Today’s low unemployment rate overstates the strength of the labor market. Other measures reveal weaknesses that highlight the danger of using only the unemployment rate as a measure of labor market slack. The figure shows one such weakness: weak wage growth among college-educated workers over the last four years, particularly when compared with wage growth for college graduates in the tight labor market of the late 1990s. Both periods had similar unemployment rates. For men and women and white and black college grads, median wages grew by more than 9% from 1996 to 2000.  But from 2015 to 2019, among workers with a bachelor’s degree, only white workers and men experienced wage growth anywhere near that level: 6.6% and 7.8% respectively. Women with a bachelor’s degree saw just a 3% growth in wages, and black workers with a bachelor’s degree actually saw their wages fall 0.3%.

What is behind the extraordinary rise in inequality and the near-stagnant growth of wages for typical workers over most of the past generation? The root cause is that workers are being cut out of their share of economic growth—as shown in the pay–productivity gap. Before the late 1970s, wages and benefits of the vast majority of workers grew in line with productivity. In the late 1970s, typical worker pay growth split from economy-wide productivity growth. Productivity is a measure of how much income is generated in an average hour of work in the economy. While productivity after 1979 grew more slowly relative to previous decades, it did grow steadily, offering the potential for broad-based pay growth. But income gains were not broad-based. In fact, average pay of the 80 percent of the private-sector workers who are not supervisors barely budged in that time. The growing wedge between productivity and pay is the income generated by workers in the economy that has been claimed by corporate owners and managers and others at the very top of the pay scale.

A key reason why wage growth and productivity growth split in the late 1970s is that macroeconomic policymakers—particularly the Federal Reserve—stopped the aggressive pursuit of genuine full employment. Low unemployment helps give workers leverage when it comes to demanding wages that keep pace with the output they are helping to generate. As the figure shows, in the low unemployment years, productivity just slightly exceeded pay growth; in the medium unemployment years, the productivity–pay gap was significantly larger; and for the highest unemployment years, the gap was very large. (The lowest unemployment group includes the 17 years from 1949 to 2017 with the lowest unemployment rates, the highest unemployment group includes the years with the highest unemployment rates, and the medium unemployment group includes the remaining 34 years. For each group, we calculated the degree to which productivity exceeded pay growth, on average.)

For most of the post-1979 period, the Fed prioritized very low and falling rates of inflation over low rates of unemployment. This meant that they tolerated unemployment rates higher than were necessary to keep inflation stable, to the detriment of workers’ labor market leverage. Luckily, there are signs that the past decade has reminded the Fed of the benefits of pursuing maximum employment. Today’s low unemployment rate is essentially the continuation of a trend inherited by the Trump administration, with unemployment falling steadily in each year since 2010.

The remarkable thing about this trend is the Fed’s sharp break with past practice. Past recoveries have too often been cut short by the Fed’s excess fear of inflation: the Fed too often began raising interest rates before a sustained period of low unemployment began delivering healthy wage growth to low- and moderate-wage workers. In the current recovery, the Fed refrained from raising interest rates even when unemployment dipped far below what had been identified as the “natural rate” of unemployment that would keep inflation in check.

While the current policy focus on sustaining low unemployment is welcome news, we need to keep unemployment low enough long enough to lift up all workers. As of mid-2019, black workers are twice as likely to be unemployed as white workers overall (6.4% vs. 3.1%). Even black workers with a college degree are more likely to be unemployed than similarly educated white workers (3.5% vs. 2.2%). When they are employed, black workers with a college or advanced degree are more likely than their white counterparts to be underemployed when it comes to their skill level—almost 40% are in a job that typically does not require a college degree, compared with 31% of white college grads. While tight labor markets provide disproportionate gains to black workers, there clearly remains more room to reduce race-based labor market disparities by both tightening up the aggregate labor market even further and honing in on race-specific policies to reduce gaps.

While federal policymakers have neglected to increase the federal minimum wage above $7.25 per hour, many states and cities have raised their own minimum wages above the federal level. As of July 2019, 29 states and the District of Columbia have wage floors higher than the federal minimum. The lowest-paid workers in these states are clearly better off than their counterparts in the states with a minimum wage still stuck at $7.25 per hour.

But the most meaningful boost to living standards appears in the states whose minimum wage increases have outpaced inflation. If we subtract the eight states whose increases have been too infrequent and small to stay ahead of the rising cost of living, it leaves 21 states (and the District of Columbia) where the inflation-adjusted minimum wage actually rose in value between 2010 and 2018.

The wages of low-wage workers in those states rose much faster than in states without real minimum wage increases. The figure shows the gains in the 10th percentile hourly wage (i.e., the wage for the worker who earns more than only 10% of all workers) between 2010 and 2018 for each set of states, overall and by gender. Between 2010 and 2018, the 10th percentile hourly wage increased 9.9% in states with real minimum wage increases, compared with growth of only 5.7% in states without an inflation-adjusted increase in their minimum wage. The figure also shows that real minimum wage increases were particularly beneficial to women. And if we convert the overall growth rate in the two sets of states to an annual rate, we see that  the 10th percentile wage grew 0.5 percentage points faster in states with real minimum wage increases than in states without real minimum wage increases. That’s a sizable benefit considering that labor markets were already tightening (i.e., employers were increasingly competing to fill jobs) in all states during this period).

