Work is central to both self-respect and earning a living. Yet what we have seen in the United States is the disappearance of the jobs that used to provide decent wages for America’s working class. For those lacking a college degree or technical training in a high-demand field, earnings have stagnated and employment rates have declined, especially among less well-educated men. Poor job prospects have been linked, in turn, to rising mortality rates among working-age men, declines in marriage, and deteriorating communities in small-town and rural America. Many believe this economic story is at least partially responsible for the rise in populism and the election of Donald Trump in 2016. Cultural anxieties have played a role as well but are far harder to get a firm analytical fix on than economic discontent.
How can we once again ensure that there are sufficient jobs and decent wages for those who have been left behind in today’s more knowledge-based, more service-oriented economy? My view is that a big and expensive government program to create jobs would be a mistake. Rather the focus should be on maintaining full employment and rewarding work. Government has a role to play but so does the private sector. Corporations are awash in profits in the wake of the 2017 tax law—a law that should be amended to ensure a broader-based prosperity in which capital and labor are more equally rewarded.
Many people look at the disappearance of well-paid jobs in manufacturing or elsewhere and conclude that there are simply not enough jobs to employ everyone who wants to work. Their implicit view of the world is that there are a fixed number of jobs, and that with so many disappearing, it will be impossible to supply everyone with a reasonable livelihood. Economists call this “the lump of labor” fallacy.
Why is this a fallacy? The number of jobs in the economy depends on how much people are spending; that is, on the total demand for goods and services. There are no fixed limits to how much they are willing to spend. Instead of one or two pairs of jeans, we may want a pair for every different occasion. In The Rise and Fall of American Growth (2016), Robert J. Gordon explains how as recently as a century and a half ago, it would have been unusual for most people to have had more than one or two outfits. Now our closets are jammed with clothes. And don’t forget about services. Even if we don’t need more cars, cell phones, or blue jeans, we may want to have access to better health care and education, go to baseball games, or enjoy greener parks and cafés with exotic food. Yes, it may be difficult to teach a steel worker to be a nurse or a gourmet cook, but that’s a different issue than the argument that we don’t have enough jobs.
In this context, almost nothing could be more important than maintaining full employment. There is no better way to get more inclusive growth than by tightening the labor market. As Jared Bernstein has shown, tight labor markets raise wages, hours worked, employment, and thus incomes far more for the working and middle classes than almost anything else we could do.1 My own analysis suggests something very similar.2 Tight labor markets cause companies to do a lot more training, leading to a badly needed upgrading of worker skills.3 Yet in the 1980-2016 period, we managed to keep unemployment at or below CBO’s measure of full employment only 29 percent of the time. This contrasts to 72 percent of the time from 1949 to 1979.
To be sure, as I write this the job market is looking very healthy, with an unemployment rate at historically low levels. That said, there are still reasons to be concerned. Labor force participation rates among prime-age adults have fallen since 2000, especially among less-educated men. One possibility is that the job market is not as tight as it seems. If the Federal Reserve refrains from stepping on the brakes too hard, they might flow back into jobs, leading to a hoped-for higher growth rate.4
Despite my view that a high-employment economy is the best solution to the lack of jobs in the aggregate, many will be unpersuaded. As a result, some self-styled progressives are proposing a universal jobs guarantee.5 One example comes from the Center for American Progress (CAP).6
The rationale for a guaranteed jobs program, as articulated by its advocates, seems compelling. By setting a floor on wages and guaranteed access to jobs, the program would increase the bargaining power of all workers, not just those who take public jobs. The workers could be employed in building or repairing infrastructure, providing child or elder care, beautifying parks and neighborhoods, and so forth. In theory, there is no shortage of worthy projects to be funded. Advocates like to point to the eight million people employed during the Works Progress Administration (WPA), along with the 650,000 miles of roads and 78,000 bridges they created, as well as many other enduring legacies, between 1935 and 1943.
