Executive Summary
In just the past few weeks, leading American business leaders appear to have experienced a sudden and surprising bout of conscience. On Monday, August 19, the Business Roundtable, which represents the largest U.S. corporations, issued a statement signed by 181 CEOs that embraced stakeholder capitalism—the idea that corporations have obligations to employees, the community, and customers, as well as shareholders. On the next day, Tom Wilson, the chair of the executive committee of the U.S. Chamber published an op-ed titled “Save Capitalism by Paying People More.” Wilson acknowledges in blunt terms that ordinary working Americans aren’t flourishing economically. (For excerpts from Wilson’s op-ed, see Box 1 near the end of this report.)
This year’s annual “The State of Working Pennsylvania” documents the accuracy of Wilson’s observation in Pennsylvania. To be sure, this report does have a bit of good news. In 2018, for the first time since 2001, Pennsylvania workers enjoyed wage increases across the board—3.1% on average across the entire wage distribution (i.e. from the 10th percentile to the 90th percentile). These gains reflect what is now the longest economic expansion in U.S. history and an unemployment rate in Pennsylvania below 4% for the first time since before 1976.
Acknowledging this progress, the longer-term picture remains one of meager gains for workers. Over the last economy cycle, from the 2007 peak to 2018, the annual average increase in the Pennsylvania median wage has been less than half a percent. Even now, some slack remains within the Pennsylvania job market, which helps explain why wages in this expansion took so long to kick up. Underemployment remains above the 2007 pre-Great Recession level and the employment rate (share of adults aged 20 and over employed) remains below the 2007 level. If the employment rate today were at the 2007 level, Pennsylvania would have another roughly 150,000 jobs. Looking over a longer period, since 1973, the top 1% in Pennsylvania received 46% of the total increase in income in the state.
For African-Americans in Pennsylvania, economic realities are a good deal grimmer. The Black unemployment rate remains more than twice the white. In the first quarter of 2019, Black unemployment in Pennsylvania, at 8.4%, was the fourth highest among the 24 states for which reliable estimates exist. Over the past 40 years, even as white workers have struggled, the Black median wage in Pennsylvania has plunged from at least 90% of the white in the early 1980s to less than 75% in recent years. The Black median hourly wage in Pennsylvania is roughly 10% lower today in inflation-adjusted terms than 40 years ago. That last sentence bears rereading.
The trends above do not reflect the inexorable result of the “free market” or technology or globalization. These trends reflect misguided policies and the fraudulence of “trickle-down economics”—the idea that if we just cut taxes for corporations and rich people the resulting economic growth will ultimately benefit everyone.
Business leaders’ worries reflect not just these realities but the possibility that a recession could wipe out the little progress working families have begun to make. And who knows what low-paid gig workers and other millennials, the unemployed, and near retirees without pensions and with vanishing 401(k)s might do then.
Business leaders in Pennsylvania have three immediate opportunities to demonstrate that they share Tom Wilson’s commitment to saving capitalism by raising workers’ pay. They could support an increase in the Pennsylvania minimum wage, which would particularly benefit African-American workers and women. They could support Governor Wolf’s proposed increase in the pay threshold below which salaried workers automatically receive overtime pay—so far, Pennsylvania businesses have robotically weighed in against restoring fair pay for salaried workers, the kind of reflexive greed that undermines ordinary Americans’ faith in the system. Third, business leaders could endorse the governor’s proposal to raise Pennsylvania’s minimum teacher salary to $45,000, helping to attract and retain great teachers that educate the workforce of the future.
The end of this report also recommends following Wilson’s advice that business leaders create specific goals and execute a plan to grow more higher-paying jobs. We propose using the already existing Middle Class Task Force, which includes labor as well as business representation, to develop the plan and execution strategy. After 40 or more years of business leadership focused single-mindedly on profits, it will take a sustained team effort to create a kinder, gentler capitalism that we can all embrace.
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