Over the past 45 years, practically all income gains in the United States have gone to top earners, bypassing everyday workers and leaving the wages of most Americans flat. Stagnant pay has lowered living standards, increased reliance on public assistance, weakened economic growth, eroded confidence in public institutions, and fueled a powerful political backlash. Reversing wage stagnation and ensuring more broadly shared prosperity is a central challenge of our time.

The good news? This is a solvable problem. While wage inequality is partly driven by seismic forces that are hard to control, like globalization and automation, the choices made by businesses play a central role in this story. For decades now, businesses have directed a disproportionate share of gains in earnings to management as well as to owners and shareholders. Workers have been receiving a sharply shrinking share of a growing pie over the past half century. 

Raise America's Pay (RAMP) is a plan to incentivize businesses to make different choices. It would dramatically boost the wages of U.S. workers by tying net corporate taxes to whether companies share earnings equitably with their workers.

A New Metric and New Incentives

RAMP would rewire pay to economic growth by offering modest tax incentives to businesses that commit to paying a stable proportion of earnings to the bottom 90 percent of workers as earnings rise. More important, businesses that don’t choose to share gains and increase wages proportionately would lose many of the savings they’re receiving under the 2017 tax law as well as eligibility for a range of tax breaks available for corporations.

At the center of our approach is a new metric for wage fairness: the Compensation Ratio, or CR. Using current data that are already available, it’s possible to measure the proportion of a company’s total compensation and profits that goes to paying everyday workers—the bottom 90% of employees, generally those earning beneath $100,000 annually. This portion is the company’s CR. In turn, by monitoring the CR, it’s possible to determine how any business is distributing the fruits of annual growth in earnings.

RAMP incentivizes businesses to hold their CRs stable over time. When this happens, as growth occurs and more resources become available for compensation and profits, pay for the bottom 90% of workers will automatically rise in similar proportion with pay for the top 10% of workers and profits.

How RAMP Would Work

It would not be mandatory to join RAMP. But companies that participate and agree to hold their CR stable would receive tax benefits and avoid steep tax penalties—powerful incentives in combination. Participating companies would keep 20 percent of monies due to the IRS as long as they use these tax savings to cover the cost of pay raises for their rank-and-file workers. Companies that don’t participate and ensure that wages rise with earnings would forfeit three-fifths of the reduced tax rate from the 2017 Tax Act as well as three-fifths of the tax loopholes the individual companies presently deploy.

Ensuring compliance with RAMP would be relatively straightforward and not require the creation of a new bureaucracy within the federal government. Administration of the program would occur largely through the normal tax process, and there would be little need for extensive new paperwork. The CR of companies can be monitored mostly from data that firms already report publicly through their W2 forms and audited financial statements. An automated system would detect attempts to game the program’s rules and determine which participating companies are in good standing and which are not.

A Return to Shared Wage Growth

Given the large financial impact of the tax incentives, most companies will join RAMP. In tandem with a higher minimum wage, we estimate that RAMP and its ripple effects will raise pay substantially for more than 100 million U.S. workers across every part of the economy, ending a half century of wage stagnation. More specifically, our analysis projects that RAMP would spur a rate of wage growth four times greater than the growth workers have experienced over the past 15 years, dwarfing what other proposals are able to accomplish.

Lifting pay substantially and restoring the American Dream of upward mobility is likely to have a range of positive effects, including increasing economic growth, reducing government spending on public assistance programs, and dampening populist anger and polarization.

The problem of prolonged weak wage growth and stalled economic mobility has been left festering for far too long.  Serious consequences for individual families, communities, and the entire nation have followed. The time to confront and overcome this challenge is now.

A fuller account of the RAMP proposal and the research behind it is found in “Raise America’s Pay: A Game Changing Economic Proposal.”