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5 charts that prove it's time workers got a raise

With employment rising throughout 2014, but public disappointment in the economic recovery remaining high, attention is increasingly turning to wages. Neil Irwin recently rounded up evidence that the typical American family's real income is lower today than it was five years ago, while Jared Bernstein argues that wage hikes needn't be inflationary so the Fed should keep interest rates low until workers see more gains.

But while of course individual workers and their families would like to see higher pay, I would go further. An outpouring of generosity from the collective bosses of America would do the broader economy a great deal of good. Policymakers can't make that happen, of course, but they should be doing everything in their power to encourage it:

1) The bosses can afford it


(Saint Louis Fed)

This chart shows corporate profits as a share of total national income. They've soared in recent years far above the normal 4 or 5 percent level to over 10 percent. That's over $600 billion that the corporate sector could transfer to workers, while still earning healthy profits. The key foundation for the case for a wage hike is this: it's not a dippy utopian fantasy that would crush American business. The money is there.

2) The bosses could use better workers

Labor quality

(National Federation of Independent Businesses)

Recent survey evidence from the National Federation of Independent Businesses shows an interesting trend in the small business outlook. The years-long period when weak sales were the dominant problem is over, and sales look poised to be overtaken by inability to find adequate workers as a leading issue for business owners.

The most natural solution to this labor quality problem? Higher pay. But the scars of the last recession are naturally going to make any business owner reluctant to commit to a higher wage strategy that could leave him out on a limb if the economy collapses. A clear statement from Janet Yellen that the Fed would welcome higher wages as a sign of recovery rather than fear them as a sign of inflation would encourage bosses to start addressing their labor quality woes with higher pay.

3) Workers have been getting screwed for decades


(Saint Louis Fed)

Wonder where those high profits came from? The answer is right here — they've come out of the pockets of workers in the form of a systematically falling share of national income being dedicated to workers' salary and benefits. You might say this structural economic shift in favor of capital and against labor was a great idea if it led to much higher overall economic growth. But it hasn't.

On the contrary, the fastest-growth period of the whole past generation was in the late-1990s — when Alan Greenspan cast inflation paranoia aside and let workers share in the bounty of economic growth.

4) People would buy houses if they had money


(Jed Kolko/Trulia)

There is a cottage industry of articles and theories about why the pace of construction of new homes remains so sluggish. Yellen blames a reluctance to loan to risky borrowers, while Larry Summers posits that excessive student loan debt may be the issue.

These debates are interesting, but they tend to involve missing the forest for the trees. The surge in young people living at home with their parents is driven by the young people in question not having much money in their pockets. If people were getting paid more, then suddenly problems like student loans or tight credit standards would greatly ameliorate. They'd head out, rent or buy new places, and then need to furnish and equip them. That would create a bunch of jobs in the still-ailing construction sector and help get the economy moving.

5) We need to draw people back into the labor force

labor force

(Saint Louis Fed)

The economic collapse of 2008 was associated with a large decline in the share of the population that's participating in the labor force — including a historic reversal of the trend toward growing women's participation in market labor.

This trend has persisted, despite recent declines in the unemployment rate, and it has disturbing implications for the future. A country with a smaller labor force is going to be a poorer country on a semi-permanent basis. Turning this trend around and drawing people back into the labor force is important to America's long-term prosperity.

And a higher wage regime is an ideal way to do it. On the one hand, higher wages make people more likely to look for a job (as opposed to retiring early, staying home with kids, or trying to get by on disability payments). And on the other hand, higher wages give employers more incentive to invest in training workers who don't yet have all the skills that modern bosses are looking for. If you can get an already-experienced worker for cheap, there's no reason to take a risk on someone new. But if veteran workers are securing wages, then only companies that do a good job of recruiting and training new workers will prosper — and those are exactly the sort of employers we should be encouraging.

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