Raising Wages by Changing Norms: Work Policy for the Long Game

The Problem

Decades of wage stagnation in the U.S. can be traced to powerful economic forces arising from product and labor markets and changes in the economic organization of work. Sluggish wage growth at the bottom has contributed to growing income inequality and the inability of a significant fraction of households to meet their basic needs. It’s hard not to connect the polarization and politics of the past decade with the fact that millions of workers have faced years of erosion in their economic position.

Recent Experience With Minimum Wages

In a surprising trend since 2018, major companies have adopted minimum wages for their workforce. Often touted as a socially responsible pathway to reducing inequality, fueled by business enlightenment, the wave of voluntary minimum wage adoptions offers important lessons about raising wages in lasting and sustainable ways.

Rationale and Evidence: Many Big Companies Have Room to Raise Wages

In a recent paper published in the Quarterly Journal of Economics, we studied how and why some firms raise their wages voluntarily. Our findings don’t fit a simple tale of either enlightened corporate leaders “doing the right thing” or evil companies seeking to squeeze every penny from their workforce. Instead, our story rests on the reality that a company seeks profit not beneficence in choosing to raise entry wages for its workforce. Unilaterally raising wages regardless of local conditions demonstrates that big players can exercise their power in the market. But we also find that wage responses by medium and small firms that compete against them locally for workers do not necessarily move in the expected ways.

The Game Changer: Establishing New Norms of Acceptable Wages for All

Thus, there is much more room for raising wages at the bottom than traditional economic reasoning allows. We suggest doing this in a variety of ways. In addition to legislated increases in the overall minimum, there are a variety of other policies (some already being implemented at the state and local level) that can raise wages for workers at the bottom.

Clearly the most direct measure is to substantially raise the federal minimum wage from its current abysmal level of $7.25. More than half of U.S. states have already passed minimum wages far above the federal level, with negligible impacts on employment. Going beyond even these levels, several states and localities have gone one step further: passing mandatory wage floors above even the state-level minimums for low wage sectors of the economy, such as the California state $20 hourly minimum for fast food workers and the $22 hourly minimum for restaurant and grocery delivery drivers in New York City.

Unions and worker advocates also offer models for pushing up the wage floor. Despite the long-term decline of union membership, collective bargaining agreements continue to show that unions not only raise wages for their own members, but also for nonunion employees in connected labor markets. The Fight for $15, a sustained social movement underwritten by the Service Employees International Union (SEIU) and undertaken by a wide variety of worker advocacy organizations, successfully anchored a target wage in the minds of nonunion workers in fast food and other low wage industries. It led not only to state minimum wage policies built on that target wage but an expectation among workers about a fair wage norm.

All these policies make it clear that businesses have a lot of room to move wages significantly higher at present employment levels. Raising wages at the bottom-end of the labor market requires a strong and concerted push by government, unions and public pressure. Concerted efforts across these institutions can establish new norms of acceptable minimums. To attain them, a national movement that brings together worker and community organizations with public advocacy for higher wages at the local, state, and national level represents the sustained push we need to establish new norms of acceptable wages for all.