Markets For Labor - The Firm's Decision To Hire Labor 2

Figure 9.8. The Gender Pay Gap in the United States, 1970-2020 Source: U.S. Census Bureau, 2022. As shown in Figure 9.7, the gap in wages based on race is larger than the gap based on gender. While some progress has been made in reducing gender wage gaps, wage differences based on race may actually be increasing. A 2020 analysis finds that the gap in wages between black and white workers in the U.S. has steadily increased since 2000.39 A 2013 article finds that differences in formal education are important in explaining the gap, but at least one-third of the gap is due to discrimination.40 The analysis also finds that black job seekers tend be offered, and accept, lower wages than white workers. Interestingly, race-based wage gaps decrease over time if black workers stay at the same job. According to one of the authors, “As an employer I may discriminate against you by offering a lower wage when I first hire you, but over time as you work for me, I come to know how good you really are as an individual, and I adjust your wage accordingly.”41 Researchers also study race-based discrimination using creative experimental studies that explore how employers respond to job applicants with “minority-sounding” names. In these studies, researchers respond to job advertisements with fictitious resumes that are exactly the same in all respects except the applicant’s name. A classic 2003 study, for example, found that applicants with names like Emily and Greg were 50 percent more likely to receive an interview request than applicants with names like Lakisha and Jamal.42 A similar 2016 study found that applicants with blacksounding names were 14 percent less likely to receive interview requests than those with white-sounding names. Also, the degree of discrimination increased the more likely the job involved interaction with customers.43 A 2021 analysis suggests that some progress has been made in reducing racial hiring discrimination.44 Based on sending fictitious resumes to 108 large U.S. firms, applicants with black-sounding names were 2 percent less likely to be contacted by employers, with 85 firms displaying no racial bias. A 2017 paper that reviewed the results of 28 such studies found that applicants with white-sounding names receive, on average, 36 percent more call-backs than black applicants and 24 percent more call-backs than Latinos.45 The results also indicate that the degree of discrimination against black applicants has not declined DRAFT since 1989 but has declined slightly for Latinos. The authors conclude that the “results document a striking persistence of racial discrimination in U.S. labor markets.” Experiments testing for racial discrimination in hiring have been conducted in other countries besides the United States. A 2016 article reviewed the results of 43 discrimination studies, with 28 conducted in Europe, 12 in the United States, and 3 in other countries.46 Across all studies, ethnic and racial minorities were 49 percent less likely to be invited for an interview, with discrimination slightly more prevalent in Europe than in the U.S. However, discrimination is relatively lower in Germanspeaking countries, which is attributed to requiring detailed job applications that include records such as school transcripts and diplomas, even for entry-level positions. The authors suggest that this additional information better documents an applicant’s qualifications, reducing the prevalence of discrimination. Discussion Questions 1 According to the U.S. Bureau of Labor Statistics, the hourly median wage in 2020 was $13.59 for home health aides, $25.24 for firefighters, $42.88 for computer programmers, $61.03 for lawyers, and $78.85 for dentists.47 Based on the information in this section, try to explain why the wages for these various occupations differ. Do you think these wage differences are justified based on market forces? Also, do you think these wage differences are fair, based on the social contribution of each job? 2 What do you think society should be doing, if anything, to reduce labor market discrimination? Do you have any experience with discrimination in the workplace? 3. CONTEMPORARY LABOR ISSUES AND POLICIES For the remainder of this chapter, we consider several labor issues that reflect recent changes in labor markets. We also discuss labor market polices, with a focus on policies that can enhance human well-being rather than just maximize profits or incomes. The six topics covered in this section are: 1. 2. 3. 4. 5. 