One big problem with a guaranteed jobs program is that those who want but fail to find jobs in a full employment economy typically carry with them a variety of barriers that give pause to employers, including public or nonprofit employers. Those barriers may include lack of skills or experience, lack of reliability, inability to get along with others, a criminal background, problems with substance abuse, and so forth. Those barriers make it likely that many will be unable to perform well in their public jobs. Building and repairing infrastructure takes skills that many jobless workers don’t have, and taking care of children or the elderly requires a different but no less important set of skills. In addition, taxpayers and those in regular jobs will not like the idea of using their money to fund what many will consider make-work jobs or boondoggles in the public sector. And those taking the jobs may similarly feel as if they are not in “real” jobs that provide the dignity and respect they seek.
Although I think a large-scale public jobs program would be a mistake, two other ideas are more deserving of support. The first is an independent investment bank, capitalized by the government and led by a board and chair appointed by the President, similar to the Federal Reserve. An independent and professional staff would then select for funding investments in infrastructure and basic research.7 The investment projects would be selected and approved in advance on their merits but could then be timed to align with downturns in the private economy. Those making the selections would be engineers and analysts with the requisite expertise to consider both costs and benefits and, on that basis, prioritize the investments.
The second idea is to provide a limited jobs-based safety net for those needing public assistance. It should be viewed as a way to help people transition to a regular job, especially ex-felons or others who need to demonstrate their competence and reliability, and not as a permanent source of employment. It could be combined with a work requirement for those seeking various government benefits. With such a job on offer, we could discover how many people are unable to find regular employment and how many are simply holding out for better pay and benefits or have personal reasons for not working. My expectation is that the take-up rate for such an offer would not be high, and that the cost would therefore be affordable, funded in part by safety-net savings.
There will always be low-paid jobs in services, retail trade, and other areas. We should not give up on upskilling these jobs. More career and technical education is needed. Child and elder care, for example, is a growing source of new jobs. Creating career ladders and better training for workers in these sectors can enhance their wages and prospects for upward mobility. But if we care about the value of work, whether it is a fast-food worker or the person who collects and disposes of our trash, we must also do more to reward low-paid workers for the jobs they perform. One reason they deserve to be paid more is because their jobs are often difficult or disagreeable. There is dignity in all honest work, yes; but some jobs confer more dignity than others.
There are three well-known mechanisms for helping workers in low-paid jobs. The first is raising the minimum wage. The second is worker credits, similar to the existing Earned Income Tax Credit, that boost people’s earnings through the tax system. The third is providing more child care assistance to families with children, especially single parents, enabling them to work and keep more of their earnings when they do. These policies are not only consistent with the value of individual responsibility and the dignity that work can confer, but they also encourage labor force participation and a higher rate of economic growth. They will, in short, produce more broadly shared prosperity. Let’s look at these three options in turn.
A Higher Minimum Wage. The erosion of the real value of the minimum wage since its peak in the late 1960s is one reason for growing gaps between wages at the bottom and those at the top. The big issue, of course, is whether a higher minimum would, by raising business costs, lead to less hiring.
At last count, 29 states and the District of Columbia have raised their minimum wage well above the Federal level of $7.25 an hour. Despite fears that this would depress hiring and employment, there is little evidence of that occurring so far. A much-cited study by the economists David Card and Alan Krueger, looking at fast food businesses in adjoining states with different minimum wages, found no indication that a higher minimum wage reduced employment.8 A meta-analysis by Hristos Doucouliagos and T. D. Stanley considered 64 different U.S. minimum-wage studies and found that the most precise estimates were heavily clustered at or near zero employment effects.9
The Congressional Budget Office modeled the employment and income effects of an increase in the Federal minimum wage and found that raising it to $10.10 would reduce employment by about half a million nationwide but simultaneously improve the incomes of more than 16 million workers. The increased earnings for low-wage workers from a higher minimum wage would total about $31 billion.10 This is a big net gain—the benefits of the higher incomes for so many families outweighing a very small (and statistically uncertain) reduction in jobs for the least skilled, many of them teenagers.
