Boosting enforcement of antidiscrimination and antitrust laws, raising the federal mininum wage and higher unionization rates could substantially boost U.S. economic growth, a new report by President Joe Biden's top economic advisers concludes.
The annual Economic Report, prepared by the Council of Economic Advisers, argues for restoring the public sector as a partner in long-run growth, and adoption of policies aimed at curbing the disproportionate market power of companies and employers that limits economic equality.
“The government has a role to play in reducing inequality,” Cecilia Rouse, who chairs the council, told Reuters, stressing that ending lingering disparities in the U.S. labor market and racial wealth gaps would "absolutely" boost U.S. growth and competitiveness after years of weak progress.
“The real point is that these imperfections in the market have real economic costs in terms of our GDP growth," she said, citing research by San Francisco Federal Reserve President Mary Daly, which concluded that systemic disparities cost the U.S. economy nearly $23 trillion over the 30-year period from 1990-2019, and providing more equitable access to labor markets would add $790 billion to the U.S. economy annually.
Biden welcomed the report in a statement, and vowed to continue working to deliver "more equitable growth" and expand the productive capacity of the U.S. economy.
The report delves deeply into the impact of non-competitive labor markets, the market power of employers and monopolies in maintaining inequality in wages, and unfair hiring practices that ultimately curtail economic growth for all.
"The costs of ignoring these structural forces are increased inequality and reduced economic growth and output," the report concluded, citing inefficient labor market outcomes, misallocated talent, suppressed innovation and reduced incentives for investment in human capital.
Nocompete Clauses Lower Wages by 15%
It noted that nearly 20% of U.S. workers reported being bound by noncompete agreements that limited an employee's ability to join or start up a competing firm, and said employer market power was responsible for keeping wages 15% below where they would be in a perfectly competitive market.
It said government actions could curtail these market forces through increased enforcement of current labor protection and antidiscrimination laws, support for greater unionization, which can lead to higher wages, and raising the federal minimum wage from $7.25 an hour, where it has been fixed since 2009.
It also underscored the beneficial impact of providing affordable childcare and early childhood education, as well as paid family and medical leave, and a child tax credit - all measures included in Biden's ill-fated $1.7 trillion Build Back Better spending package that floundered in Congress last year.
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