Domestic policy choices that favor corporations, the wealthy, and politically connected sectors of the U.S. economy have been the main cause of stagnating middle class incomes in the United States, says a policy brief from the Carnegie Endowment.

In U.S. Living Standards in an Era of Globalization, Carnegie Endowment Senior Associate Sandra Polaski argues that globalization revealed and exacerbated—rather than created—the unequal distribution of U.S. economic gains over the last three decades. Polaski further contends that reform of domestic labor laws, the tax system, and international economic policy are the policy tools needed to reverse stagnating incomes and the erosion of job security, health care, and pension plans. These policy changes would also sustain domestic demand in the U.S. economy.

Key Domestic Policy Recommendations:

• Reform U.S. labor laws to give employees more influence over decisions about their wages and benefits, by fully protecting their rights to organize and collectively bargain.

• Adjust the minimum wage for the 30 million workers—one-fifth of the U.S. workforce—that earn less than the $9.80/hour required for a sole wage earner to keep his or her family above the poverty line. 

• Create a modern social safety net to mitigate the impacts of globalization and rapid changes in the domestic economy.  This should include better unemployment insurance and job-retraining programs, increased social security taxes to ensure the program’s viability, fully portable pension plans, and universal access to health insurance.

International Trade Recommendations:

• Reorient U.S. trade policy to prioritize broad-based growth and job creation throughout the global economy.

• Revise agricultural subsidies to end the pattern of high-income farmers in developed countries displacing low-income farmers in developing countries.

• Abandon the U.S. trade strategy of “competitive liberalization,” where trade agreements made with small countries lopsidedly favor politically connected sectors of the U.S. economy.

The policy brief cautions against those who seek to disengage the United States from the global economy through higher tariffs or punitive actions toward perceived national rivals.  “Closing the U.S. economy would choke off important sources of growth and destroy jobs in many industries,” writes Polaski.

Click on the link above for the full text of this Carnegie publication.

About the Author
Sandra Polaski is a senior associate and director of the Trade, Equity, and Development Program at the Carnegie Endowment.  Polaski served as the U.S. Secretary of State’s Special Representative for International Labor Affairs, the senior official representing the State Department on international labor.