Increases in the minimum wage have two other favorable effects. First, they encourage higher rates of pay for those just above the minimum. Second, they reduce dependence on government benefits, such as food stamps or the Earned Income Tax Credit, leading to both budgetary savings and more dignity for the recipients, who become fully or partially self-supporting.11
These studies of the minimum wage rarely provide guidance on just how high one can raise the minimum before having a substantial negative effect on employment. Indeed, my colleagues Harry J. Holzer and Gary Burtless have both argued that a $15 Federal minimum wage may be too high. Given the significant variation in living costs across the country and the fact that some local labor markets have a disproportionate number of less-educated workers, it seems wisest to allow states and cities to establish their own minimums.12
One example is Seattle, which raised its minimum wage in 2015 from $9.47 to $11, and again in 2016 to $13 an hour. A study conducted by researchers at the University of Washington found that these increases did have adverse effects.13 That study didn’t go uncontested.14 These kinds of dueling studies make it difficult to know what to believe, but there is likely a wage at which the policy’s negative employment effects outweigh its positive impacts on wages.
Still, the vast majority of research in this field suggests that the impacts of minimum wage increases on employment so far have been negligible. All public policies have benefits and costs. So raising the Federal minimum wage to around $12 an hour and indexing it for inflation seems like a policy whose benefits would outweigh its possible costs.
An Expanded EITC or Worker Credit. Another approach to helping the bottom of the income distribution would be to expand the Earned Income Tax Credit (EITC) to cover more lower-income working households. One of the benefits of the EITC is that it only helps those who help themselves: It is conditioned on work. It simply tops up your wages. That has led such disparate political figures as Ronald Reagan, Bill Clinton, Paul Ryan, Barack Obama, and even the Trump Administration to endorse it at various times.
The EITC is a complicated program. Workers receive a refundable credit (a subsidy that is sent to the family, much like a tax refund). The subsidy is based on an employee’s earnings, his or her family size and marital status. The subsidy phases out at higher income levels. For a single parent with two children, working full-time at the minimum wage and earning $15,000 a year, the EITC boosted his or her income in 2016 by $5,572 per year. Among childless workers, the benefits are meager.15
The EITC promotes work and reduces poverty.16 In combination with a higher minimum wage, a more generous EITC could be a budget-neutral proposition.17 The reason is because a higher minimum wage reduces dependence on government benefit programs, freeing up resources that can then be devoted to wage subsidies that help people become self-supporting. Liberals have always supported the EITC; some conservatives have as well, but even more might endorse such measures if they understood the role that both minimum wages and wage subsidies play in encouraging work and in reducing dependence on other government programs, such as food stamps or TANF (welfare).
A proposal now on the table from Senator Sherrod Brown and Representative Ro Khanna would both increase the value of the EITC and dramatically expand its reach to childless workers. According to the Tax Policy Center, this proposal would increase the after-tax income received by those in the bottom 20 percent of the income distribution by 6.6 percent.18
To be sure, proposals of this sort would be expensive. Researchers from the Tax Policy Center and the Center on Budget and Policy Priorities have shown that something like the Brown-Khanna proposal would cost a little over $1.4 trillion over a decade.19 As Neil Irwin, who initially suggested an analysis of this approach, wrote in the New York Times, “even if you conclude that a radical expansion of tax credits for working-class Americans is desirable, the politics of paying for it are somewhere between hard and impossible.”20
Despite its popularity, the EITC has a number of shortcomings. The first, as already noted, is that it is very complicated and for this reason has been plagued with error rates and some fraud. The second is that it discourages marriage. The third is that, by basing benefits on the number of children in a family, it puts too little emphasis on the responsibility of parents to limit the size of their family to what they can afford.
