial at a time when the federal government appears to be heading in the opposite direction. Despite having drawn huge electoral support from working class voters, President Trump rolled back Obama-era regulations meant to protect government contractors from wage theft.
“The current situation is a culmination of long-term trends and then some immediate actions [by the federal government] that will weaken workers' bargaining power and exacerbate wage stagnation,” says Madland. “So state and local governments have an opportunity and a responsibility to push for higher standards.”
Some states and localities have already undertaken a few of the report's policy suggestions, mainly in liberal, Democratic places like California, New York, San Francisco and Seattle. By contrast, many conservative states have taken action in recent years to directly or indirectly curb collective bargaining powers. Wisconsin stripped public employees of their collective bargaining rights in 2011, and more than half of all states now have right-to-work laws, which typically cause union membership and revenue to drop.
Madland and Rowell believe it's necessary for states and localities to lead a shift away from traditional firm-level bargaining into region- or industry-level bargaining. Madland's previous paper on the subject points to the difficulties created when unionized firms have drastically higher labor costs than their competitors, leading to conflict and intense resistance from employers. Industry standards, he argues, have the benefit of equalizing competition across an entire region or sector as well as growing wages for a larger number of people.
The authors have laid out specific policy recommendations they believe will help states and localities move toward this modern labor law system, hopefully raising wages and reducing inequality in the process. These are a few of them:
Create wage boards
Right now, collective bargaining is generally handled by individual organizations. The creation of state- or city-wide wage boards made up of workers, businesses and government officials can help set “minimum standards for industries and occupations,” according to the report. The boards could also decide standards outside of a minimum wage, like benefits, worker training and leave.
California, New Jersey and New York are among the few states that already allow for the creation of these boards via executive action, and they have been instrumental in wage negotiations. New York, for example, used wage boards when deciding to raise the minimum wage to $15 by the end of 2021. Other states and cities would have to pass legislation to allow for the formation of these bodies.
Support and expand prevailing-wage requirements
Prevailing wages essentially function as a minimum wage for government-funded jobs. Madland and Rowell advocate for passing prevailing-wage laws where they don’t already exist as well as expanding them outside of direct government contracting on construction projects.
Some states haven’t been so keen on the requirements in the past. Gov. Scott Walker of Wisconsin eliminated prevailing wages at the city level and used his most recent budget proposal to call for eliminating them at the state level, too.
Meanwhile, 30 states and hundreds of localities all over the country have instituted the requirements, many in ways that support collective bargaining. Jersey City, N.J., for example, uses collectively bargained wages to calculate its prevailing wage for some building service workers.
Incentivize wage compliance
The authors of the report suggest using licensing and permitting to reward (or punish) companies for abiding by wage laws and helping workers gain power.
They point to places like San Francisco, which suspends or revokes health permits for restaurants that are breaking wage laws. The state of California, recognizing issues of wage theft in the car wash industry, now requires car wash owners to post a surety bond so funds are accessible to workers who file wage theft claims. Los Angeles, Austin and Seattle have all instituted regulations in the same spirit.
All of these policies, Madland says, are crucial to settling a time of economic and political upheaval.
“Terrible economic conditions lead to volatile political conditions. Things can become deeply unsettled,” he says. “State and local leaders need to have that in mind.”
The full report is available here.