By almost all measures, economic inequality is growing. But strengthening workers’ ability to join unions can play a key role in shrinking the gap and rebuilding the nation’s middle class, experts told a House panel today.
Rep. Lynn Woolsey (D-Calif.), chairwoman of the House Subcommittee on Workforce Protections, opened the hearing on “The Growing Income Gap in America,” saying “inequality between the top income earners and those in the middle class has been growing rapidly in the last three decades.” Woolsey and several of the experts pointed out that income inequality in the United States is at the highest level since 1928 and the beginning of the Great Depression.
The gap has grown so wide that some compare the era we live in to The Gilded Age, a period between 1870 and 1900 that was distinguished by the excesses of the rich in our country. Opportunity is slipping away for those in the middle class in our country as wages remain stagnant [and] the price of consumer goods such as gas and food have skyrocketed. This widening gap has broad implications for society as a whole and if not dealt with will threaten our democracy.
The extent of the inequality is staggering. Robert Greenstein, executive director of the Center on Budget and Policy Priorities, quoted a study by the Congressional Budget Office (CBO), which shows that after adjusting for inflation, the average income for the bottom fifth of the population grew by only 6 percent from 1979 to 2005. Middle-class income grew 21 percent in the same period, less than 1 percent per year. But income rose 80 percent among the top fifth and more than tripled, rising 228 percent, among the top 1 percent during the same period.
He says the Bush administration tax cuts have “exacerbated” the gap. The CBO study shows the percentage of income paid in federal taxes by the top fifth fell in 2005 to its lowest level on record.
Jared Bernstein, director of the Economic Policy Institute’s (EPI’s) Living Standards program, told the panel income inequality is “the most challenging economic problem we face.” He says several “sins of omissions” in our economic policies have contributed to the gap, including our failure to invest in our workers.
We’ve failed to strengthen workers’ ability to organize. We’ve gutted investments in their skills and training, underinvested in our public infrastructure and stood by while the employer-based systems of health coverage and pensions slowly unraveled.
The inability of workers to bargain for a greater share of the value that they’re adding to our economy is at the heart of the gap. Unions pay a key role in boosting bargaining power and I stress the importance of legislation like the Employee Free Choice Act to level the playing field to allow workers to organize.
Even as workers are not being paid what they are worth, CEOs are being paid far more than they contribute, says Nell Minow, editor and co-founder of The Corporate Library. Minow, who called herself a “passionate capitalist,” told the panel excessive CEO pay is both a symptom and part of the cause of the gap.
If I thought these excessive CEO pay plans were beneficial to shareholders or to anybody else, I would stand up and cheer. If I thought they resulted from the market or that they promoted market efficiency, I would be enthusiastic about them, but they do not.
Instead of being paid for their performance, CEOs pick the people who set their pay and get rid of those who do not pay them enough, she says. As an example of the dangers of excessive CEO pay, she cited the failure of IndyMac bank. The executives of the bank were paid according to the volume of business they created, not the quality of business. As a result, she says, the bank made thousands of subprime loans that it should not have made.
In a tense exchange between subcommittee member Rep. Carol Shea-Porter (D-N.H.) and Diana Furchtgott-Roth, a senior fellow at the conservative Hudson Institute, Shea-Porter reminded the audience why the gap matters.
After Furchtgott-Roth said the minimum wage is “too high,” Shea-Porter asked her if she believed we will have a permanent underclass of people who will always be poor, like restaurant workers and hotel maids, who make the minimum wage.
Have you ever worked as a housekeeper in a hotel, changing the sheets and scrubbing the sink, because those people are working very hard. We can’t do without them and they’re not making enough money. What about them? Who will take care of them while they are in those jobs?
Next time you stop at the grocery or at your dry cleaner, ask the people who work there how much they earn and how long they’ve been there. I think you could learn something about that group of people that you think are overpaid.