6. changes in labor force participation rates labor market flexibility labor markets and immigration cooperatives work–life balance labor markets, inequality, and power 3.1 LABOR FORCE PARTICIPATION RATES As discussed earlier in the chapter, the labor force participation rate is the percentage of noninstitutionalized adults that are either working or seeking a job. Of course, many people, such as students, retirees, or those taking time off from working for personal reasons such as childcare or health concerns don’t want – or may not need – a job. The U.S. labor force participation rate in 2021 was 61 percent but looking at Figure 9.9 we see that this rate differs between men and women over time. Male labor force participation has been steadily declining since 1960, while that of females steadily increased up to 2000 before leveling off. It has since also been declining, albeit less sharply than for males. DRAFT Figure 9.9. Labor Force Participation Rates in the United States, 1960–2021 Source: U.S. Bureau of Labor Statistics, 2021e. What explains these trends? The increase in female labor participation up to 2000 largely reflects increased work opportunities for females. Reduction in the gender pay gap meant that the opportunity cost to females of not working increased, thus increasing female labor supply. To some extent, the decline in male labor force participation in the 1960s and 1970s can also be attributed to a greater gender balance in paid work within families. But more recently, labor force participation has been declining for both men and women, particularly after the Great Recession and during the COVID-19 pandemic. The reduction in labor market participation due to the pandemic has been greater for women, particularly black and Hispanic women as many lost jobs in the leisure and service sectors.48 Over the last several decades the United States has gone from having one of the highest labor force participation rates among industrialized countries to one of the lowest.49 Economists attribute this recent decline to two main factors: that many people have dropped out of the labor force due to frustration when looking for acceptable jobs and other difficulties; and that demographic changes are putting downward pressure on labor force participation.50 The demographic changes include an aging population and higher average educational attainment. An increasing share of Americans are retired, and thus voluntarily out of the labor force (although this group could include some who involuntarily retired early due to lack of job opportunities). Also, a higher proportion of young (and some older) people are attending college and graduate school, also voluntarily removing themselves from the labor force for a time. Economists are more concerned about people dropping out of the labor force due to frustration at not finding employment or other difficulties. The U.S. Bureau of Labor Statistics measures the number of “discouraged workers”—those who have looked for a job within the last year but stopped because they believed there were no jobs available matching their skills.51 The number of discouraged workers in the United States decreased steadily during the 2010s, but more than doubled during the peak of the COVID-19 pandemic.52 DRAFT Currently, some labor market researchers have shifted their attention to the opioid crisis as an explanation for the decline in labor force participation, particularly among males of prime working age (aged 25–54) with lower education levels. A 2018 paper finds a significant negative relationship between opioid prescription rates and labor market participation.53 The authors estimate that resolving the opioid crisis would increase labor market participation among prime-aged males by four percentage points. 3.2 LABOR MARKET FLEXIBILITY For most of the twentieth century, Americans generally thought of “a job” (or at least a good job) as something that you typically did Monday through Friday, 40 hours a week, for a wage or salary and benefits (such as health insurance and pension plans). People often expected to stay in the same job for years or even decades. In recent years, however, it has become popular to talk about how employment is becoming more “flexible.” But the term “flexibility” has two very different meanings, depending on whether it is considered from the point of view of the worker or the employer. One meaning of “flexible” work is that it is more suited to workers’ varying needs. Such work arrangements include flexibility in setting hours, job sharing, and the ability to work from home at times. Workers may be able to adjust their starting and quitting times, for example to make commuting or dropping off a child at school or day care easier. They may also be able to “compress” a standard workweek by working longer daily hours and taking a weekday off every week or every other week. Job sharing typically means that two employees work part-time, essentially sharing a full-time job between them. Working from home, even if only occasionally, reduces commuting time and costs, and allows workers to care for children or other relatives at home. Research shows that not only are flexible workers more satisfied with their jobs, but they also tend to be more productive and take sick leave less often.54 As a result of the COVID-19 pandemic, many workers worked from home to reduce their exposure to illness. But a 2021 survey by the U.S. Census Bureau finds that the ability to telework varies significantly by income level.55 While 73 percent of workers making more than $200,000 per year were able to switch to working at home during the pandemic, 32 percent of those making between $50,000 and $75,000 were