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Wage Inequality Grows Over the Past Decade, but Minimum Wage Laws Help

A report by Elise Gould of the Economic Policy Institute, The State of American Wages 2017, shows the growing inequality in earnings between high-wage and low-wage workers. From 2000 to 2017, the highest-wage workers (at the 95th percentile) saw their wages grow by 21.5%, while the lowest-wage workers (at the 10th percentile) saw an increase of 4.1%. In 2000, the highest-wage workers earned 5.4 times more than the lowest-wage workers. By 2017 that disparity grew to 6.1. Policy tools like minimum wage legislation can help mitigate these inequalities.

Between 2016 and 2017, Hispanic workers at all wage levels saw wage growth, with greater gains for median-wage, low-wage (30th percentile) and lowest-wage workers than for high-wage Hispanic workers. By comparison, black workers at most income levels saw a small decline in wages except for low-wage and the lowest-wage workers. Median-wage and the lowest-wage white workers, who on average have higher wages than their black and Hispanic counterparts, saw a small decline in wages. The authors suggest that the wage growth among the lowest-wage black and Hispanic workers is likely attributable to increases in state minimum wages.

Between 2013 and 2017, the lowest-wage workers in states with minimum wage increases saw wage growth of 5.2%, while the lowest-wage workers in states without minimum wage increases experienced wage growth of 2.2%. The effect was particularly strong for women. Wages for the lowest-wage female workers grew by 5.1% in states with minimum wage increases and by only 0.8% in states without. Minimum wage increases might also explain why workers with less than a high school diploma have seen 7% wage growth since 2000.

Along with increasing the minimum wage, the article includes several other policy recommendations. Reaching full employment would raise wages because lower unemployment results in more competition for workers and higher wages.  The author suggests the Federal Reserve should refrain from interest rate increases that would reduce the amount of money in the economy and make full employment more difficult to obtain. The reports’ other recommendations include expanding eligibility for overtime benefits and strengthening collective bargaining rights.

The State of American Wages 2017 is available at: http://bit.ly/2I4hbMb