Pathways to Prosperity Blog Series:  The Importance of Productivity, Wages and Shared Prosperity

November 15, 2017
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By Esther Turciosprosperity

At the Colorado Fiscal Institute, we advocate for fiscal and economic policies that promote equity and widespread prosperity in Colorado. It is public investment, funded by sound fiscal policies, that supports economic well-being and thriving communities.

But what do we mean by “widespread prosperity?” Widespread or “shared” prosperity means that everyone has the opportunity to become economically successful. It also means that as Colorado continues to grow, all people are equitably reaping the benefits of economic expansion. Simply put, it means people in every community across the state have access to opportunities to learn, work, and earn a good living to support themselves and their families. When everyone can participate in the economy in a meaningful way, we are all better off.

Unfortunately, in Colorado, like most states, prosperity is not shared in an equitable way across all communities.  Whether it is gaps in income between genders or races, disparity in wages and productivity, or differing achievement levels in education, the divide between those on top and those on the bottom is increasing all the time.

A Lack of Equity in Sharing the Benefits of Increased Productivity 

The unfortunate reality is that even with our recent, rapid economic growth, Colorado is lagging behind in spreading prosperity among all communities.  This is particularly true with how the gains from productivity are shared between employees and corporate shareholders.

Jobs that pay too little for people to get by are growing as a share of Colorado’s economy and the wages those jobs pay are shrinking. That’s not only bad for people in those jobs, it’s detrimental to the economy as a whole.

According to an analysis by CFI, the portion of total jobs that are “low-wage” has been on an upward trend since 2010. This means more Colorado workers are in low-wage jobs. Low-wage jobs are those paying less than what a full-time worker would need to live above the federal poverty line for a family of four. That annual threshold was $24,300 in 2016, which translated to an hourly wage of about $12.48 an hour.  More than 600,000 Coloradans — 25.2 percent of workers — have jobs classified as low-wage by this definition.

We know that a main pathway to shared prosperity is increasing the wages of workers. But despite increasing productivity, worker wages have been stagnant over the past 40 years. According to a report by author and economist Peter Fischer, the stagnation of real wages has left many workers behind. Fischer finds that real wages did not grow at all from 2008 to 2014, and were just 4 percent higher than they were in 1972. Yet, over that same time period, the productivity of American workers nearly doubled. If the minimum wage had grown with productivity, it would be more than double what it is now.

In a functional economy, there is a strong link between greater productivity and higher wages. An increase in productivity and new income generated from said increase should be returned to employees in the form of higher wages. However, this is not what has been occurring and shared prosperity is suffering because of it.

A Lack of Prosperity and the Racial Wealth Divide 

CFI is also seeing a widening gap in wealth between different races in Colorado. Wealthy, white individuals and families are becoming richer while low and moderate-income individuals and families, particularly communities of color, are falling further behind.

In 2016, it was reported that the 400 richest Americans own more wealth than the entire Black population and one- third of the Latino population combined, for a total net worth of $2.34 trillion. This translates to an average household divide of $500,000 between Black and Latino households compared to White households. This divide can be directly attributed to historical policies and practices, such as housing and lending discrimination, that have created barriers for these communities to achieve economic success and widespread prosperity.

We also see this growing racial wealth divide manifesting in Colorado. According to a report from the Colorado Trust, today, 22.9 percent of American Indians have incomes below the federal poverty line, compared to 21.1 percent of Latinos, 20.2 percent of African Americans, and 15.6 percent of Asians. In comparison, only 8.9 percent of White households have incomes below the federal poverty line.

Next Steps 

There are choices we can make and active roles we can take in shaping our public policy to better address this lack of shared prosperity. Public investments in our communities can increase productivity and equitable fiscal policies can result in more broadly shared economic benefit. Colorado must invest in policies that focus on the education and skills of workers, top-notch infrastructure, a healthy workforce, and entrepreneurship and innovation. It’s time we talk about investing our state and local dollars into essential programs that we interact with every day, like our schools and our transportation systems, so we can create more opportunities for all communities to prosper.

Additionally, an equitable tax code plays a crucial role in creating widespread prosperity for communities. This is especially important when addressing economic security for communities of color.  Colorado’s flat income tax system sounds equitable because everyone pays the same rate, but it fails to consider that low and middle-income earners spend a much greater share of their income on things that are taxed through sales taxes. When we look at all state and local taxes, we find that the poorest Coloradans pay 8.4 percent of their income in taxes while the wealthiest Coloradans only pay 4.6 percent in taxes.

It’s time for us as a state to start deconstructing the actual barriers that prevent our communities, particularly communities of color, from achieving economic success. Our priorities should focus on promoting productivity, higher wages, and shared prosperity by breaking down barriers to quality public investments and addressing inequitable tax structures.

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Tune into our next blog “How Education & Job Training Boost Productivity”  where we will discuss in greater detail how investments in education and job training increase shared prosperity.

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