able to make the switch, and only 13 percent of those making less than $25,000. A somewhat different type of employment flexibility from the perspective of workers are “gig” jobs. These are jobs, part-time or full-time, that involve working under short-term contracts doing consulting, freelance, project-based, or other work. A common example is drivers for ride services such as Uber and Lyft who work when they want to and are needed. As mentioned at the start of this chapter, an increasing number of workers in the U.S. and elsewhere participate in the gig economy, either by choice or necessity. Gig workers in the U.S. are disproportionately minority and young, with relatively low incomes. While most gig workers describe their work as a side job, more than half say the extra income is “essential” or “important” for meeting their basic needs.56 The majority of gig workers in the U.S. are satisfied with their work, but gig workers are less likely to have employment benefits such as paid vacations and health care.57 The COVID-19 pandemic led to a significant increase in the number of gig workers, as the demand for services such as food delivery increased. For more on the impact of the pandemic on labor markets, see Box 9.3. Employment “flexibility” from the perspective of the employer generally refers to having more control over setting workers’ hours and pay, offering few or no benefits, and being able to terminate employees quickly and without fuss. Laws that regulate DRAFT how easy it is to terminate employees can affect a firm’s hiring decisions. For example, labor law changes instituted in France in 2016 gave firms greater discretion when laying off or firing employees.58 The rationale was that it had become so difficult to terminate employees in France that firms were hesitant to hire new workers, especially in response to temporary economic improvements that might necessitate layoffs later. It is likely that a desire for flexibility from the employer perspective is driving the gig economy at least as much as the demand side by workers. By hiring contract workers, employers avoid providing benefits such as health care and retirement plans. Workers paid as consultants bear the full burden of social insurance taxes, while firms must contribute half of these taxes for regular workers. Firms can also adjust the hours of gig workers, or terminate them, as economic conditions change, much easier than with traditional employees. BOX 9.3. THE GREAT RESIGNATION Starting in early 2021 unprecedented numbers of workers in the United States, Germany, the United Kingdom, China, and other countries began quitting their jobs. Over 40 percent of the global workforce considered leaving their jobs in 2021, an effect dubbed “the Great Resignation.”59 Some of the resignations represent people who wanted to quit during the depths of the COVID-19 pandemic but were hesitant given uncertainty about the future. But the main factor seems to be that many workers are rethinking what they want out of their jobs as the economy recovers from the pandemic.60 Employees in many sectors became accustomed to the advantages of remote work during the pandemic and are refusing to return to inperson jobs. Many women, in particular, are seeking long-term jobs where they can combine telework with household production such as raising children. Other workers are quitting as a result of stress and burnout during the pandemic and are seeking a better work-life balance. The Great Resignation is not universal throughout the workforce. In the United States, it is being driven by middle-aged workers, while resignation rates are actually down for the youngest and oldest workers. Resignation rates are also down in the manufacturing sector, but up significantly in the retail, health care, and technology sectors. Preliminary data suggest that blue-collar workers are quitting largely to seek higher wages, while white-collar workers are quitting to seek more flexible work arrangements.61 While it’s unclear yet whether resignation rates will remain at historically high levels, most labor experts believe the COVID-19 pandemic has produced long-term changes in labor markets. Professor Isabell Welpe, of the Technical University of Munich, states that “how we organize work and work together will not return to the way it was before the pandemic.” She sees a large-scale transition towards hybrid work, where employees might come to an office only one or two days per week, while working remotely the majority of the time.62 3.3 LABOR MARKETS AND IMMIGRATION One of the most controversial topics in discussions of labor markets and wages is the impact of immigration, particularly the immigration of workers seeking low-wage jobs. According to the neoclassical labor model, an influx of unskilled workers willing to work for relatively low wages (an increase in labor supply) will drive down equilibrium wages in markets for unskilled labor and displace some domestic workers. But greater labor DRAFT supply may also increase economic output and productivity. Another question is whether immigrants contribute sufficient tax revenue to finance their use of public services. Most economists find that immigration into the United States does not have a negative impact on the wages of most U.S.