6 × 9 SPINE: 0.563 FLAPS: 0 SHAMBAUGH SHAMBAUGH ONE SIMPLE QUESTION—ARE WAGES RISING?— is as central to the health of our democracy as it is to the health of our economy. For the last few decades, the U.S. economy has experienced real wage stagnation. Without rising wages, the dreams of American / families to live in good homes, to support their families, to retire NUNN comfortably, and to see their children do better—what we call the REVITALIZING American Dream—simply cannot be realized. By raising productivity growth and strengthening worker bargaining power, we can create a faster-growing and more-dynamic economy that will benefit all workers over the long term. REVITALIZING WAGE GROWTH REVITALIZING WAGE WAGE CONTRIBUTORS Lauren Bauer, The Brookings Institution Jared Bernstein, Center on Budget and Policy Priorities GROWTH Audrey Breitwieser, The Hamilton Project Fatih Guvenen, University of Minnesota Ben Harris, Kellogg School of Management Alan Krueger, Princeton University Patrick Liu, The Hamilton Project Matt Marx, Boston University Policies to Get American Ryan Nunn, The Hamilton Project and the Brookings Institution Becca Portman, The Hamilton Project Workers a Raise Eric Posner, The University of Chicago Law School Jay Shambaugh, The Hamilton Project, the Brookings Institution, and The George Washington University Heidi Shierholz, Economic Policy Institute Abigail Wozniak, University of Notre Dame Edited by JAY SHAMBAUGH and RYAN NUNN RevitalizingWageGrowth_CV.indd 1 2/12/18 7:42 PM Revitalizing Wage Growth Policies to Get American Workers a Raise Edited by Jay Shambaugh and Ryan Nunn FEBRUARY 2018 ii Acknowledgments The Hamilton Project is grateful to the members of its advisory council for their valuable contributions, with special thanks to Roger C. Altman and Robert E. Rubin for helpful discussions and insights. The contents of this volume and the individual papers do not necessarily represent the views of individual advisory council members, nor do they necessarily represent the views of the institutions with which the papers’ authors are affiliated. The chapters contained in this volume were greatly improved by the expert comments provided by participants at the November 2017 authors’ conferences held at the Brookings Institution. We are grateful to all who participated in those meetings. The editors wish to acknowledge the impressive contributions of the entire Hamilton Project staff. We are thankful to Kriston McIntosh for her advice on all aspects of production, as well as her thoughtful comments on much of the book. Lauren Bauer, David Dreyer, and Joy Fox contributed substantially to the development of the book. Becca Portman managed the book production process from beginning to end. Audrey Breitwieser, Patrick Liu, Nicholas Fedorochko, and Rachel Williams provided superb research assistance. We are also grateful for the contributions of Alison Hope, Carmel Steindam, Han Park and the Media Press staff, and Brianna Harden and for valuable input from Melanie Gilarsky, Anna Rotrosen, and Caroline Kim. The policy proposals included in this volume are proposals from the authors. As emphasized in The Hamilton Project’s original strategy paper, the Project was designed in part to provide a forum for leading thinkers across the nation to put forward innovative and potentially important economic policy ideas that share the Project’s broad goals of promoting economic growth, broad-based participation in growth, and economic security. The authors are invited to express their own ideas in policy papers, whether or not the Project’s staff or advisory council agrees with the specific proposals. These policy papers are offered in that spirit. iii Table of Contents Foreword 1 Introduction 3 Jay Shambaugh, Ryan Nunn, and Becca Portman SECTION ONE Understanding Wage Stagnation and Its Policy Solutions 9 How Declining Dynamism Affects Wages 11 Jay Shambaugh, Ryan Nunn, and Patrick Liu Returning to Education: The Hamilton Project on 25 Human Capital and Wages Jay Shambaugh, Lauren Bauer, and Audrey Breitwieser SECTION TWO Policies to Boost Wages through Enhanced Productivity 51 Stagnation in Lifetime Incomes: An Overview of Trends and 53 Potential Causes Fatih Guvenen Coming and Going: Encouraging Geographic Mobility at 77 College Entry and Exit to Lift Wages Abigail Wozniak The Importance of Strong Labor Demand 93 Jared Bernstein SECTION THREE Policies to Boost Wages through Strengthened Worker Bargaining Power 117 Reforming Non-Competes to Support Workers 119 Matt Marx A Proposal for Protecting Low-Income Workers from 139 Monopsony and Collusion Alan Krueger and Eric Posner Information Is Power: Fostering Labor Market Competition through 157 Transparent Wages Benjamin Harris Strengthening Labor Standards and Institutions to Promote 177 Wage Growth Heidi Shierholz About the Authors 195 iv 1 Foreword ne simple question—are wages rising?