stateofworkingiowa

Wages

This past June marked the 10th year of recovery from the Great Recession, which began in December 2007 and bottomed out in June of 2009. Indeed, Iowa and the nation are riding the longest economic expansion in modern American history. Unemployment rates — 3.7 percent nationally in July, and 2.5 percent in Iowa — are near record lows. Iowa’s unemployment rate has been below 2.5 percent for the last year and below 3 percent for almost the last two years.

One would expect, based on experience and the laws of supply and demand, that such an extended period of “full employment” would boost wages and opportunities for working Iowans.[1]

But that is not really the case. Our decade of “recovery” has not challenged persistent wage stagnation, declining job quality, and rising insecurity and inequality in the Iowa economy.

The trajectory of wages

First, consider wages. While wages for most Iowans grew very little through the first few years of the recovery, we have seen some improvement recently. The median wage (half of workers earn more, half earn less) is now $18.40, up about 80 cents since 2009 — with all of those gains coming in the past two years. But that wage growth has been slow to come, and it has been uneven. Across a decade of recovery, Iowa’s median wage has grown a paltry 4.4 percent (Figure 1). Only Iowa’s highest-wage workers (those above the 90th percentile, or the top 10 percent of earners) have seen meaningful gains. That pattern echoes the long-term trend of growing inequality. Since 1979, wage growth has been hoarded by the highest earners.

190921-SWI19-Fig1

This growing inequality reflects persistent disparities based on gender, race, and educational attainment Figure 2). At the median wage, Iowa women make more than $4.00 per hour less than their male peers — a gap that has not closed since the late 1990s. At the median wage, white workers make more than $5.00 per hour more than their Latino and African American peers. Indeed the white-black wage gap has grown steadily across the last generation.

190921-SWI19-Fig2

 

 

190921-SWI19-Fig3-Fig4

There are two reasons why our low unemployment rate has not generated sustained and equitable wage gains. First, we are not as close to “full employment” as it might seem. Low unemployment rates — in Iowa and in the nation — reflect both job gains and the fact that many potential workers have left the labor market entirely. A good measure of engagement with the labor market is the employment-to-population ratio, or the share of the working age population with a job. In Iowa (Figure 5), the employment-to-population ratio for prime-age workers (those aged 25-54) has recovered its pre-recession levels, and the employment-to-population ratio for older (55+) workers has risen. But the share of younger Iowans in the labor market took a big hit in the recession and has not recovered: At 64.4 percent, the employment–population ratio for those aged 16-24 is a full 10 points lower than its peak in the late 1990s.

190921-SWI19-Fig5This is why, even after 10 years of recovery, Iowa is still well short of reaching pre-recession levels of employment and labor market participation. Between December 2007 and the trough of Iowa’s recession in January 2010, the state lost 61,600 net jobs. By May 2013, we had regained those losses and since then have added about 69,900 more net jobs. But over that more than 12-year span, Iowa’s working age population grew steadily. In order to recover from recessionary losses and keep pace with population growth we need to add another 39,800 jobs (Figure 6).

190921-SWI19-Fig6

The second reason why the recovery has not generated equitable wage growth is that Iowa workers lack the bargaining power that comes with collective bargaining and high labor standards. Just as the recession is now more than a decade in our rearview mirror, so too is the last hike in Iowa’s minimum wage (to $7.25 in 2007). Over that span, the real value of the minimum wage has declined steadily (Figure 7) as inflation steadily erodes its buying power. In 2018, the Iowa minimum wage is worth a dollar less than it was in 2007 and two dollars less than it was worth in 1979.This dampens the earning and bargaining power of low-wage workers. Wage growth at the 10th percentile in states with minimum wage increases between 2013 and 2018 was more than 50 percent faster than in states (like Iowa) that did not raise their minimum wage. [2]

190921-SWI19-Fig7

Workers’ bargaining power has also been eroded by changes in the employment relationship. Over the past generation, all the elements of standard employment — a payroll job with a package of benefits, a clear and direct relationship between employer and employee, and coverage by federally legislated protections — have been in steady retreat. Nowhere is this more evident than in the steady decline in union representation. Collective bargaining provides workers protection during downturns in the economy, and bargaining power when the economy is doing well. In Iowa (as in much of the nation) that basic protection and representation has been in free-fall. As a result of changes in the economy and in the law, private sector union membership has fallen to barely 7 percent of the workforce.

190921-SWI19-Fig8

The patterns remain clear. Wage stagnation and growing inequality have coupled with little benefit to working Iowans in recovery from the Great Recession. And the causes are not hard to identify. Shared prosperity rests on policies and institutions (collective bargaining, a decent minimum wage, strong labor standards, etc.) that sustain the bargaining power of workers. In the absence of those institutions, only exceptional stretches of full employment have interrupted slow wage growth, rising inequality, and growing economic insecurity.

Rather than offering solutions, our public policies are contributing to the underlying problems. Instead of respecting the rights of workers to organize and bargain, the Iowa Legislature has dramatically curtailed bargaining for public-sector workers, and undermined critical protections in workers’ compensation from injuries and in unemployment compensation. Not only has the Legislature failed to raise the minimum wage since 2008, they have pointedly barred local governments from raising wage and labor standards.

 

[1] https://www.epi.org/publication/the-importance-of-locking-in-full-employment-for-the-long-haul/

[2] https://www.epi.org/publication/wage-growth-for-low-wage-workers-has-been-strongest-in-states-with-minimum-wage-increases/

For a PDF of this chapter, click here.

 

 

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  1. […] housing, food or energy assistance. ****  Iowa Policy Project, The State of Working Iowa 2014, https://stateofworkingiowa.org/wages-2/ # # # # […]

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