-born workers.63 In many cases, immigrants and native-born workers do not compete for the same jobs and may actually complement each other. For example, low-skilled immigrants tend to be concentrated in sectors such as agriculture and hospitality, with native-born workers concentrated in other sectors of the economy. Also, immigrants’ demand for goods and services supports many jobs, driving up wages in some labor markets. Overall, most economists conclude that immigration leads to a slight increase in wages for U.S.-born workers, although some studies find a negative impact for U.S.-born workers without a high school degree. According to researchers at the University of Pennsylvania, immigration into the United States has the following impacts on the economy, workers, and taxes:64 • • • Immigrants mainly compete in labor markets with other immigrants. Thus, while wages for U.S.-born workers do not decrease, an influx of immigration drives down wages for those immigrants already in the country. Overall, immigrants increase innovation as they account for a disproportionate share of patents, science graduates, and senior positions at top venture capital firms. For the entire nation, immigration (including undocumented immigration) improves the government’s fiscal balance as immigrants pay more in taxes than they consume in government services. However, some states with a large concentration of low-skilled immigrants are negatively impacted, as such immigrants pay less in taxes and use more public services, particularly education. Perhaps the most comprehensive analysis of the impact of immigration on the U.S. economy is a 2017 report by the National Academies of Science, Engineering, and Medicine.65 Over 600 pages in length, it reviews hundreds of studies on the topic. Like the above studies, it concludes that immigration has little impact on the wages or employment levels of native-born Americans. Low-skilled immigrants reduce prices for consumers in certain sectors, including childcare, construction, and house cleaning. As immigrants tend to be younger than average Americans, they also help balance the overall aging of the American population. A recent consensus has also emerged that educated immigrants actually increase the wages of native-born workers, based on the productivity gains resulting from innovation and worker interactions. Current immigrants tend to be, on average, more educated than earlier waves of immigrants. The report concludes that the “prospects for long-run economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants.”66 Note that the above analyses consider immigration as a whole, both documented and undocumented. Much of the political debate on immigration, in contrast, focuses almost exclusively on undocumented immigrants. Economic research has found that undocumented immigrants depress the wages of native-born workers without a high school degree, by between 1 and 7 percent.67 But the net impact on the country is generally positive, for several reasons. With undocumented workers concentrated in low-skilled positions, other workers focus on higherproductivity tasks. According to the Congressional Budget Office, between 50 and 75 DRAFT percent of undocumented workers pay taxes.68 The consensus among economists is that undocumented workers pay more in taxes than they receive in public services. At the federal level, they clearly subsidize Social Security, contributing about $15 billion per year but receiving only about $1 billion, as most are ineligible for Social Security benefits.69 But undocumented workers impose net costs on state and local governments, mainly due to education and health care spending. The CBO concludes, however, that spending by state and local governments on undocumented workers “represents a small percentage of the total amount spent by those governments to provide such services to residents in their jurisdictions.”70 3.4 COOPERATIVES Much of the discussion in this chapter has assumed a working arrangement in which the goals of the “employee” do not necessarily align with those of the “employer.” For example, we discussed how “flexibility” can mean very different things to employees and employers. In most companies, top executives seek to maintain (or increase) worker productivity while lowering wage costs, as it leads to higher profits. From the perspective of workers, however, increases in wages are seen as desirable, and workers may have little concern for the profitability of the company. Worker cooperatives are an alternative kind of firm organization that seeks to reduce or eliminate the potential for labor conflicts by arranging that the owners of the enterprise are the workers themselves. Worker cooperatives are sometimes viewed as a “third way” of labor organization, in contrast to for-profit companies and government-run enterprises. The organizational structure of worker cooperatives can vary, but in a typical cooperative every worker is also an