www.nytimes.com /2020/06/24/opinion/wages-coronavirus.html

Opinion | Why Do We Pay So Many People So Little Money?

By Thomas B. Edsall
15-18 minutes

The coronavirus pandemic is forcing America to confront its epidemic low-wage problem.

Mr. Edsall contributes a weekly column from Washington, D.C. on politics, demographics and inequality.

Credit...Brittany Newman/The New York Times

With notable abruptness, thanks to the advent of the coronavirus, much of the public has become aware of its dependence on hospital orderlies, cleaners, trash collectors, grocery workers, food delivery drivers, paramedics, mortuary technicians, and postal, shipping, maintenance, wastewater treatment, truck stop and mass transit employees — on what, to many, had been a largely invisible work force.

As Tony Powell, a 62-year-old hospital administrative coordinator, told Molly Kinder, a fellow in the Brookings Metropolitan Policy Program, in a taped interview in May:

People are not looking at people like us on the lower end of the spectrum. We’re not even getting respect. That is the biggest thing: we are not even getting respect. Nobody is listening to their voices. Maybe they’ll wake up and see: Oh, these are the people that are actually taking care of the people that need to be taken care of.

A paper published that same month, “The Declining Worker Power Hypothesis,” by Anna Stansbury and Lawrence H. Summers, economists at Harvard, describes conditions on the bottom rungs of the job market:

The American economy has become more ruthless, as declining unionization, increasingly demanding and empowered shareholders, decreasing real minimum wages, reduced worker protections, and the increases in outsourcing domestically and abroad have disempowered workers — with profound consequences for the labor market and the broader economy.

And a state-by-state survey conducted by Business.org found that “Nationwide, essential employees earn an average of 18.2 percent less than employees in other industries.” Interestingly, the largest disparities between the pay of essential workers and all other workers were in Democratic jurisdictions, including Massachusetts at 25.4 percent; Rhode Island, 26 percent; Virginia, 27.6 percent; Maryland, 28.6 percent; Connecticut, 29.2 percent; and the District of Columbia, at 47.2 percent.

Recognition of the disadvantages faced by essential workers has, in turn, shed light on the broader challenges of the entire low-wage job market.

A 2019 Brookings report, “Meet the low-wage work force,” warns that “low-wage workers risk becoming collateral damage.”

The authors of the report, Martha Ross and Nicole Bateman, both of the Brookings Metropolitan Policy Program, calculated that “more than 53 million people — 44 percent of all workers aged 18-64 — are low-wage workers by our criteria. They earn median hourly wages of $10.22 and median annual earnings of $17,950.”

Ross and Bateman determined that, nationally, low wage workers are 52.4 percent white, 14.8 percent black and 24.9 percent Hispanic, compared with a middle and high wage work force that is 70.6 percent white, 9.9 percent black and 11.4 percent Hispanic.

Many low-wage workers face an ongoing struggle, but there are substantial roadblocks to proposals to improve their standing: decades of declining worker bargaining power, including the near elimination of private sector unions; the automation and offshoring of manufacturing; as well as tax policies favoring corporations and the rich and policies described as “biased against labor and in favor of capital.”

So far, the forces unleashed by the pandemic and the accompanying economic collapse have inflicted the highest level of job losses and reduced hours on those getting paid the least, although government spending under the Coronavirus Aid, Relief, and Economic Security Act has temporarily staved off some of the most dire consequences.

Walter Scheidel, a Stanford professor of classics and history, argues that the likely outcome of the current crises will be the “preservation of the status quo,” adding “the forces that seek to maintain plutocratic and corporate dominance are very powerful and influential.”

In “Covid-19 will raise inequality if past pandemics are a guide,” Davide Furceri, Prakash Loungani and Jonathan D. Ostry, economists at the International Monetary Fund, and Pietro Pizzuto, an economist at the University of Palermo, write:

Major epidemics in this century have raised income inequality, lowered the share of incomes going to the bottom deciles, and lowered the employment-to-population ratio for those with basic education but not for those with advanced degrees.

How serious is the problem? Daron Acemoglu, an economist at M.I.T. and co-author of “The Narrow Corridor,” emailed me: “Low-wage workers are doing really badly and this will destroy our society.”

