The Austerity of Low Pay: US Exceptionalism in the Age of Inequality

This essay begins by establishing that US income inequality was high relative to other high-income countries in 1980 and became an extreme outlier by the mid-2000s. It then provides a brief account of the main forces underlying America’s path to extreme inequality and low wages. Finally, it shows how low-paid workers in the United States have fared relative to their counterparts in the rest of the rich world. It does so by reference to two sets of findings from my recent research. The first finding is that extreme inequality has not only not bought the United States exceptional productivity growth, but also that the United States shares less of its productivity growth with wage earners than is typical of other rich countries. The second set of statistics shows that the US low-wage share of employment is the highest in the rich world, and reports that the share of young, less-educated workers paid low wages is far higher in the United States than France, mainly due to the diametrically opposed minimum wage policies. At the same time, the evidence does not support the orthodox prediction that French employment performance worsened for these workers, either in absolute terms or relative to their US counterparts. The widespread advocacy for austerity in the current political debate is a reflection of the power of the same free market fundamentalism that generated and promoted the post-1980 laissez-faire experiment. To reduce inequality and promote economic growth and middle-class incomes, the article concludes with a call for replacing this disastrous experiment—including its prescriptions for austerity for the less well-off—with a return to the relative egalitarianism of the pre-1980 era.