10.26.2009 Policy Points

Inequality as Public Policy

In a new paper, John Schmitt of the Center for Economic and Policy Research documents the deliberate public policy choices that have helped fuel rising levels of income inequality in the United States over the last 30 years. Argues Schmitt:

Each of the major policy initiatives of the last three decades claims to offer important efficiency advantages. The long decline in the inflation-adjusted value of the minimum wage was supposed to correct a distortion in the low-wage labor market. The deregulation (more accurately, re-regulation) of the airline, trucking, railway, financial, and telecommunications industries was supposed to lower consumer prices in those markets. The liberalization of foreign trade through a plethora of bilateral and multilateral trade agreements was similarly supposed to lower consumer prices on imported goods. The privatization of many federal, state, and local government functions – from school bus drivers to the administration of welfare policy and even much of the U.S. war in Iraq and Afghanistan – was supposed to lower the cost of government. The steady, policy-enabled, deterioration of unionization in the private sector – from over one-third of workers in the 1950s to about eight percent today – was supposed to improve the competitiveness of U.S. firms.

These policies, sold as ways to enhance national efficiency, however, also have another common thread. They all work to lower the bargaining power of workers relative to their employers. In many cases, the alleged efficiency gains have not materialized. In every case, the negative impact on workers has been obvious and substantial.

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