Some of the more obvious solutions, however, pose the danger of creating unanticipated, adverse incentives, according to Acemoglu:

Raising the minimum wage and protecting these workers by safety regulations and by increasing their bargaining power would help some, but is not a comprehensive solution. In today’s technological environment and business environment, if you raise the minimum wage, firms will go more in the direction of automating those jobs. Low-wage workers will be the losers.

Despite that, Acemoglu wrote in his email:

Even with those adverse consequences, a moderate increase in the minimum wage would be beneficial and I support it. However, I don’t think it would be possible to create plentiful ‘good jobs’ in the US economy by just increasing the minimum wage and if you were to increase the minimum wage by more than a few dollars, then it would backfire even more.

I asked whether rising wages resulting from increased unionization have the same effect. Acemoglu replied that his research with Pascual Restrepo, an economist at Boston University, shows that:

“Countries with greater unionization rates adopt more robots, presumably because unions raise labor costs.”

Grace Lordan and David Neumark, economists at the London School of Economics and the University of California, made a similar case about the minimum wage in their 2017 paper “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs”:

Based on Current Population Survey data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become nonemployed or employed in worse jobs.

While earlier studies suggested that low-wage work was insulated from automation, more recent studies show that that is no longer the case.

In “Automation and Artificial Intelligence: How machines are affecting people and places,” three researchers at Brookings, Mark Muro, Robert Maxim and Jacob Whiton, report that “the highest potential for future automation of current tasks is concentrated among the lowest wage earners, reflecting increased projected inroads of automation into the large service sector.”

The accompanying graphic shows how the lowest paying jobs are most exposed to automation.

In their “The Declining Worker Power” paper, Stansbury and Summers, who served as a top economic official under both President Bill Clinton and President Barack Obama, describe both how this loss of power has driven the expansion of low-wage employment and the structural problems facing those seeking to restore labor’s bargaining power.

Overall, they argue,

the decline in worker power is one of the most important structural changes to have taken place in the U.S. economy in recent decades.” In the past, they write, worker power, “arising from unionization or the threat of union organizing, firms being run partly in the interests of workers as stakeholders, and/or from efficiency wage effects, enabled workers to increase their pay.

As private sector union membership has nose-dived from about 35 percent of the work force in the 1950s to 6 percent today, the “net value added in the nonfinancial corporate business sector” going to labor has fallen from 12 percent as recently as the early 1980s to 6 percent in this decade.

Not only has the majority of lost sources of income fallen on “middle- and low-income workers more than high-income workers,” but “some of the lost labor rents for the majority of workers may have been redistributed to high-earning executives, as well as capital owners,” according to Stansbury and Summers.

This upward redistribution of income, according to the authors’ “back-of-the-envelope” calculations, “could account for a large fraction of the increase in the income share of the top 1 percent over recent decades.”

What can be done to remedy this situation? Stansbury and Summers write:

If increases in the labor share are to be achieved, institutional changes that enhance workers’ countervailing power — such as strengthening labor unions or promoting corporate governance arrangements that increase worker power — may be necessary.

But, they pointedly note, these initiatives “would need to be carefully considered in light of the possible risks of increasing unemployment.” More elliptically, they warn that “doing more to preserve rent-sharing interferes with pure markets and may not enhance efficiency.”

There may, however, be other ways to improve the income of low-wage workers without raising the already high threat level of automation.

Betsey Stevenson, an economist at the University of Michigan, argued in an email that raising and expanding eligibility for the Earned-income tax credit would be an effective way to immediately raise income of poorly paid workers.

The credit, a government subsidy paid through the redistribution of tax revenues, does not, in this view, create an incentive for employers to automate or off-shore since corporate wage costs do not increase:

“The Earned-income tax credit is a very effective way to increase both incomes and labor force participation. There has been bipartisan support for expanding the EITC to childless and noncustodial parents for years,” Stevenson wrote.

She cited studies showing that the tax credit paid to low-income families results in more work effort among beneficiaries and better school outcomes for their children.

There may be, in addition, less direct but effective proposals to improve conditions for those in the bottom ranks of the wage distribution.

Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research, a liberal think tank, wrote that “on the short-term side, I would put universal child care and extending Medicaid. These can both be phased in fairly quickly and would make a big difference for lots of people.”

Baker argued that he supports “equalizing opportunity by reducing the barriers that block progress for African- Americans,” but “I have been around long enough to be a bit cynical about the prospects.”


“Currently 5 percent of doctors in the U.S. are black,” Baker wrote.

If we are really successful, in twenty or thirty years maybe we will get that figure up by 50 percent to 7.5 percent of doctors being black. That would still only be a bit more than half of their share of the population.

Instead, Baker suggested, the focus should be on a reduction of “the gap in pay between doctors and nurses, nurse’s assistants and home health care workers, jobs that are much more likely to be held by blacks,” which would “make far more difference in the well-being of the African-American community.”

Jay Shambaugh, director of the Hamilton Project, an economic policy initiative within the Brookings Institution, made the case in an email for a sliding-scale direct federal subsidy to low wage workers so that “a $10 an hour worker gets 7.50, a $15 an hour worker gets $5 and a $25+ worker gets zero.”

He noted that

as unions declined in power, and firms got better at using their market power in the labor market (e.g. consolidation leaving fewer competitors for workers, use of noncompete contracts that now cover 15-20% of workers) firms have wound up with a larger share of the pie and had less incentive to invest in worker training because they can employ people cheaply.

I asked Shambaugh and others whether the U.S. economy has in some ways become vested in a low-wage work force. Shambaugh contended that “the honest answer is no. It is just the path of least resistance.”

A wide-ranging examination of the forces shaping the job market, “Improving Employment and Earnings in 21st Century Labor Markets” — by Erica L. Groshen, a labor economist at Cornell, and Harry J. Holzer, a professor of public policy at Georgetown — draws darker conclusions, suggesting that current trends are more deeply embedded in the system than what Shambaugh calls the “path of least resistance.”

Groshen and Holzer describe possible reforms, but their tone is pessimistic:

The forces of automation and globalization are not likely to subside any time soon, potentially leading to further flat wages, rising inequality and lower labor force participation.

And, “all else equal, these forces suggest ongoing rising wage inequality in the future.”

Or, for example:

The high and uncompensated costs borne by U.S. displaced workers suggest that current policy and employer actions are insufficient to manage the likely future pace of job destruction without harm to families and communities.

Could things look up?

Wendy Edelberg, also a director of the Hamilton Project, noted in an email that reform will require changing the thinking of some key players. “Economists have seemed to take as inevitable the gap between wages for low and high-skill jobs,” she wrote. But that gap has, at least in part, been driven by policy decisions.” Adverse policies, she wrote, range from those “making it more difficult for private-sector workers to unionize; to weakness in our education system and technical training; to massive incarceration rates; to a failure to raise the minimum wage.”

All are subject to change by elected officials and, she argued, “fixing some of those policies would help right away.”

Edelberg makes the case that

the pandemic has shone a spotlight on the critical importance of low-skill work. As a society, we must choose to value all workers — particularly those who are keeping essential services going right now on the front lines while so many others work remotely in the safety of our homes.

The reality, as Michael Podhorzer, the assistant for special research to Richard Trumka, the president of the AFL-CIO, told The New Yorker, is that “We are in a moment of extreme crisis if you’re a working person.”

This is the kind of crisis that can push the nation to the right or left, or, back to the anxious and unsatisfactory normalcy of a country locked into inaction by polarization. Even more threatening is what happened in Georgia on June 10, where Democrats saw a systematic effort to disenfranchise the electorate.

The state’s voting system “suffered a spectacular collapse, leading to absentee ballots that never got delivered and hourslong waits at polling sites,” The Times reported, noting that

Georgia is being roiled by a politically volatile debate over whether the problems were the result of mere bungling, or an intentional effort by Republican officials to inhibit voting.

Donald Trump and the Republican Party clearly see Georgia as a model, and they are determined to capitalize on the pandemic to suppress the vote and conduct an overtly anti-democratic election on Nov. 3. If they have their way, one of the first targets of suppression will be the essential work force that has learned better than anyone the severity of the damage than can be inflicted by a Trump administration.