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AI Threatens Jobs and Wage Growth Amid Rising Inequality

-Editorial

Income inequality continues to rise in the US. The top 10% in the US earn above $150,000 annually and have over $1 million in assets. Low income families, by contrast, earn an average of $31,000 per year and have negligible assets.

Gender and race are key drivers of persistent wage gaps. People who work in the gig economy – overwhelmingly immigrants – earn as little as $7 per hour. 

Intergenerational mobility, a key driver of wealth, has dropped over the past four decades. And there is a fear that technology will create wider wage gaps.

Speakers at this Ethnic Media Services briefing tackled each of these issues and offer policy recommendations for narrowing the wage gap.

Dr. Michelle Holder, Associate Professor of Economics at John Jay College, City University of New York, has brought attention to the persistent inequalities within the U.S. labor market, highlighting several ways these disparities manifest.

“Labor market discrimination has been traditionally defined as unequal pay for workers of the same ability,” Dr. Holder explained. “One significant indicator is the differential pay for workers with similar qualifications. Another is the persistent unemployment rate differentials among demographic groups. For instance, historically, the Black unemployment rate in the U.S. has been roughly double that of the white unemployment rate.”

Dr. Holder also emphasized occupational crowding or segregation as a third indicator of labor market inequality. “Certain demographic groups are overrepresented in specific, often lower-wage occupations. This overrepresentation significantly contributes to the wage disparities we observe,” she noted.

A prominent example of such disparity is the gender wage gap. According to 2023 data from the Bureau of Labor Statistics, men working full-time earned a median annual wage of $62,500, while women earned $52,000. “On average, women earn 84 cents for every dollar earned by men. A primary reason for this gap is that women are frequently crowded into lower-wage occupations, such as secretarial and administrative roles,” Dr. Holder said.

Discrimination also plays a crucial role. “Research consistently shows that even when women possess comparable skills, education, and experience to their male counterparts, they are still likely to earn less,” Dr. Holder added.

Highlighting the racial wage gap, Dr. Holder pointed out that in 2023, white workers earned a median of $59,000 annually, while Black workers earned $48,000. “For every dollar earned by white workers, Black workers earn just 81 cents. This gap is even more pronounced when comparing non-Hispanic white men, who earned $63,700, to Black women, who earned $46,000. This means Black women earn only 73 cents for every dollar earned by non-Hispanic white men,” she explained.

The disparities extend across different racial and ethnic groups. “Latinas working full-time earn only 57 cents for every dollar earned by non-Hispanic white men, and Asian American, Native Hawaiian, and Pacific Islander women earn about 80 cents, though this varies significantly among subgroups,” Dr. Holder noted, citing reports from UCLA’s Latino Policy and Politics Institute and the National Partnership for Women and Families.

Addressing these disparities requires multifaceted solutions. “Education is often cited as a remedy. Higher educational attainment generally correlates with higher earnings. However, this alone does not account for all wage gaps,” Dr. Holder emphasized. She advocated for stronger local, state, and federal policies, such as pay transparency laws and prohibitions on requesting previous salary histories from job applicants, to mitigate discriminatory practices.

“Effective policies have often been implemented at the state level, focusing on transparency and preventing practices that disproportionately affect women and people of color. For example, legislation in New York mandates the posting of salary ranges for job openings, and other states have outlawed the practice of asking for prior salary history,” Dr. Holder said.

Finally, Dr. Holder encouraged women and people of color to negotiate assertively for fair compensation. “When negotiating pay, I advise doing thorough research on appropriate wages and then asking for an additional 5 to 10%. This modest request can make a significant difference,” she concluded.

Dr. Michael Reich, Professor of Economics and Chair of the Center on Wage and Employment Dynamics at the University of California, Berkeley, has extensively studied the impact of minimum wage policies and the intricacies of the gig economy. His research has significantly influenced the economics profession, challenging the traditional view that higher minimum wages lead to job loss.

“Labor market discrimination has been traditionally defined as unequal pay for workers of the same ability,” Dr. Reich explained. “One significant indicator is the differential pay for workers with similar qualifications. Another is the persistent unemployment rate differentials among demographic groups. For instance, historically, the Black unemployment rate in the U.S. has been roughly double that of the white unemployment rate.”

His recent work has focused on low-paid gig workers, particularly drivers for app-based companies such as Uber, Lyft, and DoorDash. Dr. Reich’s studies on driver wages in cities like New York, Seattle, and Minnesota have formed the basis for establishing pay standards in these areas.

“The gig economy is often discussed broadly, but the majority of gig workers are drivers for app companies,” Dr. Reich noted. “These drivers constitute about 90% of gig workers, with a significant portion relying on this income as their main job. In California alone, around 1.3 million drivers fall into this category, with approximately 10 million nationwide.”

