April 20, 2010 11:24 pm

Biden urges action on stagnant wages

The US must restore the broken link between productivity growth and wages if it is to ensure a politically sustainable recovery, Joe Biden, the US vice-president, said on Tuesday.

Mr Biden, who is in charge of Barack Obama’s “middle class task force” said the last US economic cycle, which began in 2001 and ended in 2007, was the first in history that left median incomes where they were at the start.

Yet, over the same period, the growth in productivity, which had traditionally fed through into wage growth, hit record levels. Mr Biden said that addressing what economists call “median wage stagnation” would be a priority for the Obama administration now that the US economy was moving out of recession.

“The middle class needs to get its fair share again,” Mr Biden told the Hamilton Project, a group within the Brookings Institution that focuses on restoring “broad-based growth”. “The system is not going to work if they do not believe they’re getting a fair share commensurate with the effort they put in . . . We are going to make sure that we don’t just build the same old economy on top of the one that just collapsed.”

Mr Biden admitted that the administration did not yet have clear answers on how to address what many economists believe is a long-term structural problem in the US economy. Some have emphasised the need to invest more in education, even though many white-collar workers with college degrees also suffered from stagnant pay during the last cycle.

Others, particularly on the left, say the US should restore strong bargaining rights to the unions and so help shift income back from capital to labour, which is at its lowest level since the 1920s. Mr Biden called for stronger “collective bargaining rights” but gave no indication of when the White House would push legislation.

Economists say that the gap between productivity and wages has turned into a chasm since the last recession began in 2007. Real wage growth between the last quarter of 2008 and the last quarter of 2009 was negative while productivity rose by 5 per cent.

Mr Biden said on Tuesday that the sooner wage stagnation could be addressed the better.

“The choices we make at the beginning of the expansion are going to determine where we’re going to end up – assuming the expansion continues,” he said.

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