Economic Policies That Raise Wages — Part II

Mark Price |

The following is the fifth and final excerpt in a series reprinting The State of Working Pennsylvania 2015 report, released by Keystone Research Center on Sept. 2:

Maintain Expansionary Monetary Policy

The Federal Open Market Committee (FOMC) of the Federal Reserve sets a target interest rate that depository institutions (banks) charge one another to borrow funds overnight.[1] This interest rate, in turn, determines the interest rates that businesses and consumers face when borrowing money—for example, to buy a car or a house.  All else held constant raising the target interest rate slows job growth and lowering the rate increases job growth. The current Federal Funds target rate is between zero and 0.25%. By historical standards this target is low[2] and reflects the judgement of a majority of the Open Market Committee until now that inflation is low and the economy is below full employment and thus requires support to boost employment growth.

The FOMC is currently considering whether to raise its target for the federal funds rate. The labor market in Pennsylvania as we have demonstrated remains well below full employment. Inflation also remains substantially below normal with consumer prices in Pennsylvania rising just 1.3% in 2014, a figure less than half the average rate of inflation in the last 35 years and also below the Fed’s inflation rate target of 2%.[3] Although inflation is low, the substantial excess capacity in the labor market has made the rate of growth in wages even slower.  To raise the Federal Funds target interest rate now would dampen job growth and in turn, slow the growth in wages for most workers. Keeping the federal funds target low is the course of action most likely to lead to real wage gains for the majority of Pennsylvania workers.[4]

A Jobs That Pay Action Plan – A Good Jobs Strategy for Pennsylvania

In his inaugural address, Gov. Wolf made “jobs that pay” one of three priorities for his administration (the others being “schools that teach” and “government that works”). To advance that goal, the administration should develop a comprehensive action plan that spells out a combination of achievable executive and legislative steps that would achieve more jobs that pay and lift the wages and incomes for the Pennsylvania 99% by 10% by the year 2018. At one level, this action plan would be similar in spirit to U.S. Vice President Joe Biden’s Middle-Class Task Force, with an added emphasis on ensuring that the analysis of ways to strengthen the middle class translate into concrete actions that move the needle on wages.

The Jobs That Pay action plan should include the implementation of strategic, industry-specific enforcement of labor standards. Traditionally, enforcement of labor standards in the United has been complaint driven (i.e., reactive) and fragmented, with enforcement of each labor standard (wage law, overtime, health and safety, prevailing wage, etc.) done by separate agencies and with little or no communication or coordination across agencies. The Obama administration and a growing number of states, however, have increasingly shifted to pro-active enforcement of labor standards in specific industries in which violations concentrate. They have also begun to increase communication and coordination between federal and state government— including through data sharing agreements—and across agencies within states. Pennsylvania is behind the curve on these innovations and it should be a best-practice state.

The Jobs That Pay Action Plan should also consider a wide range of other actions. For example, in discussions about raising local minimum wages, some observers express concerns about the ability of small businesses to adapt. As long as it is not pre-empted by the state legislature, the state could partner with philanthropy (e.g., in Pittsburgh or Philadelphia) to increase the local minimum wage coupled with delivery of a program of technical assistance to help small employers reorganize to improve efficiency so that they can afford to pay higher wages. A third area for examination should be the “wage boards” such as the fast food wage board that lifted the wage for fast food workers to $15 per hour in New York state.[5] Are wage boards a policy innovation that could be applied in Pennsylvania, both in sectors such as fast food where the state is not a funder and in sectors such as long-term care, health care more broadly, and child care, where it is?

As implicit in the policies proposed above, a Jobs That Pay Action Plan should include a sector-specific focus, that is, a systematic analysis, sector by sector, of what government can do to create more jobs that pay. The nursing home industry, for example, is powerfully influenced by state government in its role as direct funder of services, indirect funder (e.g., by virtue of means-tested social programs accessed by many nursing home workers because they earn so little, or through funding for training nursing home workers), and regulator. How can each of these roles align in a way that lifts wages, improves the quality of services for consumers, and potentially reduces some costs? (Best-practice nursing homes streamline professional jobs by broadening direct care jobs. Their residents also tend to use less medication.)

Across the board, a comprehensive Jobs That Pay Action Plan would not just improve jobs. It would also improve economic performance—productivity, quality, service, and innovation. The reason is simple: in every sector, there are variations in competitive—or “business”—strategy. Some companies compete by combining sophisticated technology, smart operating practices, and committed, experienced workers who have “good jobs” (which pay higher wages and benefits than typical for the industry).[6] Other companies rely much more heavily on paying workers low wages and benefits. High labor standards and effective enforcement plus technical assistance and smart public investment in training can shift more companies toward good jobs strategies.


Our message to Pennsylvania policymakers this Labor Day is two-fold.

First, “do no harm”: enact a sustainable state budget NOW that reinvests in education, communities, and jobs, and avoids a repeat of the economy-sapping austerity budget of 2011.

Second, do some good: enact policies that will lift wages and incomes, starting in Pennsylvania with a minimum wage increase, preferably as a bipartisan sweetener in the final budget deal.


[1] To read more about the structure of the FOMC see

[2] See federal funds data maintained by the Federal Reserve Bank of New York at

[3] Figures based on the Consumer Price Index – All Urban Consumers in the Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD metropolitan area.

[4] On the particular importance of keeping interest rates low to African-American and minority workers, whose unemployment rates are much higher than white workers, and employment-to-population ratios much lower, see Connie M. Razza, Wall Street, Main Street, and Martin Luther King Jr. Boulevard, Center for Popular Democracy (CPD) and Economic Policy Institute (EPI), March 2015, online at CPD, EPI, Action United Philadelphia, KRC and a variety of other national and state groups are partners on the “Fed Up” campaign, which aims to shift Fed priorities toward a stronger focus on job creation and raising wages.

[5] See James Parrott. 2015. “Testimony before the NYS Department of Labor Wage Board Hearing on Increasing the Minimum Wage in the Fast-Food Industry.” Fiscal Policy Institute. and David Cooper. 2015. “Testimony before the New York State Department of Labor Wage Board.

“Hearing on Increasing the Minimum Wage in the Fast-Food Industry.” Economic Policy Institute.

[6] For compelling examples of “good job strategies” in retail, see Zeynep Ton, The Good Jobs Strategy, New Harvest, 2014.