Question

The Brookings Institution has released a half-hour podcast interviewing two economists about strategies to raise wages and strengthen the economy for American workers.

In this episode, Jay Shambaugh, director of The Hamilton Project and senior fellow in Economic Studies at Brookings, and Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, discuss the decades-long trend of real wage stagnation and policy solutions for increasing productivity, strengthening wage growth, and ensuring that national economic growth is reflected in the living standards of all American workers.

write a one-page summary bullet pointing their "policy solutions for increasing productivity, strengthening wage growth, and ensuring that national economic growth is reflected in the living standards of all American workers."

Answer 1

Since the 1970s, the typical U.S. worker has experienced either a minimal or nonexistent increase in wages. What can and should be done to promote the economic growth that will lead to higher earnings for more American workers? How do we ensure that these gains are broadly shared, resulting in robust wage growth for as many workers as possible?

On September 26, The Hamilton Project at Brookings hosted a forum on wage growth in The United States. The forum began with introductory remarks by former U.S. Treasury Secretary Robert E. Rubin, and a fireside chat with Jason Furman, professor of practice, Harvard Kennedy School, and Lawrence Mishel, president, Economic Policy Institute. The fireside chat was moderated by Catherine Rampell, opinion writer, The Washington Post. A panel discussion will follow the fireside chat, featuring panelists including: Jared Bernstein, senior fellow, Center on Budget and Policy Priorities; Robert Greenstein, founder and president, Center on Budget and Policy Priorities; and Heidi Shierholz; senior economist and director of policy, Economic Policy Institute; the panel was moderated by Jay Shambaugh, director, The Hamilton Project.

In conjunction with this event, The Hamilton Project released a new framing paper exploring wage trends and the economic forces that underlie them.

and who is being left behind from different wage and job trends. He also analyzes the state of jobs and wages in the United States and recommends what can be done to generate stronger and more inclusive growth.

U.S. President Donald Trump delivers his first State of the Union address in Washington

The average American worker did not get much of a raise last year.

In his first State of the Union address, President Trump highlighted the significant growth and progress of the U.S. economy during the last year. As a former Member of the Obama White House Council of Economic Advisers, I share the President’s enthusiasm for the nation’s continued economic growth, supported in part by the economic policies created during the last decade. In the past year, we have seen a continuation of positive trends, including the low unemployment rate and closing of the “jobs gap” in July of 2017. Both are cause for celebration, particularly when contrasted with the aftermath of the Great Recession that was the backdrop for President Obama’s first State of the Union address in 2010.

While a number of economic indicators are encouraging, many Americans have not benefited from this progress.

Wage growth has remained weak for many American workers in recent decades. After adjusting for inflation, U.S. wages were only 10 percent higher in 2017 than they were in 1973, with annual real wage growth just below 0.2 percent. As my Hamilton Project colleagues and I found in a September 2017 report, the wage growth that has occurred has been unequal, primarily benefiting those at the top of the income distribution. Between 1979 and 2016, wages grew significantly in the top two income quintiles, yet real wages fell slightly over the same period in the bottom quintile.

Furthermore, more and more Americans continue to drop out of the labor force altogether. At the end of 2017, nearly one-fifth of 25—54 year-old adults were not in the labor force. Hamilton Project economic analysis, men have been leaving the labor force at a steady rate for decades. Although women entering the labor force masked this trend throughout the latter half of the twentieth century, they too have started leaving the labor force at similar rates since 1999. Given that the labor force participation rate is an indicator of household living standards and economic vitality, this trend is one that many economists find troubling.

Finally, nominal wage growth—the visible boost in paychecks—has been weak during this business cycle. By contrast with previous decades, nominal wage growth has not increased as much as anticipated given the cyclical lows in unemployment reached; instead, it has stayed around 2.5 percent or less. However, it is important to note that because of low inflation, the current business cycle has seen slightly better real wage gains than in recent decades (see figure below); yet the roughly 0.7 percent per year gains since the beginning of the Great Recession are far too weak to make up for decades of stagnation.

Stagnant wage growth for the typical worker and increasing numbers of Americans dropping out of the workforce has not occurred in a vacuum. A number of factors have contributed, including: declines in labor institutions such as unions, globalization and technological change, and decreased dynamism in the business community and labor markets.

These are complex economic challenges that require a continued commitment to identifying constructive, fiscally responsible solutions in the years ahead. Policies that merit serious and substantive consideration by policymakers and regulators include: reforming labor market institutions, limiting employer collusion, reforming non-compete policies, expanding wage transparency, encouraging worker mobility, improving and expanding technical education, and lifting labor demand through macroeconomic policy. In response, The Hamilton Project will soon release a new book of policy proposals aimed at helping the average American worker get a raise.

It is always encouraging to witness, and celebrate, periods of strong economic growth. However, we must also remember that when growth is broadly shared, the economy—and the country—stand to make the greatest gains.