Dr. Reich emphasized that these drivers, predominantly younger men, recent immigrants, and individuals with lower education levels and family incomes, face significant challenges. They are more likely to be on food stamps and Medicaid than other workers. Despite working long hours, gig drivers often earn less than minimum wage due to their classification as independent contractors rather than employees.

“Drivers are treated as independent contractors, which means they are not protected by minimum wage laws, do not receive unemployment insurance, or workers’ compensation for on-the-job injuries,” Dr. Reich explained. “They also bear the costs of their vehicles, including financing, maintenance, and fuel, which significantly reduce their net earnings.”

Dr. Reich highlighted that companies do not compensate drivers for the time they spend waiting for rides or returning to high-demand areas, which constitutes about 30% of their working hours. Additionally, drivers are not reimbursed for wear and tear on their vehicles, further diminishing their earnings. His studies reveal that drivers often earn less than the local minimum wage, with many making only $11 to $12 per hour in high-wage states like California and Massachusetts.

The exploitation of gig drivers is exacerbated by the use of algorithms that pit drivers against each other, leading to a race to the bottom in wages. “Companies test what low-pay offers drivers will accept, resulting in individualized and often inadequate pay,” Dr. Reich said.

Regarding the supposed flexibility of gig work, Dr. Reich argued that this benefit could be retained even if drivers were classified as employees. “UPS, for instance, offers flexible hours to part-time package delivery drivers while paying them well above minimum wage. If UPS can do it, so can gig companies,” he asserted.

Policy solutions to improve gig worker pay have varied. Some jurisdictions have attempted to reclassify drivers as employees, while others have set minimum pay rates for independent contractors. California’s Proposition 22, which maintained drivers’ contractor status but promised higher pay, ultimately led to reduced earnings for many drivers. Conversely, New York City and Seattle successfully implemented policies ensuring gig drivers’ pay was equivalent to the local minimum wage, covering all work hours and expenses.

“The higher pay rates in New York and Seattle benefited drivers without negatively impacting the industry,” Dr. Reich concluded. His ongoing research and advocacy continue to shed light on the urgent need for fair pay and protections for gig workers.

Artificial intelligence (AI) has rapidly infiltrated public discourse, often painted as an existential threat to job security and wage growth. However, Dr. Heidi Shierholz, President of the Economic Policy Institute, and Dr. Austin Clemens, Senior Fellow at the Washington Center for Equitable Growth, offer a nuanced perspective on the matter.

“Hardly a day goes by where we don’t see breathless commentary about how AI is going to kill job prospects and wage growth for huge swaths of the workforce,” she noted. Dr. Shierholz emphasized that her career has been dedicated to analyzing and finding solutions to issues such as anemic wage growth, rising inequality, and other labor market challenges.

A critical point in Dr. Shierholz’s analysis is that many of these issues are not new but have been exacerbated by policy decisions over the past 45 years. “The key worry I have about the impact of AI on the labor market,” she explained, “is honestly how much attention concerns about AI are diverting from efforts to tackle the underlying causes of the problems that have plagued working people for most of the past 45 years.” She argues that these problems stem from policy choices that have weakened workers’ rights and protections, thereby reducing their bargaining power.

Despite these concerns, Dr. Shierholz sees potential in the AI conversation to highlight the importance of robust labor policies. “If the public conversation around AI’s potential harms to jobs and wages could shine a light on employers’ power and willingness to use available tools to degrade job quality, then the AI conversation will have been incredibly useful.”

Dr. Shierholz identifies specific policy changes that have weakened workers’ leverage, such as eroding union rights, failing to update labor standards, and allowing social protection systems to become stingier. She advocates for a return to strong unions, comprehensive labor standards, full employment policies, and robust social insurance systems. “Rebuilding these policies is the best prescription for dealing with AI’s effects on the labor market,” she asserted.

Dr. Clemens echoed these sentiments, emphasizing that the fears surrounding AI and job loss should not overshadow the need for strong labor policies. He highlighted that AI can potentially augment job quality if managed correctly but warned against the misuse of AI by employers to exploit workers.

Dr. Shierholz also discussed the broader economic implications of AI. If AI indeed leads to significant productivity gains and wealth concentration, she suggests policies to redistribute these gains more equitably. “In that scenario where AI takes all the jobs, the obvious policy hedge is to add taxes on capital incomes,” she proposed, emphasizing the need for policies that ensure broad-based economic benefits.

While recognizing the potential for specific AI-related policies, Dr. Shierholz warned against relying solely on these measures. “The labor market impacts of AI that can be addressed by specific policy fixes represent a tiny sliver of how AI will actually play out in millions of workplaces across the country,” she said. Instead, she advocates for comprehensive social democratic reforms as the most effective way to protect workers.

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