—is as central to the health of our democracy Oas it is to the health of our economy. Without rising wages, the dreams of American families to live in good homes, to support their families, to retire comfortably, and to see their children do better—what we call the American Dream—simply cannot be realized. One of the best measures economists use to determine Americans’ ability to achieve this dream is whether wages are rising, broadly and consistently. For the last few decades, and for too many workers, they have not. The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers. The median worker in 2017, for instance, earned only slightly more than in 1979. Over the long arc of U.S. history wages have fluctuated along with the economy. Real wages are affected by inflation and by the supply and demand for labor. They can move depending on the progress of technological advances, the strength or weakness of capital investment, the size of workers’ nonwage benefits, or conditions that affect labor’s share of economic output. What makes the past forty years different from earlier U.S. history are the new and more- stubborn factors contributing to the stagnation of a typical worker’s pay. Wages have risen for those in the top of the distribution, but—with the exception of brief periods like the latter half of the 1990s—they have been stagnant for those in the bottom and middle. Wages have grown for women and fallen for men, while remaining much lower for people of color. Globalization and technological change are exerting downward pressure on the wages of some less-educated workers. Declines in the real minimum wage and union membership have also lowered wage growth. Wage growth now also varies significantly by location, with wages in poor areas increasingly less likely to catch up to those in rich areas. Households have become less mobile: today’s workers are less likely to move to a different state or to a different job, which intensifies the disparities among regions (Ganong and Shoag 2017). The fact that business start-ups and closings have also declined—a signal of decreased firm dynamism—has in turn likely lowered productivity growth and disrupted wage ladders in ways that have been particularly deleterious for wage growth. Even if incumbent firms increased their innovative activity, removing one concern regarding the decrease in start-ups, the smaller number of new firms reduces job switching opportunities for workers and puts downward pressure on wage growth. 2 Wage stagnation does more than constrain family budgets: it also leaves workers and families feeling discouraged, even disenfranchised. Working year after year without a meaningful rise in wages weakens workers’ confidence in the economic system. Even more, it undermines their faith in democratic institutions to make the necessary changes in public policy to deliver a robust improvement in their standards of living. As former Treasury Secretary Lawrence Summers, a member of our advisory council, wrote in September 2017, “The central issue in American politics is the economic security of the middle class and their sense of opportunity for their children. As long as a substantial majority of American adults believe that their children will not live as well as they did, our politics will remain bitter and divisive” (Summers 2017). Stagnant wages divide us not only by income, but also by our understanding of what it means to be an American and to have our own shot at the American Dream. For this reason, with so much at stake, the task of restarting wage growth has taken on great urgency. Hence, the decision to publish this volume. For more than a decade The Hamilton Project has offered proposals and analyses aimed at promoting economic growth, broad-based participation in growth, and economic security. Here we have assembled the evidence and analysis that detail why wages have been stagnant for so many workers, and identified public policies that could effectively contribute to the growth in productivity and wages that are core parts of improving living standards for all Americans. Slow productivity growth and stagnant wages are complex puzzles, but are not insoluble. In the following chapters, our experts offer evidence-based policy proposals to support wage growth through increased productivity. These proposals include greater support for policies that increase human capital (education and training policies), boost worker mobility, and sustain robust labor demand. Other experts featured in this volume propose raising wage growth by strengthening worker bargaining power. Enhanced wage transparency, modernized labor market standards and institutions, and more-competitive labor markets can all play important roles in helping workers share in the benefits of economic growth. When these policies help match workers to more productive jobs, they can raise economic growth as well. The goal shared by each proposal is raising productivity growth and wages as engines for creating a faster-growing and more-dynamic economy that will benefit all workers over the long term. We offer the proposals with the conviction that forty years of stagnation need not presage forty more.