NCPA - National Center for Policy Analysis

The Link between Federal Policy and Lower Wages

January 28, 2015

Wages have struggled over the last four years, falling 1.1 percent between 2010 and 2014 -- a stark change from the 3.4 percent wage gain that took place from 2006 to 2010.

Is government policy responsible for this state of affairs?  Edward Lazear, a fellow at the Hoover Institution, says it could, pointing to federal regulations that put burdens on high-wage businesses, shifting employment into lower-paying jobs. In fact, high-paying hospital and finance jobs -- which pay 24 and 29 percent more than the economy average -- have seen significant declines: between 2010 and 2014, Lazear says the share of the private sector workforce employed in those jobs has fallen by 5 percent.

What also happened in 2010, when wages began declining? Congress passed two major financial and health care laws: Dodd-Frank and the Affordable Care Act. Lazear says it's likely these laws (and their accompanying regulations) had something to do with the drop in high-wage jobs. Consider:

  • From 2006 to 2010 (which included the financial crisis), the financial industry saw a decline in workers, but the drop was just one-fifth as rapid as the decline that took place between 2010 and 2014.
  • From 2006 to 2010, the number of workers in hospitals rose, putting hospitals in the top 10 percent of industries for labor growth. That has taken a turn over the last four years.
  • Other sectors with workforces with similar levels of education haven't seen comparable drops and, in fact, have grown.

Dodd-Frank and the ACA are just a couple of federal policies that have had a major impact on the economy. Even if those laws hadn't led to more workers in lower-paying jobs, Lazear says the country would have seen an 0.75 percentage point drop in wages over the 2010 to 2014 period thanks to federal policies such as higher capital gains taxes that make it difficult to attract investment.

Source: Edward P. Lazear, "Solving the Puzzle of Stagnant Wages," Wall Street Journal, January 25, 2015.


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