For these reasons, a much simpler worker pay credit—similar to one suggested by the Tax Policy Center’s Elaine Maag in 201521—is preferable. It would provide a 15 percent raise to every working American up to a maximum of $1,500 per year. The credit would then phase out as earnings rose up to about $40,000 per year. Because this would be based on individual income (and not household income, like the EITC), a couple could earn far more than this by pooling its earnings. This makes the proposal very marriage friendly, in addition to rewarding work. The credit would be delivered as part of an individual’s paycheck, offsetting payroll taxes and reinforcing the idea that it is not only an earned benefit but also a form of tax relief for working families.
Paying for the Worker Credit. As noted, a modest expansion of the EITC or of its first cousin, a worker credit, combined with a higher minimum wage, need not be expensive.22 A much larger expansion, similar to Brown-Khanna, would be. Although Neil Irwin is undoubtedly right about the political infeasibility of such an expansion, there is nevertheless an obvious and compelling way to pay for it. It is by taxing wealth, not work.
Wealth is far more unequally distributed than income. Both the concentration of wealth and the concentration of income have reached record highs in recent years, but wealth more so than income.23 The Baby Boom generation, the most affluent in history, will, over the next few decades, pass on $30 trillion of their wealth to the next generation.24
The inheritance of great wealth is inconsistent with basic American values. The American dream rests on the assumption that we live in a meritocracy, where a combination of skill and hard work, rather than inherited class or privilege, is the road to a better future. The estate tax is one of the few mechanisms available to limit inherited wealth. Many members of Congress are proposing to eliminate it.25 If they don’t want to be seen as favoring the rich and powerful, and instead want to be seen as favoring work over inherited wealth, they should adjust their stance.
The tax’s power to promote intergenerational mobility has eroded very badly over time. The estate tax is paid by only a tiny fraction of American estates—about two out of every 1,000 deaths in 2017. That contrasts to the 1970s, when there were more than 70 taxable estates for every 1,000 deaths.26 Most of that decline reflects the rising exemption level. In the 1970s, the exemption was $60,000 (about $280,000 in today’s dollars, or more than half a million per couple). The Tax Cuts and Jobs Act of 2017 doubled the exemption level for the estate tax, so that every estate smaller than $11.2 million (or $22.4 million per married couple) will be exempt. Not only are very few estates subject to the tax, but contrary to what many believe, even fewer of them are small businesses and family farms (about 80 in 2017, and this value will be even lower under the new tax law).27
Despite the fact that they will never be hit by the estate tax, most Americans still think that we should eliminate it.28 This is largely due to misconceptions about who pays the tax. Of surveyed respondents who favor eliminating the tax, about 70 percent believe that it will affect them, and three-quarters believe that it might force the sale of a small business or a family farm.29
Republicans have framed the estate tax as a “death tax.” This confuses the timing of the tax with whom it affects. Dead people don’t pay taxes. The main burden of the estate tax is on those who receive bequests. The reason it is important to be clear about this is because it is often argued that the estate tax involves taxing the same people twice. But it doesn’t. In effect, it involves taxing two different people just once.
Moreover, because unrealized capital gains make up a significant and growing share of larger estates, and the cost basis for taxing these gains is stepped up at death, much of this wealth is never taxed even once.30 And because most recipients of large bequests are themselves wealthy and did nothing to earn their inheritance, these bequests are, in essence, welfare for the rich.31 Some economists argue that the prospect of making a gift, or the anticipation of receiving one, changes behavior—for example, the incentive to save—but evidence that such changes are empirically important is scant.32 Although the anticipation of being able to make a bequest might increase saving on the part of donors, the anticipation of receiving one might reduce saving on the part of the recipient. And regardless of its impact on savings, the receipt of large inheritances is a big work disincentive.33 If we are going to worry about work disincentives in welfare for the poor, we should also worry about work disincentives in welfare for the rich.
Because of the rise in the exemption level and the drop in rates, revenue from combined estate and gift taxes has plummeted from what it was in the 1970s.34 In 1972, the exemption level was more than half a million per couple in today’s dollars, and the top marginal tax rate was 77 percent, but that rate only applied to estates worth more than $10 million in 1972 dollars (about $58 million today).35 If the combined estate and gift taxes were to generate the same share of Federal revenue today as they did back then, they would have produced about $85 billion in 2015. The nearly $1 trillion that this could generate over a decade would be roughly enough to provide a substantial pay raise to the working class.
