That’s not supposed to happen: Good old supply and demand dictates that, with fewer workers on the market, employers should just pay more to get the employees they want.
While economists ponder why the real world has defied Econ 101, the question remains what we can do about it. Progressives, for their part, have made a lot of progress in recent years by using America’s wage stagnation to push for minimum wage increases. The Fight for $15, as it’s generally known, has convincedsomecities and states across the country pushing their own minimums well above the federal level of $7.25 per hour — but 21 states still use the federal minimum wage to set their own wage floor, which affects some 20 million workers.
The federal minimum has been stuck there for nine years (as of this week) and, historically, Congress tends to raise it about every 10 years, so it’s reasonable to expect this anniversary to herald plenty of action from activists, and for good reason: The minimum wage’s buying power peaked decades ago. It’s high time for a hike.
However, minimum wage increases aren’t enough. While it’s been nearly a decade since the federal minimum went up, it’s been several decades since workers experienced an economy with sustained wage growth, so there’s only so much that mandated pay increases can do. In order to get wages rising again for everyone, lawmakers and activists need to look at something else: Reducing the power corporations have when bargaining with workers, which allows them to dictate substandard pay levels that employees simply have to swallow.
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Doing so will require several steps. First, a reinvigorated labor movement will give workers more collective bargaining abilities. It’s no coincidence that the golden age for the American middle class coincided with a vigorous, powerful labor movement; and those benefits accrue to all workers, not just those who are union members.
Good old supply and demand dictates that, with fewer workers on the market, employers should just pay more to get the employees they want.
As I wrote in June, the teacher strikes that occurred across the country show that there’s an appetite for a revitalization of labor: Democrats need to not blow the opportunity. (Though the recent Supreme Court decision gutting the ability of public sector unions to automatically collect dues makes the task even harder.)
But that’s not all. A significant factor in America’s wage stagnation is corporate concentration: Fewer employers means fewer options for workers and thus fewer opportunities to bargain for higher pay. Numerous studies show that this dynamic is very real.
A recent paper from the Washington Center for Equitable Growth, for instance, found that every 10 percent increase in industry consolidation lowers wages by up to 1.3 percent. Another paper from that shop found increased employer power responsible for about 10 percent of the wage stagnation that’s occurred since the 1970s. Other studies have come to the same general conclusion: Fewer employers means lower wages, because there’s less competition for workers.
That this happens makes sense. If workers have little or no choice as to who to work for in a given area, they can’t threaten to switch jobs if their pay isn’t increased; ditto if there are only one or two big employers in the particular industry in which a worker has useful skills. The employer’s offer becomes take it or leave it. According to a London Business School study, increasing competition among companies just back to where it was in 1984 would lead to a 24 percent increase in wages.
One final thing keeping pay down is that companies work together to suppress it. Perhaps the most well-known incident of such employer collusion was amongst tech companies. In 2015, Apple, Google and other tech titans paid $415 million to settle charges that they made a pact not to poach each other’s workers; such poaching is beneficial to workers because usually higher pay is an enticement to move from one company to the next.
But it’s not just high-tech where employers work together to make sure workers can’t raise their wages by moving around: 10 state attorneys general recently launched an investigation into fast food companies using no-poaching agreements to prevent workers from moving from one location to another.
Across the whole of the economy, meanwhile, some 30 million workers are subject to non-compete clauses, which limit where they can work after leaving a particular job. This, again, prevents them from forcing companies to compete for their labor.
If lawmakers and activists are serious about getting pay to rise again, they can’t just focus on the minimum wage, important as that fight is, or on taxes or education or any of the other usual suspects that are meant to help boost pay and combat income inequality. They also need to look at the other side of the coin: What employers have done to break the model in which they had to compete for labor. Breaking up monopolies and ensuring that companies can’t collude to keep employees’ wages and benefits down would seriously help those workers who can’t catch a break; it’d be great to see a vigorous movement built around that too.