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A Simple Solution To America's Woes: Huge Raises

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BOEHNER
WASHINGTON, DC - MAY 22: House Speaker Rep. John Boehner (R-OH) holds his weekly press conference at the U.S. Capitol on May 22, 2014 in Washington, DC. During his statements, Boehner said that he is getting closer to calling on Veteran Affairs Secretary Eric Shinseki to resign. (Photo by T.J. Kirkpatrick/Getty Images) | T.J. Kirkpatrick via Getty Images

There may be a simple solution to many of the country's most urgent problems: Give U.S. workers a raise. A very big raise.

Stagnant hourly wages are the "core economic challenge of our time," economists Josh Bivens, Elise Gould, Lawrence Mishel and Heidi Shierholz wrote in a new paper published Wednesday by the Economic Policy Institute, a think tank focused on labor issues.

Many of the country's most taxing economic problems -- including poverty, rising inequality, falling mobility, and the decline of middle-class living standards -- can be tackled simply by paying people more, according to the paper. If the U.S. doesn't raise hourly wages for a broad swath of Americans, then those issues will get a lot harder to fix, they wrote.

The trouble is that such a dramatic change will likely need the help of Congress, where wage-hike bills typically go to die.

At the root of the problem is a growing disconnect between worker productivity and hourly pay: Workers are doing more and earning less for it.

For much of American history, worker productivity and wages rose in tandem, which made economic sense. But that changed in the past half-century. Worker productivity began climbing a lot faster than worker wages. This chart illustrates that point pretty clearly:

Not everyone suffered, however: A tiny minority of the U.S. benefited from these productivity gains. That group was the top 1 percent of earners, whose wages have grown a lot faster than the rest of ours.

Those who haven't benefited quite as nicely include the middle class, people living at or near the poverty line, blacks and Hispanics.

So what gives? Is China responsible, by taking all of our good middle-class jobs? Or are robots the culprit?

Not quite, according to the EPI report. The real problem is that our elected leaders are stifling economic growth.

The EPI report lists a number of specific government policies to blame. One is the minimum wage: At $7.25 an hour, the federal minimum wage is "currently more than 25 percent below its peak in 1968," when adjusted for inflation, according to the report. Indeed, as other research has pointed out, the federal minimum wage would be around $10 if it were pegged to inflation. Or about $22 if it kept up with increases in productivity.

And while President Obama has proposed raising the minimum wage to $10.10, policymakers keep stalling his efforts, despite support from a majority of Republicans and a bunch of leading economists, among others.

Labor laws that protect unions from "employer aggressiveness" and defend workers from wage theft could also help, according to the EPI. It's also time to update the Fair Labor Standards Act, which sometimes lets employers avoid paying low-wage workers for overtime, the economists write. That last one is a reform that Obama has pushed the Labor Department to pursue.

“Once you realize that wage growth has been hampered by specific policy actions we have or have not taken, it becomes easier to find solutions,” EPI president Lawrence Mishel wrote in a statement. “This is the first step in identifying ways that we can jumpstart Americans’ stagnant wages.”