owner. Worker cooperatives normally do seek to make a profit, and any profits are distributed among the workerowners (in addition to receiving wages or a salary). Some workers may hold more ownership shares than others and thus receive a greater share of profits, perhaps because of seniority, but in many cooperatives all workers have equal ownership shares. Important decisions are generally voted upon by all worker-owners, including decisions about wages, working hours, and benefits. Despite any differences in ownership shares, decisions are typically made on a “one person, one vote” basis. worker cooperatives: a labor arrangement in which the owners of an enterprise are the workers themselves Worker cooperatives arose as an alternative labor framework during the Industrial Revolution. Cooperatives are found throughout the world, the most famous being the Mondragón Cooperative Corporation in the Basque region of Spain, founded in 1956. Mondragón consists of more than 250 separate cooperatives with a total of about 75,000 worker-owners.71 Some of the differences between Mondragón and a typical capitalist company can be described as follows: One of the co-operatively and democratically adopted rules governing [Mondragón] limits top-paid worker-members to earning 6.5 times the lowestpaid workers. Nothing more dramatically demonstrates the differences distinguishing this from the capitalist alternative organization of enterprises. . . . [I]ts pay equity rules can and do contribute to a larger society with far greater income and wealth equality than is typical in societies that have chosen capitalist organizations of enterprises. Over 43 percent of members are women, whose equal powers with male members likewise influence gender relations in society different from capitalist enterprises.72 DRAFT Italy has about 8,000 worker cooperatives, and France has nearly 2,000. In India, the India Coffee House is a cooperative restaurant chain with nearly 400 locations.73 In the United States, the U.S. Federation of Worker Cooperatives, whose membership comprises nearly 100 cooperatives representing 6,000 workers, promotes cooperative formation, advocacy, and development.74 One example of a successful worker cooperative in the United States is the Evergreen Cooperatives in Cleveland, OH, based in a low-income neighborhood and providing living wage jobs. The cooperative’s main business is an environmentally conscious laundry facility that provides service to local hospitals.75 Based solely on economic performance such as worker productivity, the evidence suggests that worker cooperatives can perform at least as well as traditional capitalist companies.76 According to a 2011 paper that studied Mondragón, cooperative member-owners tend to be better paid than their peers in comparable firms, with greater opportunities for involvement and training.77 Although the cooperative labor framework is a “viable and possibly even superior alternative” to the traditional capitalist firm, it is not a “universal panacea” either. For example, job satisfaction was lower in cooperatives than traditional firms, perhaps a reflection of higher worker expectations. Obviously, estimating the overall impact of worker cooperatives on well-being requires a multifaceted analysis in which all factors cannot be easily quantified. 3.5 WORK–LIFE BALANCE Paid work can both enhance and reduce well-being. But even for those who truly enjoy their work, a balance is needed between working and other activities that enhance well-being. Various recent studies demonstrate a positive correlation between work-life balance and subjective wellbeing. For example, a 2018 study asked over 30,000 workers in South Korea how well their work hours fit in with their commitments outside of work.78 Those with a better work-life balance reported higher subjective wellbeing. A 2019 study of workers in Pakistan also found that those who were more satisfied with their work-life balance reported higher average subjective wellbeing.79 Similarly, a positive correlation between work-life balance and SWB has been obtained in the United Kingdom,80 China,81 and Indonesia.82 Recall from Box 1.2 that work-life balance is one of the 11 dimensions included in the Better Life Index. The BLI measures work-life balance using two variables: the percent of employees that work very long hours (50 or more hours per week) and the daily amount of time full-time workers devote to personal care (sleeping, eating, etc.) and leisure. The share of workers that work more than 50 hours per week is 25 percent in South Korea, 18 percent in Japan, 11 percent in the United States, 4 percent in Germany, and only 1 percent in Sweden. The top five countries ranked by work-life balance are the Netherlands, Italy, Denmark, Spain and France, with the United States ranking 29th out of 40 countries. Another variable commonly used to assess work-life balance is the average amount of time a worker spends working. In the United States, workers spend an average of about 35 hours per week on the job.83 While workers in low- and middleincome countries tend to work the most hours