One institution of the U.S. economy that acts to raise workers’ wages (and improve benefits and working conditions) is labor unions. But as shown in the figure, a huge swath of U.S. workers do not have the union representation and voice at work that they want and that would enable them to bargain for better wages and working conditions. The share of workers covered by a collective bargaining agreement dropped from 27.0% in 1979 to 11.7% in 2018, meaning the union coverage rate is now less than half of what it was 40 years ago.

Are today’s workers just less interested in being in a union than workers of prior decades? Not in the least. As the figure shows, the share of workers who are either covered by a union contract or report they would vote for a union if a union election were held at their workplace has held steady for 40 years. It was 50.8% in 1977 and 54.2% in 2017 (we use these years here, instead of 1979 and 2018, due to limited data availability). Given the decline in union representation during those same years, the  share of workers who would be represented by a union if those who didn’t get coverage could get it is now more than four times as high as the actual share of workers who are covered by a union contract.

Many of the reasons workers want to be in unions—e.g., to improve their wages, benefits, and working conditions—are, of course, precisely the reasons unions are so fiercely opposed: strong unions mean that income growth is distributed broadly and not just to the richest households.  The figure shows the relationship between union membership and the share of income going to the top 10 percent of households. As union membership rose in the 1930s and 1940s, the bottom 90 percent gained significantly. But as the decline in union membership began accelerating after 1979, the top 10 percent took ever-larger shares of income. The top 10% captured nearly half of income in 2017, and the union membership rate that year was 10.7%.

A separate EPI analysis shows that de-unionization accounts for a sizable share of the growth in inequality between typical workers and workers at the high end of the wage distribution in recent decades. Specifically, the decline in union coverage accounts for 13–20% of the rise in inequality between the lowest- and highest-wage women and 33–37% of the rise in inequality among the lowest- and highest-wage men. Efforts to erode worker power have paid off handsomely for the small sliver of people on the winning end of rising inequality.

(The inequality share estimates of 13% for women and 37% for men are from EPI analysis of data from a 2019 Vancouver School of Economics working paper and the estimates of one-fifth (i.e., 20% for women) and one-third (i.e., 33% for men) are from an August 2011 American Sociological Review article by Bruce Western and Jake Rosenfeld.)

Working people’s wages rise when we cut corporate taxes, according to proponents of the Tax Cuts and Jobs Act (TCJA). This bold and disproven claim about the effects of the TCJA on the paychecks of U.S. households rested on an economic theory that corporate rate cuts would bring forth enough additional savings to finance an increase in investment spending . A durable and sharp increase in investment spending is hence necessary to sustain claims that the TCJA will boost growth in the long run. As the figure shows, investment has not boomed since the TCJA’s passage. Instead of an investment boom indicating the TCJA is working, we see investment growth continuing along its pre-TCJA trend for a couple of quarters before falling all the way to 1.3% in the third quarter of 2019. To be clear, if the TCJA’s corporate rate cuts were working, we would be seeing a permanent rise in investment. Instead, investment growth is cratering.

School teacher strikes made the news over and over again in 2019, highlighting the profound disinvestment in the nation’s public schools that has been taking place over recent decades. A growing teacher pay penalty is a critical component of that, as seen in this chart.

The teacher pay penalty has not been a fact of U.S. life forever—as recently as the mid-1990s, teacher pay was reasonably competitive. But in the past two decades or more, the relative pay of teachers has collapsed. By 2018, the teacher pay penalty had grown to more than 20%. While teachers do, on average, receive more valuable benefits than their professional peers, these better benefits do not make up for the huge gap in cash compensation. Given the vast reams of research showing the importance of teacher quality to student outcomes, this disinvestment in the pay of teachers is extraordinarily destructive to the quality of the nation’s public education system.

Ten years from now, no education beyond high school will be required for almost two-thirds (62%) of jobs in the United States. Only 38 percent of jobs will require education (whether a non-degree award, certificate, bachelor’s degree, or advanced degree) beyond high school. The share of jobs requiring more than a high school diploma is up slightly from 37% in 2018, so the share is growing, but slowly. If all workers were to get a certificate or degree of some kind, it would not meaningfully increase the share of jobs that require those credentials. It would just mean there would be a lot of workers with those credentials working in jobs that don’t require them.

What do we know about these jobs of the future? Five of the seven occupations projected to have the most growth in the next 10 years are low-wage jobs in the care sector (personal care aides and home health aides) and low-wage jobs in the restaurant industry (waiters and waitresses, restaurant cooks, and combined food preparation and serving workers, including fast food workers). None of these positions require any education beyond high school, and all of them currently pay less than $27,000 per year.

One key priority for a fair economy is therefore to support policies that will help ensure that 10 years from now, the 62% of jobs in our economy that don’t require any postsecondary education are good jobs.