The Mystery of Low Wages

For many years and particularly since the Republican tax cuts, there has been a problem that economists and the Federal Reserve Bank can’t seem to explain or solve: stagnant or falling wages.

Job growth has been robust for years and it was promised that tax cuts would enable corporations to pay higher wages.

According to what economists call the “Phillips curve”, low unemployment should accelerate pay growth, but it just hasn’t happened and no one can explain why. It is almost as if the law of supply and demand has been suspended.

Some economists attribute the problem to the fact that union membership is at an all-time low.

Some economists point to the fact that corporations used their tax cut to buy back their own shares, which

helps stockholders (1/3 of which are foreigners) and executive level employees who own stock or stock options, rather than pay higher wages to ordinary employees.

Some economists blame technology and automation.

But, as said by the chairman of the Fed in an understatement, “…it’s a bit of a puzzle.”

Maybe there is another reason that is at least somewhat to blame.

Attorneys general in 10 states are investigating whether clauses in fast food franchise agreements are preventing workers from switching jobs and thereby locking them into low-paying positions. These agreements, called “no-poach clauses”, prohibit franchisees from hiring employees away from a fellow franchisee of the same brand.

Fast-food restaurants employ 4.5 million people and have generated more jobs than nearly any other sector since the 2008 recession. These agreements also exist in other industries.

Obviously, these no-poach agreements help business owners by maintaining low wages and reducing employee turnover, but they do so by harming the lowest paid and most vulnerable employees in our economy.

Let us hope that this type of collusion to manipulate the job market is put to an end

Photo Credit: Jerry Nettik