per year, Americans work more hours per year, on average, than most other industrialized countries, as shown in Figure 9.10. Americans work, on average, about 120 hours more per year than Canadian workers, 370 hours more than French workers, and 440 hours more than German workers. Note that the difference between American and German workers equates to 11 full 40-hour workweeks per year! DRAFT National policies regarding paid vacation and holidays explain much of the differences shown in Figure 9.10. The United States is the only OECD nation, and one of the only countries globally, that does not require employers to provide any paid vacation time or holidays. Meanwhile, national laws entitle all employees to at least 13 paid days off per year in Mexico, 16 days in China, 22 days in Brazil, 30 days in Germany, and 36 days in France.84 Movements in Europe toward shorter standard working hours have often been motivated by macroeconomic considerations, with the goal of reducing unemployment. Also, unions tend to be more prominent in European countries, effectively advocating for workers’ rights. Even when American workers are able to take paid vacations, many do not fully utilize them over concerns about falling behind or appearing unproductive. According to one survey, more than half of U.S. workers who receive vacation days use half or less of their available time off. And even when Americans do take time off, most indicate that they end up doing some work during their vacations.85 Research has shown that the well-being benefits of vacations include reduced stress, lower risk of heart disease, improved mental health, and even better relationships.86 Figure 9.10. Average Annual Hours Worked, Select Countries, 2020 Source: OECD, OECD.Data, “Hours Worked.” The United States is also the only industrialized nation that does not mandate employers to provide paid leave to new parents. According to the Family and Medical Leave Act of 1993, U.S. workers are entitled to up to 12 weeks of unpaid time off to care for a new child, or for a personal or family medical reason. But workers in other nations receive paid time off for these reasons, and for much longer periods. For example, in France new mothers are entitled to 42 weeks of leave at an average of 45 percent of their normal salary. In Germany new mothers receive 58 weeks off at 73 percent of their normal salary.87 Many nations also allocate some paid parental leave specifically to fathers. Japan entitles new fathers up to 30 weeks of paid parental leave, while Norway, Portugal, and Iceland provide them with around two months of paid leave.88 DRAFT 3.6 LABOR MARKETS, INEQUALITY, AND POWER In Section 2 we explored various theories regarding wage differences across workers and occupations. In this final section, we consider labor markets in a broader context of the business sphere and political power. For example, how much do firms pay their workers as compared to what they pay to top executives, and how much do they claim in profits? Figure 9.11 repeats a graph that we presented in Chapter 0, showing the time trend for real (inflation-adjusted) median weekly wages and corporate profits in the United States from 1980 to 2020. After adjusting for inflation, median weekly wages in 2020, around $980, were only about 20 percent higher than they were in 1980. Meanwhile, corporate profits (also adjusted for inflation) nearly tripled, reaching more than $2 trillion. One interpretation of Figure 9.11 is that the economic gains in the business sphere over the last several decades were almost entirely “captured” as profits to corporations rather than wage increases for workers. Some rough calculations suggest that if half of the increase in corporate profits from 1980 to 2020 had instead been allocated to increasing employees’ wages, workers’ incomes would be at least 10 percent higher than they are today. As we will see in the next chapter, the stagnation of workers’ wages is a leading reason for the increase in economic inequality in the United States since the 1970s. Historical data indicate that American workers fared much better earlier in the twentieth century. According to the U.S. Census Bureau, real average annual earnings increased by a factor of about four between 1900 and 1970.89 During the 1970s real earnings essentially stopped increasing. Household income continued to increase slightly beyond the 1970s, only because more people per household entered the labor force. Figure 9.11. Real Median Weekly Wages Versus Real Corporate Profits, United States, 1980–2020 Sources: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data. DRAFT Figure 9.11 suggests that corporations have effectively been able to increase their profits dramatically in the past few decades without having to pay their workers higher wages and salaries. Meanwhile, the incomes of management executives, particularly those at the very top, have soared. The average compensation of chief executive officers (CEOs) of large U.S. corporations in 1965 was 20 times the pay of an average worker. But in 2020, CEO average compensation stood at 351 times the pay