In combination with a higher estate tax, a worker tax credit would prevent America from becoming more of a class-based society than it already is. It would simply ask each new generation to earn its own way. It would provide bigger paychecks to a group of Americans who have been falling behind. And it would honor the importance of work—not welfare or windfalls—for boosting one’s income.
As Franklin D. Roosevelt declared to Congress in 1935, “The transmission from generation to generation of vast fortunes by will, inheritance, or gift is not consistent with the ideals and sentiments of the American people.”36 Instead of repealing the estate tax, perhaps it’s time to better use it to reward and encourage work.
Subsidizing Child Care
Another way to encourage work and increase take-home pay is to help families pay for childcare. It is by far the largest expense associated with earning a living. Of those who report paying for childcare, mothers with at least one child under age fifteen spend an average of about $7,000 per year on child care, or 7 percent of family income. For families living below the poverty level, childcare expenses are nearly one-third of income.37 Families with younger children spend even more—those with children under five spent an average of $9,300 per year on childcare, or more than 10 percent of family income. Reducing the costs of childcare not only increases the disposable income available to these families, it also increases the employment of both married and single mothers.38
Currently, there are two major sources of government support for childcare. The first is a Federal block grant program that provides funds to states to cover the childcare expenses of working families with below-average incomes. Eligible families must have incomes below 85 percent of the state’s median income, but the program has never received sufficient funds to serve all families in need.
A second source of funding is a childcare tax credit (CCTC) that allows families to subtract from any income tax liability a portion (typically 20 percent) of their childcare costs (up to $6,000 a year for two children). The credit is only available to parents who are working or in school.39 The biggest problem with the credit is that it is not refundable. Since most lower-income families don’t have any income tax liability (although they do pay hefty payroll taxes), it doesn’t help them at all. It primarily benefits the affluent. In fact, most of the benefits go to families with annual incomes between $100,000 and $200,000 a year.40 In 2016, only about 13 percent of families with children benefited at all from the CCTC, and families in the lowest income quintile rarely received any help at all.41
We can do much better. I have long argued that childcare subsidies are a good way to encourage work, enhance women’s prospects, and provide safe and stable care for children. They are the policy equivalent of a hat trick. They make it possible for single parents to support their families and for more two-parent families to bring in a second paycheck. Simply making the CCTC refundable would largely benefit families who need it most. The Tax Policy Center estimates that two-thirds of the benefits of refundability would go to families with less than $30,000 in cash income—a group that receives only 6 percent of the total benefits of the existing program.42 The bipartisan PACE Act of 2017, sponsored by Representatives Kevin Yoder (R-KS) and Stephanie Murphy (D-FL), would make the CCTC fully refundable, raise the credit rate, and index it to inflation.43 This bill deserves far more support.
Some have argued for an expanded child tax credit, as distinguished from a child care tax credit.44 The existing child tax credit was expanded to $2,000 as part of the Tax Cuts and Jobs Act. One advantage of the child tax credit is that it gives families the choice to either work or be stay-at-home parents. But that choice exists only for the more affluent portions of the population and not for most lower-income families.
Finally, where it is possible to provide a high-quality preschool experience to the children from such families while their parents work, doing so would enhance children’s prospects as well. Such programs tend to cost more but cover all four bases—work, women’s prospects, safety, and children’s development—not just a home run, a grand slam! There has been some debate of late about whether the long-run effects of such programs on children’s later success merit expanding them, but it’s worth remembering that this is like debating whether they are a grand slam or merely a three-run homer. Obsessing about their long-run benefits seems foolish given their immediate value in supporting work.
A Bigger Role for the Private Sector
Many supporters of the Tax Cuts and Jobs Act of 2017 believe it will have the effect of creating jobs and raising wages. I am highly skeptical.
