How U.S. policy was designed to suppress wages (with Larry Mishel and Josh Bivens)

Episode Summary

Executive Summary: The episode argues that U.S. inequality and wage stagnation over the last 40 years were not inevitable results of technology or globalization, but the measurable outcome of policy choices that shifted bargaining power from workers to employers and capital owners. EPI researchers explain that excess unemployment, union weakening, flawed trade rules, and related labor-market policies account for most of the gap between productivity and pay, and that these outcomes can be reversed through policy change.

Main Topics: From inequality measurement to explaining its causes (Priority: 5/5): The hosts frame RAND’s finding that the bottom 90% would have earned vastly more under stable inequality, then shift to EPI’s new work explaining the policy-driven causes behind that lost income. Productivity-pay divergence since 1979 (Priority: 5/5): Researchers show productivity rose far faster than typical workers’ compensation, breaking the postwar pattern where wage gains tracked economic growth. Policy-driven wage suppression (Priority: 5/5): The episode identifies deliberate policy choices—especially labor-market slack, union suppression, and trade policy—as the main drivers of wage suppression. Debunking common narratives (Priority: 4/5): The guests reject the idea that automation, globalization, or a skills gap primarily caused inequality, arguing those stories do not match the evidence. Minimum wage, labor standards, and hidden forms of worker loss (Priority: 4/5): The discussion expands beyond unions and unemployment to minimum wage stagnation, misclassification, overtime erosion, fissuring, and forced arbitration. Reversibility and current policy direction (Priority: 4/5): The guests argue the trend is reversible and point to the Biden administration’s labor and macroeconomic stance as a meaningful shift toward worker power.

Key Arguments: Inequality increased because policy choices intentionally redistributed leverage from workers to capital owners and top management, not because of impersonal economic forces. Between 1979 and 2017, productivity rose much faster than median compensation, showing workers did not share in the gains they helped create. Excess unemployment was used or tolerated as a tool to weaken bargaining power and suppress wage growth. Union decline was a major factor because unions raised wages directly and indirectly pressured nonunion employers to pay more. Trade agreements were structured to expose U.S. frontline workers to global competition while protecting corporate profits and high-end professionals. The minimum wage’s long stagnation especially harmed low-wage workers and widened inequality at the bottom. Automation and skills-gap explanations are not supported by the evidence; college wages did not rise enough, and automation investment was slower than commonly claimed. The U.S. stands out among advanced economies for the scale of wage inequality and labor’s declining share, suggesting domestic policy choices mattered more than globalization alone. The recent policy shift toward tighter labor markets, union support, and stronger labor standards shows inequality is not inevitable and can be reversed.

Data Points: Bottom 90% lost earnings: $50 trillion - RAND estimate of how much more the bottom 90% would have earned over 40 years if inequality had not widened Productivity growth (1979-2017): 56% - Growth in productivity net of depreciation over the period analyzed by EPI Median hourly compensation growth (1979-2017): 13% - Growth in typical worker compensation over the same period Productivity-pay gap: 43 percentage points - Difference between productivity growth and median compensation growth Median hourly compensation in 2017: $23.15 - Actual compensation for a typical worker in 2017 Implied hourly compensation without divergence: $33.10 - Estimated hourly pay if workers had received the full benefit of productivity growth Hourly compensation loss: $10.10 per hour - Difference between actual and projected typical-worker pay in 2017 Annual income loss: About $20,000 per worker per year - Approximate lost income for a full-time, full-year worker based on the wage gap Household income loss: Over $41,000 per two-worker household per year - Illustrates the household-level impact of lost wage growth Unemployment average, 1979-2019: 6.2% - Average unemployment rate during the post-1979 period discussed Unemployment average, prior 30 years: 5.2% - Average unemployment rate in the earlier postwar period used as comparison Natural rate of unemployment: About 5.2% - The CBO estimate referenced as a benchmark for long-run unemployment Effect of each 1-point unemployment increase: 0.3 to 0.5 percentage points slower wage growth - Estimated impact on median worker wage growth Top 1% wage growth since 1979: 165% - Evidence used to counter the automation-only explanation Top 0.1% / top 1,000 wage growth since 1979: 340% - Shows extraordinary gains at the top of the distribution Wage gap explained by major policy drivers: Well over half - Combined effect of unemployment, union decline, and globalization terms Total divergence explained by quantified policies: At least three-fourths - EPI estimate of how much of the pay-productivity gap its policy accounting can explain Minimum wage today: $7.25/hour - Current federal minimum wage cited as evidence of long-term stagnation Tipped minimum wage: $2.13/hour plus tips - Current tipped worker wage floor referenced in the discussion

Pivotal Quotes: "the why was the direct and measurable effect of a bunch of very specific policy decisions made along the way in recent decades" — Nick Hanauer: Opening framing of the episode’s central thesis about inequality "the reason why that wedge developed... was the direct and measurable effect of a bunch of very specific policy decisions made along the way in recent decades" — Josh Bibbins: Explanation of how EPI attributes wage-productivity divergence to policy "This is not paying-ups. You know, this has really mattered." — David Goldstein: Emphasis on the scale and real-world importance of the lost wage growth

Implications: The episode suggests inequality is a policy choice, not a fixed feature of modern economies. Rebuilding worker power, maintaining low unemployment, and strengthening labor standards could materially raise wages and reverse decades of redistribution upward.