Worried About Growing Inequality? It's Time to Attack Wage Stagnation and Discrimination

What's happening with wages is essentially connected to every form of economic inequality.

Valerie Wilson is Director of the Program on Race, Ethnicity and the Economy and economist at The Economic Policy Institute. (National Journal)

Economic inequality has risen to the top of our national dialogue in recent years, garnering a lot of attention in the media, as well as from local and national leaders. This heightened interest in inequality has developed because economic insecurity is touching more and more people — not just the poor or historically disadvantaged — in a very real way. Though most of the attention has been focused on growing gaps in income and wealth, as well as how difficult it has become to climb the economic ladder, much less has been said about a more basic reality facing people every day: After accounting for inflation, most Americans' hourly wages have grown very little in the last three and a half decades.

What's happening with wages is essentially connected to every form of growing economic inequality. The main source of income for the majority of American households comes from the money earned at jobs. This is the money Americans use to meet basic living expenses and to save for down payment on a home, college tuition, or retirement.

This is especially true for African-American and Latino workers who generally have fewer assets and rely almost exclusively on their paychecks to support themselves and their families. Therefore, anyone concerned about eliminating economic inequality — everything from disparities in income and wealth to gulfs in opportunity and mobility — must also be concerned about wage growth and eliminating racial wage gaps. Granted, broad-based wage growth is not a complete panacea for all racial disparities in economic outcomes. Wealth, the value of cash and assets that a household owns after accounting for debt, is lower for the vast majority of black and Latino workers even when compared with white households with similar incomes. But broad-based wage growth would help to narrow persistent wealth, opportunity, and mobility gaps.

A report released by the Economic Policy Institute this month documents the fact that since 1979, wages have grown slower than productivity for everyone except the top 5 percent of workers. That means a very large majority of workers have reaped fewer of the economic rewards they helped to produce over the last 34 years. Most of it has gone to those at the very top of the wage scale. As there has been an ever-shrinking share of the pie for the majority of workers to divide, African-Americans and Latinos have gotten only crumbs and racial wage gaps have remained stubbornly hard to close.

Racial wage inequality is commonly measured by the ratio of African-American (or Latino) wages to white wages. In 1979, the median black worker earned 83 cents for every dollar paid to the median white worker. The situation has not improved, but worsened since then. In 2013, the median black worker took home just 77 cents on the dollar. For the median Hispanic worker, that gap has gone from 81 cents on the dollar to a shocking 69 cents on the dollar.

These gaps mean than on average, the work done by black or Latino workers is valued at less than the work done by white workers. Differences in pay are partially explained by disparities in education, experience, or the kinds of jobs held by workers of color relative to whites. Yet, even when these characteristics are the same, differences in pay still exist. This remaining gap is very likely the result of ongoing discrimination — paying workers of color less for the same work.

One of the reasons that the racial wage gap has continued to expand is the fact that very few people of color receive salaries that rank them among the top 5 percent of earners, where most wage growth has been concentrated. The other part of racial wage inequality is related to the fact that even within other wage groups all along the scale, there's often a difference between what people of color make relative to whites.

After a brief period in the late 1990s in which black worker's wages began to accelerate at a clip faster than those of white workers due to historically low unemployment, the old pattern returned.The growth of racial wage inequality has continued despite the fact that African-American and Latino workers have collectively achieved more education, an act that typically boosts wages. For workers of color, more education generally brings higher wages than those earned by those with less education, but it has not necessarily resulted in wages equal to those paid to white peers.

Addressing the problems of stagnant wages and racial wage inequality involves a number of tactics. On one hand, we must make creating good, family-supporting jobs and faster wage growth for the vast majority of workers the central focus of policymaking. This includes things like raising the minimum wage, updating overtime rules so that as many as 10 million more workers would be eligible, creating new work-scheduling standards, and more rigorous enforcement of wage laws that can prevent various forms of wage theft. We also need to make real the ability of people to bargain with their employers, a right that in practice has been taken away. This has been done through laws passed by state legislatures that restrict public employees' collective-bargaining rights or the ability to collect "fair share" dues through payroll deductions. All of these practices, though not overtly race-based, would disproportionately raise wages for people of color who are more likely to work the kinds of jobs impacted by these issues.

We must also address racial wage inequality in a more direct way — for instance, by dealing with occupational segregation that limits minority workers' access to higher paying jobs, persistent unemployment disparities that stifle career development and wage growth, and outright discrimination in the hiring, promotion, and pay of minority workers. Additionally, we have to tackle social issues like mass incarceration that limit employment opportunities and pay for countless ex-offenders, particularly African-American men. Without these reforms, men who have been convicted of minor offenses will continue to be punished for the rest of their lives.

Another broad social change that would boost wages is immigration reform. Meaningful immigration-policy changes would help to bring undocumented workers out of the shadows and provide full rights to guest workers. Such reforms would eliminate some of the incentive to hire undocumented workers and pay them less than others.

For far too long, wage stagnation and inequality have been part of too many Americans' work experiences. It's time to address these problems if we, as a nation, are serious about eliminating other economic disparities.

Valerie Wilson is an economist and director of the Program on Race, Ethnicity, and the Economy at the Economic Policy Institute.

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