Less inequality, higher minimum wage can boost US economy: White House report

Washington

BOOSTING enforcement of antidiscrimination and antitrust laws, raising the federal minimum wage and higher unionisation rates could substantially boost US 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 US labour market and racial wealth gaps would "absolutely" boost US 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 US economy nearly US$23 trillion over the 30-year period from 1990-2019, and providing more equitable access to labor markets would add US$790 billion to the US 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 US economy.

The report delves deeply into the impact of non-competitive labour 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 labour market outcomes, misallocated talent, suppressed innovation and reduced incentives for investment in human capital.

It noted that nearly 20 per cent of US 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 per cent below where they would be in a perfectly competitive market.

It said government actions could curtail these market forces through increased enforcement of current labour protection and antidiscrimination laws, support for greater unionisation, which can lead to higher wages, and raising the federal minimum wage from US$7.25 an hour, where it has been fixed since 2009. REUTERS