Over the last few months, we’ve seen a lot of news about low-wage workers demanding pay increases. Putting aside that the minimum wage hasn’t been raised in more than a decade, many economic pundits say that to cover increased wages, businesses will raise prices. If price increases are widespread, then the purchasing power of the worker doesn’t change. Workers will demand another wage increase, prices will rise again, and we will have fallen into what economists deem a “wage-price spiral.”
At the Ludwig Institute for Shared Economic Prosperity (LISEP), we have taken a close look at corporate profits versus employee wages over the last 20 years. Our analysis shows that wage increases need not spark inflation. Corporate profits and cash reserves mean that industry can and should pay their workers more. Here’s a closer look at what we’ve found.
As we look to post-pandemic America, it’s important that job quality is as much a public policy priority as quantity. Recent past history tells us this is not always the case. To some degree, that’s understandable because the economic indicator we rely on to explain worker wages gives us a distorted view of how they are really doing.
Following the Great Recession, the conversation was largely about quantity of jobs. In February 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA).(1) The $831 billion bill outlined job creation and economic recovery objectives through a plethora of channels including extending tax credits to those impacted by the recession, investments in transportation and environmental protection, among others. One of the key provisions was to get people off the unemployment payroll. The Office of the President declared ARRA a success, citing substantially positive quarterly growth in real GDP and payroll employment.(2)