For a large share of Americans, the U.S. labor market no longer works as a reliable way to build a stable career and support their families. This was true before the job losses of the current recession (as of October 2009, the country had 7.6 million fewer jobs since the start of the recession in December 2007).¹ And unless there are structural changes in the economy, it will be true again once the recession has passed. Down on the bottom rungs of the economic ladder, where too many people who once had middle-income careers now reside, the real value of wages when adjusted for inflation has been declining for years.

One in four jobs does not pay enough to lift a family of four out of poverty.² The federal government tries to compensate low-wage workers through programs like the Earned Income Tax Credit (EITC). Without this and other forms of assistance, many more working families would be struggling to put food on the table and pay for housing, utilities, health care, childcare, transportation back and forth to work, and more. Many such families are forced to survive by living under a mounting pile of debt.

Government programs aren’t the best solution for dysfunctional labor markets—their power is limited—but they can mitigate the deprivation and indignities associated with work that doesn’t pay enough to live on.

Productivity and Median Compensation by Education, 1995-2007

The best anti-poverty program is a booming economy operating at full employment. At full employment, poverty decreases for the straightforward reason that people who were not previously earning a paycheck finally have one. As labor markets tighten, more of those who are involuntarily working part-time can move into full-time jobs. Furthermore, full employment prods employers to raise wages and improve working conditions and benefits in order to retain workers, for example by offering health insurance, paid sick leave, and/or childcare.

Full employment doesn’t literally mean that the unemployment rate is zero. The precise rate of unemployment at “full employment” is a somewhat slippery definition, but basically, full employment means that the supply and demand for labor are in equilibrium. At full employment, everyone who wants a job, or nearly everyone, can find one. In the late 1990s, unemployment fell below 4 percent, bottoming out at 3.3 percent in 2000, and economists were calling this full employment.³ An important factor in the booming economy of this period was a surge in productivity as information technology improved and started to pay off with rapid increases in efficiency.⁴

Full employment in the late 1990s meant that more progress was being made against poverty than at any time since the late 1960s. Real hourly wages for low-wage workers, after falling for more than two decades, grew by 1.5 percent from 1995 to 1999. “The seemingly inexorable increase in inequality slowed,” wrote Jared Bernstein and Dean Baker in their 2003 book The Benefits of Full Employment: When Markets Work for People. But the progress achieved in the late 1990s soon stalled and was reversed by the early 2000s. “Once we departed even slightly from full employment,” Bernstein and Baker wrote, “incomes fell and did so most quickly for the least well-off.”⁵

In Reviving Full Employment Policy: Challenging the Wall Street Paradigm, economist Thomas Palley argues that full employment is the key to restoring the link between wages and productivity growth.⁶ Normally, we would assume that if most people’s wages do not rise, productivity growth must be weak. But in fact, productivity rose steadily between 2000 and 2008. The problem is that the returns on this improvement went almost exclusively to the top 10 percent of earners, with the largest share among this group going to the top 1 percent. From 2000 to 2008, as Figure i.3 shows, the top earners got much richer, the middle class stayed largely the same, and the working poor continued to lose ground.

Government policies of the past three decades, both fiscal and monetary, are the fundamental reason why wages and productivity have become decoupled. A quick way to describe it is to say that monetary policy is made by the Federal Reserve and fiscal policy by the president and Congress. Fiscal policy has favored tax cuts over capital investments designed to increase productivity that could lead to long-term economic growth. For example, consider the decaying condition of the country’s physical infrastructure. The American Association of Civil Engineers estimates that the nation’s infrastructure deficit has climbed above $2 trillion.⁷ Monetary policy has mostly been concerned with holding down inflation, treating full employment as an enemy because theoretically it could push up wages.⁸ Not all economists agree that full employment automatically corresponds to higher inflation, and a period like the late 1990s, when full employment was achieved without a corresponding rise in inflation, offers strong proof to the contrary.

In New York City old cooking oil from food establishments is recycled as biofuel

But more to the point, as Dean Baker says, “If it turns out that there is no alternative to using high unemployment to keep inflation under control, it is important to remember that different people will assess the risk of higher inflation and the cost of higher unemployment very differently. The fact that the people with the most say in determining Fed policy are associated with the financial sector lends a strong anti-inflation bias to Fed policy. The financial sector is willing to force workers to endure the costs of higher unemployment in order to minimize the risks of inflation.”⁹

A major reason for continued low wages is a low minimum wage that is not indexed to inflation and goes for long intervals without an increase. A low minimum wage harms far more workers than just those who earn it, because it sets the floor for all low-wage jobs. Wages have also been kept low by labor policies designed to thwart workers from organizing into unions to improve their bargaining power with employers.

Green jobs all by themselves will not restore the economy to full employment. Another factor is the need for policymakers to demonstrate allegiance to a model of economic growth that promotes full employment. No policymaker would deny that people who can work, should work. The problem is that government hasn’t done its part to make it possible for those who want to work to find a well- paying job. “Put simply, if a job improves the environment, but doesn’t provide a family-supporting wage or a career ladder to move low-income workers into higher-skilled occupations, it is not a green job,” argues the Apollo Alliance,¹⁰ a coalition of business, labor, environmental, and community leaders working together to build greater public awareness and support for a green economy.

Greening the economy can put workers who would be stuck in dead-end jobs on a path to a middle class life, and that would go a long way toward reducing poverty. Green jobs offer low-wage workers career paths—and it is careers, more than jobs, which give people a sustainable hold on the middle class.¹¹

Issues