U.S. economic policies that are pro-work and pro-worker

The start of the new U.S. Congress tomorrow is an opportunity for new economic policy ideas to be introduced and considered. As the 116th Congress gets underway, prime-age employment rates and wage growth remain below their pre-Great Recession levels, young workers struggle to achieve the same markers of economic maturity as prior generations, and the gains from economic growth accrue disproportionately to those at the very top of the income distribution.

Key to thinking of policy solutions to these challenges is to consider what the research shows about how the U.S. economy actually works. Research and analysis by Equitable Growth’s in-house experts and large network of academic grantees point to a wide variety of policies that would better support people’s engagement with the labor force, leading not only to better individual economic outcomes but also to economywide gains.

Tackling unpredictable work schedules would lead to both better personal outcomes and better economic performance. Research by the University of California, San Francisco’s Kristen Harknett and Daniel Schneider finds that unpredictable work hours—the result of employers using on-call scheduling or canceling or extending shifts at the last minute—are associated with financial instability, as well as physical and mental health issues for workers. Unpredictable work schedules are often explained as a necessary cost of doing business even though research increasingly indicates that they actually hurt businesses’ bottom line through employee turnover and absenteeism. A case study done with the cooperation of The Gap Inc. found that improving the consistency of workers’ hours actually led to a 5 percent increase in productivity and 7 percent rise in profits in retail stores. Many cities such as New York, San Francisco, Seattle, Philadelphia, and Emeryville, California, as well as the state of Oregon, are already addressing this problem with new policies that deliver benefits for workers and businesses.

Another example of an economic policy that would support workers’ engagement with the labor force and improve both personal and national economic outcomes is paid leave. Women’s labor force participation stalled out around 2000, after increasing rapidly and steadily over the final quarter of the 20th century, and it is now below that of other advanced economies. Paid leave would increase women’s labor force participation, which, in turn, would increase families’ incomes and decrease their use of public benefits. States, including California, have introduced comprehensive paid leave, which enables economists and policymakers alike to see the impact of introducing paid leave on both employee and employer outcomes. So far, the evidence indicates that paid leave reduces turnover among employees—a boon to businesses—while enabling workers to meet both their caregiving and wage-earning needs.

There’s also a need for policies that will more fundamentally address some of the structural barriers that workers face. One of those barriers is the increase in the monopsony power of employers. Monopsony power is the labor market equivalent of a monopoly, meaning that an industry is so concentrated that workers have few options for employers and so their wages will be set at less than the value they create. As Equitable Growth economist Kate Bahn highlights in her overview of the growing body of research on monopsony power’s effect on workers’ wages, going from a less concentrated labor market to a more concentrated labor market was associated with a 17 percent decline in posted wages. In addition to the impact on individual workers’ wages, new research by Columbia economist and Equitable Growth grantee Suresh Naidu and co-authors finds that monopsony power in the U.S. economy reduces both overall output and employment by 13 percent. Policies that raise worker power such as boosts to unions and collective bargaining will get at the heart of addressing these more structural impediments to engagement with the labor force and economic growth.

Finally, to ensure that people actually experience the benefits from the stronger economic growth that their participation in the labor force is generating, economists and policymakers need to be able to actually measure economic growth at all levels. The Measuring Real Income Growth Act, introduced by Senate Minority Leader Chuck Schumer (D-NY), would allow policymakers to see which income segments, demographic groups, and geographic areas of the country are actually experiencing economic growth by disaggregating the Gross Domestic Product statistics that the federal government produces. This is a key first step to better measuring whether economic growth is actually benefitting and improving the welfare of all Americans, not just some of them.

Policymakers often emphasize the importance of jobs and labor force participation when they talk about solutions to the economic challenges families face. If one accepts that perspective, then there are clearly ways that policy could be doing a better job facilitating that engagement with the labor force. Unpredictable schedules, the lack of paid leave, and monopsony power are all examples of areas where research shows that breakdowns in the market are getting in the way of people being able to actually work to support their families. Policies that actively support workers will improve labor force participation, boost family incomes, improve business outcomes, and support stable and broad-based economic growth—hopefully in a way that people will actually be able to feel.