Advocates believe that corporations will invest more, thereby raising productivity and wages. It’s a new version of trickle-down, in other words. They believe the law will also make the United States more competitive with other countries, encouraging more businesses to locate or remain in the United States. But businesses had trillions of dollars of profits to invest before the law was enacted, and they have been using those profits primarily to purchase their own stock or to provide higher dividends to shareholders. The 2017 law left most corporate tax loopholes untouched and made an already complicated set of rules even more complex and open to gaming. Corporations are now freer than ever to seek out tax havens abroad in a “territorial system,” in which taxes depend on where the income was earned. Finally, the huge increase in debt occasioned by the bill will slow growth over the longer run.
At the same time, these looming deficits make it likely that some corrections will be needed down the road. When President Reagan reduced taxes in 1981, thereby ballooning deficits, it required several additional tax laws to restore some semblance of fiscal health. That fact, together with the lack of any Democratic support for the bill, makes it likely that we will see another tax law to correct the flaws in the recent one. When the law is revisited, an opportunity to nudge the private sector toward a more inclusive form of capitalism will present itself.
These corrections are badly needed. One reason that growth has not been broadly shared in recent decades is because earnings have stagnated. Productivity (output per hour) has improved, but workers’ wages have not increased in tandem as they once did. Instead, the benefits of growth have accrued primarily to those at the top of the distribution, including CEOs and shareholders. Consider what has happened to executive pay. In 2014, on average, CEOs earned $16.3 million annually, more than 300 times as much as a typical employee. That contrasts with only 30 times the salary of the typical employee as recently as the late 1970s. These big increases at the top have come at the expense of pay levels for other workers and often of needed investments in the longer-term growth of a company and the economy. One result is that labor’s share of national income has fallen. Whatever the size of the pie, a much bigger slice than in the past is going to the owners of capital and not to the workers who helped create it.
These facts suggest something is deeply amiss. Under certain assumptions, free markets are the best way to deliver broad-based prosperity. But markets are neither moral nor infallible, and in all cases they exist thanks to government frameworks composed mainly of money creation, infrastructure investment, and law—not because they fell from the sky one day long ago. Incomplete information, imperfect competition, established norms and practices, the sluggish mobility of capital and labor, and other frictions may be the rule rather than the exception. In addition, what’s good for General Motors is not necessarily good for the country. A focus on short-term profits may be needed to satisfy activist investors and those pressures may require corporate chiefs to worry about them, but that focus undermines long-term productivity. Underinvesting in worker training, given that workers often leave to go to another firm, may be rational for an individual company, but it is not beneficial for the economy at large. Similarly, if every company thinks their CEO is above average and pays them accordingly, it can lead to the upward spiral in executive pay we have seen. So government has a role to play if we want a more productive and inclusive form of capitalism.
Back in the early postwar period, corporations tended to follow what many call a stakeholder—or what I call an “inclusive”—model of capitalism. It involved paying attention not just to shareholders, but other stakeholders as well, including workers, customers, or the community. Granted, businesses in that era didn’t have to worry as much about foreign competition, and unions were far stronger. Half a century ago, the typical worker at General Motors earned $35 an hour in today’s dollars. Compare this to the $11 an hour that the typical Walmart worker earns. As Robert Reich notes, “This does not mean the typical GM employee a half century ago was ‘worth’ more than three times what the typical Walmart employee in 2014 was worth. . . . The real difference was that GM workers a half century ago had a strong union behind them that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members.” But trade union membership is now a fraction of what it once was, and it is not likely to return to its heyday in the face of global competition, the decline of manufacturing, and an increasingly professional and white-collar workforce. The proportion of workers who are members of unions has fallen from its mid-1950s peak of 35 percent to about 6 percent now.
