The U.S. labor market has not delivered for many Americans since the early 1970s. Over the whole period, the real wage of the median worker is largely unchanged, and the real earnings for non-college educated workers have declined. At the same time, the wages of the highly skilled have increased dramatically. Furthermore, in the last two decades, employment opportunities have become more polarized to disproportionately favor high and low skill sectors. The result of these changes is a sharp rise in income inequality that threatens the social fabric of the nation.
History suggests, however, that the pattern is not inexorable. These underlying trends were interrupted for a period in the 1990s. In this period, policy made a difference. It created the conditions in which robust job creation yielded a tight labor market. Policy also aided income growth at the bottom of the distribution by raising minimum wages and expanding the earned income tax credit. But by the official end of the Great Recession, many of these gains from that period were wiped out.
Today we confront record high levels of unemployment and these underlying trends toward income inequality. At the same time, the current fiscal situation poses significant risks to the future well-being of American workers for at least two reasons. First, the possibility of a fiscal crisis is real, and, if one emerges, it would create large job losses and likely be accompanied by sharp and indiscriminate changes in policy that worsen the structural problems in the labor market. Second, our nation’s high budget deficits constrain the government’s ability to make necessary public investments to increase living standards over the long run. Indeed, through previous research and events, both the Center for American Progress (CAP) and The Hamilton Project (THP) have highlighted numerous areas where new public investments and critical policy reforms would greatly strengthen America’s long-run competitiveness, including health care, education, infrastructure, and energy.
In April 2010, CAP and THP held the first in a two-part series of forums focusing on jobs and the American worker. The event featured discussion among experts and the release of a new paper by David Autor of the Massachusetts Institute of Technology that helped define the challenges facing the U.S. workforce.1 According to Autor, the sources of difficulties in the American labor market include changes in technology that reduced demand for certain U.S. jobs and skill sets, increasing competitive pressures from globalization, slow increases in the educational attainment of American workers, and changes in the minimum wage and unionization. Although many of these long-run trends were beyond the control of policymakers, it is now imperative that leaders at the federal and state levels take bold actions to better position American workers for success in a 21st century economy.
The second forum, in December 2010, continues the discussion by presenting policies that have the potential to help American workers address some of these longer-run challenges. In this paper, CAP and THP examine their causes and offer three discrete policy options that seek to promote the future competitiveness and prosperity of the U.S. labor force. The featured policies should be considered a starting point for thinking about additional policies that restore our economy as one that sustainably achieves broadly-shared economic growth. Although some good solutions to the structural labor market problems will require new resources, each of these three proposals is projected to be budget neutral or could even reduce the budget deficit.