of an average worker!90 Are CEOs really worth so much more today than they were 50 years ago, as a result of an increase in their marginal revenue product? Nobel Prize-winning economist Joseph Stiglitz notes that the evidence for extremely high CEO incomes accurately reflecting the marginal revenue increases the executives earn for their companies “remains thin.”91 It is much more likely that these trends indicate a shift in economic power, away from workers and toward corporate profits and executive compensation. American workers have lost economic power as a result of various factors, including globalization and technological change. Globalization has allowed corporations to outsource labor needs to low-wage countries such as China, India, and Bangladesh, reducing the demand for domestic workers. Similarly, technological changes have also reduced the demand for some workers, as many tasks can now be done by robots or computers. In the next chapter we will further discuss the role of globalization, technological change, and labor unions in explaining recent trends in economic inequality. Economic power is closely related to political power. Prior to the 1970s, corporate influence on American politics was more limited, with lobbying by corporations that was partly balanced by the efforts of labor unions and organizations advocating for broader public interests. But the balance of political power began to shift dramatically in the 1970s and 1980s as corporations ramped up their lobbying efforts: [B]usiness lobbying has built itself up over time, and the self-reinforcing quality of corporate lobbying has increasingly come to overwhelm every other potentially countervailing force. It has also fundamentally changed how corporations interact with government—rather than trying to keep government out of its business (as they did for a long time), companies are now increasingly bringing government in as a partner, looking to see what the country can do for them.92 Thus, the explanation for the stagnation of median wages in Figure 9.11 is found in a mix of both market forces and political power. Both sides of the political spectrum discuss the importance of increasing wages for “middle-class Americans.” But what policies could be instituted to foster broadly shared wage growth? According to a 2015 paper, “the potential has existed for adequate, widespread wage growth over the last three-and-a-half decades, but these economic gains have not trickled down to the vast majority.”93 The authors conclude that this unequal distribution of economic gains is primarily a result of various policies, and that reversing this trend will necessitate policy changes, including: • Increased public infrastructure investment: It is widely recognized that the United States faces a shortfall of investment in transportation, research, education, and other infrastructure. Public spending on such projects could create many well-paying jobs. DRAFT • • • • • • Targeted employment programs: Low wages and high unemployment are concentrated in certain regions of the United States, normally with large minority populations. Government policies to create decent jobs could be focused on such regions. Raising the minimum wage: Adjusted for inflation, the minimum wage in the United States is about 30 percent below its 1968 level! We will further discuss the debate about the minimum wage in the next chapter. Policies that strengthen rights to collective bargaining: The authors conclude that the decline of collective bargaining power by labor unions is the “single largest factor suppressing wage growth for middle-wage workers over the last few decades.” Increasing the rights of undocumented workers: As undocumented workers are often subject to exploitation and low wages, the authors suggest that expanding their rights, including a path to citizenship, would lead to higher wages. Providing more paid leave: As we saw earlier in the chapter, the United States lags far behind most other nations in providing workers paid time off for parental leave. Reducing race and gender wage inequality: The authors argue for stronger enforcement of anti-discrimination laws regarding the hiring, promotion, and wages of women and minority workers. These or other policies aimed at increasing equity and raising wages involve a number of different areas of economic analysis. In the next chapter we look in more detail at the overall issue of economic inequality. In Chapter 11 we focus on taxes, which have a significant impact on income distribution. And we return to the issue of corporate power in Chapter 17, where we look at the relationship between market power and profit maximization. Discussion Questions 1 What evidence have you seen—in your own experience, others’ experiences, or through the media—of increasing “flexibility” in labor markets? Do you think that these changes have been beneficial, harmful, or both? 2 Do you think that the relative wages of average workers and top executives reflect their respective marginal revenue product? What kinds of policies would you favor regarding worker pay and executive compensation?