A new report released Thursday by the Center for Economic and Policy Research (CEPR) shows that countries can succeed in reducing low pay, if they take the right steps.
“Low-wage Lessons” cites five lessons on low-wage work, drawn from the recent experiences of the United States and other rich nations. The most important lesson is that countries with more “inclusive” labor-market institutions –high minimum wages, high rates of unionization, a generous safety net, and other similar features– have a far smaller share of their population in low-wage jobs.
“A country cannot outgrow low-wage work,” said John Schmitt, author of the report and a senior economist with CEPR. “Higher levels of per capita GDP on their own do not lead to a reduction in a country’s share of low-wage work.”
The experience of the United States stands primarily as a model for how not to succeed in reducing low-wage work. The United States has the lowest unionization rate among rich countries, a weak minimum wage, a stingy benefits system, and the highest rate of low-wage work among rich economies. About one-fourth of U.S. workers are in low-wage jobs, according to the standard international definition of low-wage work of earning less than two-thirds of the national median wage. (The median wage is the wage received by the worker exactly in the middle of the wage distribution.)
In the United States, the minimum wage and the Earned Income Tax Credit (EITC) are the two most important policies in place to fight low pay. But, the report argues that they have largely been ineffective.
“The minimum wage and the EITC could be excellent tools to fight low-wage work,” Schmitt said, “but, they have been set far too low to make a difference.”
The report also emphasizes that low pay is only the most obvious problem facing low-wage workers in the United States. Low-wage workers are also far less likely to have health insurance, paid sick days, paid family leave and other benefits that are common in higher-wage jobs.