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Econ 101 for Politicians: How to Raise Wages

According to Pamela Villareal, senior fellow at the National Center for Policy Analysis (Brief Analysis 827, May 25, 2016):

"Since the Great Recession, the unemployment rate has steadily fallen from a high of 10 percent in October 2009 to the current rate of 4.9 percent. However, job gains and a low unemployment rate have not been matched by accelerated wage growth. Wages have only grown about 2 percent annually since 2012. This is quite lower than the average 3 percent annual growth that occurred before the recession. Some politicians claim companies are simply being greedy, but it is important to look at other factors — the cost of employment, in particular."

Ms. Villareal takes a closer look at the cost of employment, pointing out:

  • While wage growth may be staggering along, the cost of employment is increasing. The cost of employment includes mandated and voluntary benefits that are not explicitly in the employee’s hourly or salaried pay. These benefits include health insurance, worker’s compensation, unemployment insurance and contributions to pensions or retirement accounts.
  • In the first quarter of 2005, the average hourly wage across private industry and all occupations was $17.15.
  • Employer-provided health insurance, paid leave and legally required benefits increased the “implicit” wage an additional $5.40 per hour.
  • By first quarter 2015, the average hourly wage across private industry was $21.94.
  • Add in health insurance, paid leave and legally required benefits at $7.27 an hour and the employer’s cost was $29.21. When factoring in employee retirement plan contributions and supplemental pay (such as overtime), the hourly cost rose to $31.64 an hour.

She suggests several solutions "to bump up wages." For example:

  • Corporate Tax Reform
  • Wage and Benefit Flexibility
  • Flexible Health Plans
  • Less Regulator Burden
  • Support High-paying Jobs and Skill Enhancements

She concludes the two-page "tutorial for politicians," writing:

"While some policymakers may just shrug and insist that slow wage and GDP growth are the “new normal,” others seem to believe that simply bumping the minimum wage to $15 an hour or more will fix everything. But promoting high-paying jobs, easing the burden of labor costs and allowing workers to negotiate their benefits would go a long way in at least increasing individual take-home pay."

Jobs and the economy continue to rank at the top of the most recent Gallup poll, published May 18, 2016. Unfortunately, Washington's political establishment doesn't seem to be getting the message. So, take a few moments to write your member of of Congress, and cite the NCPA's brief analysis. Contact information is available at the Library of Congress' Thomas website (use left-hand column). Taxpayers living in Virginia's Arlington County can contact:

  • Senator Mark Warner (D) -  write to him or call (202) 224-2023
  • Senator Tim Kaine (D) -- write to him or call (202) 224-4024
  • Representative Don Beyer (D) -- write to him or call (202) 225-4376

Ask for a reply. And tell them ACTA sent you.

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