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PERI Economist Jeanette Wicks-Lim discusses says the decline in unemployment might be pressuring companies to raise wages

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JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore. Health insurance giant Aetna made headlines, becoming the latest company to raise it’s minimum wage. The company is raising its wage to $16 an hour, which is more than double the current federal minimum wage of $7.25. This pay raise would affect about 6,000 employees at Aetna, and the CEO of the company, Mark Bertolini, said this to The Wall Street Journal about the raise: quote, “It’s not just about paying people, it’s about the whole social compact.” “Why can’t private industry step forward and make the innovative decisions on how to do this?” Now joining us to discuss this latest company raising its wages is our guest Jeannette Wicks-Lim. Jeannette is an associate professor at the Political Economic Research Institute in Amherst, Massachusetts, at the University of Massachusetts Amherst. Thank you so much for joining us. JEANNETTE WICKS-LIM, ASSOCIATE PROFESSOR, PERI: Hi. Thanks for having me. DESVARIEUX: So, Jeanette, let’s get right down to it. What do you see as being so significant about this wage hike? WICKS-LIM: Well, I think it is pretty significant that an individual private company will go forward and say, we’re going to raise our workers wages without any mandate coming either from the federal government or by the state government from which these companies may operate. So I think it is significant. I mean, it does follow the heels of The Gap and IKEA also raising the wages of their lowest-paid workers. So those changes are, I think, really notable. I think in the context, though, where wages have been in the U.S., however, I think that we have seen that the lowest-paid workers in particular are suffering from really stagnant wages, really not making any progress since the Great Recession, or even prior to that. So in the context of how workers have been paid over, say, the last decade, ten, 15 years, these workers haven’t been making a whole lot of progress. So it’s about these workers do really need to see their wages go up, and these individual companies are now seeming to take on policies that will do that. DESVARIEUX: Jeannette, do you think part of the elite now is sort of waking up that the way to jumpstart the economy is through consumer spending? And if wages continue to remain stagnant, as they have since the ’70s and as you noted, we’re not going to see the economy pick up. So is there sort of, like, a consciousness, awareness out there that people are finally getting this concept? WICKS-LIM: It’s hard for me to say. I don’t really know what’s in their minds. I think there are a couple of things that I suspect are feeding into this push towards raising the wages of these workers. One is that we are finally seeing more regular declines in the unemployment rate. We’ve come down from about 10 percent in 2010, where we really were suffering from a really weak labor market. We’re finally seeing it fall below 6 percent now. If we keep on seeing the unemployment rate fall, we might start to see wages go up. This is one of the biggest factors behind how most paid workers in the U.S. economy actually get raises. If you look at the late 1990s, that’s when you really saw momentum for these workers in their wage growth, and that was when you got down to an unemployment rate at 4 percent, and it has been declining over about eight years prior to that. So it was a real tight labor market. And we might be approaching–certainly not now, we certainly have slack in the labor market now, but we might be approaching a time where employers are saying themselves, well, yeah, the labor market is getting healthier. We’re going to have a harder time getting the workers that we want. Workers are going to have more choices. And that might be feeding into some of the pressure for employers to raise the wages of these workers. And, I mean, additionally, [incompr.] only me just sort of trying to make sense of what’s going on with these individual firms, I can imagine that since the workers’ wages have been really stagnant, especially the workers at the real low end of the wage distribution, for a long period of time there is the possibility that workers are just frustrated, demoralized, are not as productive as they might be if they were feeling like they were being paid something of a fair wage. Our current Federal Reserve chair, Janet Yellen, coauthored a paper with George Ackerlof years ago that talked about this thing called a fair wage hypothesis that talked about how workers do respond to whether or not they feel like they’re being paid a fair wage. And if they can, they might resist in their work effort, not be as productive as they might otherwise be if they felt like they were being paid a fair wage. So I can imagine that over the years, with the workers being paid such low wages, seeing no improvement in their wages over time, may be feeling very demoralized. And this might reflect in the kind of work that employers can get out of the workers that they have. DESVARIEUX: Jeannette, but in the end, some may argue that this model of companies raising their wages may be all fine and dandy, but you still are not really dealing with the root cause of workers being at the mercy of their employees for their salary to even increase, even though these companies are quite profitable. So what I’m getting at is that don’t we have to change the power of ownership? How do you address this issue in light of the news of Aetna? WICKS-LIM: Well, I think this–what I was just talking about with the falling unemployment rate is really about how much bargaining power do workers have. And whether that comes through having more bargaining power by owning the company that they work for, in the form of, say, a worker cooperative or something like that, or simply having more options, even when they’re working for an employer in a traditional capitalist model. I think right now workers don’t have a lot of bargaining power, but as the employment rate falls, you’ll start to see that there’s going to be more and more pressure for employers to do the things that workers are demanding. So, yeah, there could be. Then there is this basic, this fundamental issue about how do we organize our businesses. But to get to a point where workers have more power to have more say over their workplace, part of it is going to be pulling the unemployment rate down so that workers can negotiate more effectively, and then it may be not just over wages, but over their terms of employment, over what kind of say they have in the workplace, that they work in, and ultimately who gets to own the firms that they are employed in. DESVARIEUX: Alright. Jeannette Wicks-Lim, thank you so much for joining us from Amherst, Massachusetts. WICKS-LIM: Thanks a lot. DESVARIEUX: And thank you for joining us on The Real News Network.


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Jeannette Wicks-Lim is an economist at PERI, the Political Economy Research Institute. She completed her Ph.D. in economics at the University of Massachusetts Amherst in 2005. Wicks-Lim specializes in labor economics with an emphasis on the low-wage labor market and has an overlapping interest in the political economy of race. Her dissertation, Mandated wage floors and the wage structure: Analyzing the ripple effects of minimum and prevailing wage laws, is a study of the overall impact of mandated wage floors on wages. Specifically, she provides empirical estimates of the extent to which mandated wage floors cause wage changes beyond those required by law, either through wage effects that ripple across the wage distribution or spillover to workers that are not covered by mandated wage floors. Jeannette regularly publishes commentary in Dollars & Sense.