While it is not widespread, inclusive capitalism remains a successful strategy for many companies. They have showcased what can be accomplished when the private sector focuses on motivating workers—whether in the form of profit sharing, training, or providing a variety of benefits such as health care or paid leave. These companies include Costco, Trader Joe’s, Patagonia, Southwest Airlines, Publix Grocery Stores, and Ben and Jerry’s. Without such an approach, it will be difficult to achieve broadly based economic growth. It would simply require too much redistribution after the fact. Instead, we need a less unequal distribution of market incomes brought about by changing private sector practices. Done right, this can be a win-win for workers and shareholders alike. And, as many forward-looking business leaders now recognize, if current trends continue, the public may demand something far less palatable. Business tax reforms that encourage more profit sharing, more employee ownership, and more worker training could produce the kind of broadly shared prosperity we need.
One common argument against such progressive policies is that they are inconsistent with maximizing profits and serving the interest of shareholders. But there is increasing evidence that this is wrong. Steven Pearlstein has put the argument as follows:
In the recent history of management ideas, few have had a more profound—or pernicious—effect than the one that says corporations should be run in a manner that “maximizes shareholder value.” Indeed, you could argue that much of what Americans perceive to be wrong with the economy these days—the slow growth and rising in equality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods—has its roots in this ideology. The funny thing is that this supposed imperative to “maximize” a company’s share price has little foundation in history or in law. Nor is there any empirical evidence that it makes the economy or the society better off. What began in the 1970s and ’80s as a useful corrective to self-satisfied managerial mediocrity has become a corrupting, self-interested dogma peddled by finance professors, money managers and over-compensated corporate executives.
Pearstein is right, and in my book, The Forgotten Americans, I review the scholarly evidence on these points as well as the important recent work by the management consulting firm, McKinsey and Company. These studies show that sharing profits or ownership with workers and investing for the longer term, especially in training the less skilled, need not undermine shareholder value. In many cases they enhance it.
Jobs and wages are important, and we must find ways to improve both. The Earned Income Tax Credit has been a popular response and needs to be both simplified and expanded. But government tax credits to shore up wages at the bottom are not a sufficient long-term strategy. A big new government program may not be in the cards, and even if it were, it would be a mistake not to ask the business community to play a larger role in training and rewarding workers. The private sector needs to get involved for the sake of social cohesion and the health of our democracy. It should be nudged in this direction by a reformed tax system. In many instances, it may even find that what’s good for workers and for society is good for its own bottom line as well.
1Bernstein, “The Reconnection Agenda: Reuniting Growth and Prosperity,” Center on Budget and Policy Priorities, March 30, 2015; Bernstein, “The Importance of Strong Labor Demand,” in Revitalizing Wage Growth (The Hamilton Project, 2018).
2Isabel Sawhill, Edward Rodrigue, and Nathan Joo, “One Third of a Nation: Strategies for Helping Working Families” (Brookings Institution, May 2016).
4Isabel Sawhill, “Inflation? Bring it On. Workers Could Actually Benefit,” New York Times, March 9, 2018.
5Jeff Spross, “You’re Hired!” Democracy (Spring 2017).
6Neera Tanden, Carmel Martin, Marc Jarsulic, Brendan Duke, Ben Olinsky, Melissa Boteach, John Halpin, Ruy Teixeira, and Rob Griffin, “Toward a Marshall Plan for America: Rebuilding Our Towns, Cities, and the Middle Class,” Center for American Progress, May 16, 2017.
7See Korin Davis and William A. Galston, “Setting Priorities, Meeting Needs: The Case for a National Infrastructure Bank,” Brookings Institution, December 13, 2012.
8Card and Krueger, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,” American Economic Review (September 1994).
9Doucouliagos and Stanley, “Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis,” British Journal of Industrial Relations (June 2009).
10Congressional Budget Office, “The Effects of a Minimum-Wage Increase on Employment and Family Income,” CBO, February 18, 2014.
12See Holzer, “A $15-Hour Minimum Wage Could Harm America’s Poorest Workers,” Brookings Institution, July 30, 2015; Lizzie O’Leary, Paulina Velasco, and Jana Kasperkevic, “Tired of Waiting for Congress, Majority of U.S. States Have Raised the Minimum Wage,” Marketplace, June 30, 2017.
13Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething, “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle,” NBER Working Paper No. 23532 (June 2017). Specifically, they found that the higher minimum “reduced hours worked in low-wage jobs by around 9 percent,” and reduced the number of low-wage jobs (those paying less than $19 an hour) by 6.8 percent. They found that the higher hourly income did not offset the income lost from working fewer hours.
14Michael Reich, Sylvia Allegretto, and Anna Godoey, “Seattle’s Minimum Wage Experience 2015–16,” Center on Wage and Employment Dynamics Policy Brief (Institute for Research on Labor and Employment, June 2017).
17Sawhill and Karpilow, “A No-Cost Proposal.”
20Neil Irwin, “What Would It Take to Replace the Pay Working-Class Americans Have Lost?” New York Times, December 9, 2016.
21Elaine Maag, “Investing in Work by Reforming the Earned Income Tax Credit,” Tax Policy Center, May 20, 2015; Adam Thomas and Isabel V. Sawhill, “A Tax Proposal for Working Families,” Brookings Institution, January 5, 2001.
22See Sawhill and Karpilow, “A No-Cost Proposal.”
23According to the Survey of Consumer Finances, 24 percent of income accrued to the top 1 percent, compared to 39 percent of wealth in 2016. Jesse Bricker et al., “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin (September 2017).
25The House version of the GOP’s Tax Cuts and Jobs Act would have doubled the level of the estate tax exemption and repealed it after six years. The final version of the act did not eliminate the tax, though it did double the exemption.
26Joint Committee on Taxation, “History, Present Law, and Analysis of the Federal Wealth Transfer Tax System,” JCT, March 16, 2015.
28Frank Newport, “Americans React to Presidential Candidates’ Tax Proposals,” Gallup, March 17, 2016.
29Marcus D. Rosenbaum, Mollyann Brodie, Robert J. Blendon, and Stephen R. Pelletier, “Tax Uncertainty: A Divided America’s Unformed View of the Federal Tax System,” Brookings Institution, June 1, 2003.
30Robert B. Avery, Daniel Grodzicki, and Kevin B. Moore, “Estate vs. Capital Gains Taxation: An Evaluation of Prospective Policies for Taxing Wealth at the Time of Death,” Finance and Economics Discussion Series, Federal Reserve Board, April 1, 2013.
31Lily L. Batcheler, “Reform Options for the Estate Tax System: Targeting Unearned Income,” Testimony before the U.S. Senate Committee on Finance, May 7, 2010.
33Douglas Holtz-Eakin, David Joulfaian, and Harvey S. Rosen provide empirical evidence that the receipt of large inheritances actually decreases the incentive to work. Their results indicate that a single person receiving an inheritance of about $150,000 is four times more likely to leave the labor force than an individual receiving an inheritance below $25,000. Holtz-Eakin, Joulfaian, and Rosen, “The Carnegie Conjecture: Some Empirical Evidence,” Quarterly Journal of Economics (May 1993).
37Lynda Laughlin, “Who’s Minding the Kids? Child Care Arrangements: Spring 2011,” U.S. Census Bureau (April 2013).
38James P. Ziliak, “Proposal 10: Supporting Low-Income Workers through Refundable Child-Care Credits,” in Policies to Address Poverty in America, Melissa S. Kearney and Benjamin H. Harris, eds., Hamilton Project (June 2014).
39Tax Policy Center, “How Does the Tax System Subsidize Child Care Expenses,” Briefing Book.
40Ziliak, “Proposal 10.”
41Tax Policy Center, “How Does the Tax System Subsidize.”
44The Lee-Rubio tax reform plan offered in 2015 would have increased the child tax credit by $2,500 per child. It would be partially refundable, but because it would not be phased out at higher incomes, it would largely benefit higher-income families with children that currently receive little or no child tax credit. Elaine Maag, “Reforming the Child Tax Credit: How Different Proposals Change Who Benefits,” Urban Institute (December 2015).