Robert Reich

Why wages are going nowhere

Wednesday, August 1, 2018

The official rate of unemployment in America has plunged to a remarkably low 3.8 percent. The Federal Reserve forecasts that the unemployment rate will reach 3.5 percent by the end of the year.
But the official rate hides more troubling realities: legions of college grads overqualified for their jobs, a growing number of contract workers with no job security, and an army of part-time workers desperate for full-time jobs. Nearly eight Americans in ten say they live from paycheck to paycheck, many not knowing how big their next one will be.

Blanketing all of this are stagnant wages and vanishing job benefits. The typical American worker now earns around $44,500 a year, not much more than what the typical worker earned 40 years ago, adjusted for inflation. Although the U.S. economy continues to grow, most of the gains have been going to a relatively few top executives of large companies, financiers, and inventors and owners of digital devices.

America doesn’t have a jobs crisis. It has a good jobs crisis.

When Republicans delivered their $1.5 trillion tax cut last December they predicted a big wage boost for American workers. Forget it. Wages actually dropped in the second quarter of this year.

Not even the current low rate of unemployment is forcing employers to raise wages. Contrast this with the late 1990s, the last time unemployment dipped close to where it is today, when the portion of national income going into wages was 3 percent points higher than it is today.

What’s going on? Simply put, the vast majority of American workers have lost just about all their bargaining power. The erosion of that bargaining power is one of the biggest economic stories of the past four decades, yet it’s less about supply and demand than about institutions and politics.

Two fundamental forces have changed the structure of the US economy, directly altering the balance of power between business and labor. The first is the increasing difficulty for workers of joining together in trade unions. The second is the growing ease by which corporations can join together in oligopolies or to form monopolies.

By the mid-1950s more than a third of all private-sector workers in the United States were unionized. In subsequent decades public employees became organized, too. Employers were required by law not just to permit unions but to negotiate in good faith with them. This gave workers significant power to demand better wages, hours, benefits and working conditions.

Yet starting in the 1980s and with increasing ferocity since then, private-sector employers have fought against unions. Ronald Reagan’s decision to fire the nation’s air-traffic controllers, who went on an illegal strike, signaled to private-sector employers that fighting unions was legitimate. A wave of hostile takeovers pushed employers to do whatever was necessary to maximize shareholder returns. Together, they ushered in an era of union-busting.

Employers have been firing workers who attempt to organize, threatening to relocate to more “business friendly” states if companies unionize, mounting campaigns against union votes, and summoning replacement workers when unionized workers strike. Employer groups have lobbied states to enact more so-called “right-to-work” laws that bar unions from requiring dues from workers they represent. A recent Supreme Court opinion delivered by the court’s five Republican appointees has extended the principle of “right-to-work” to public employees.

Today, fewer than 7 percent of private-sector workers are unionized, and public-employee unions are in grave jeopardy, not least because of the Supreme Court ruling. The declining share of total U.S. income going to the middle since the late 1960s—defined as 50 precent above and 50 percent below the median—correlates directly with that decline in unionization.

Perhaps even more significantly, the share of total income going to the richest 10 percent of Americans over the last century is almost exactly inversely related to the share of the nation’s workers who are unionized. When it comes to dividing up the pie, most American workers today have little or no say. The pie is growing but they’re getting only the crumbs.

The great shift in bargaining power, from workers to corporations, has pushed a larger portion of national income into profits and a lower portion into wages than at any time since the second world war. In recent years, most of those profits have gone into higher executive pay and higher share prices rather than into new investment or worker pay. Add to this the fact that the richest 10 percent of Americans own about 80 percent of all shares of stock (the top 1 percent owns about 40 percent), and you get a broader picture of how and why inequality has widened so dramatically.

Corporations and wealthy individuals have had more money to pour into political campaigns and lobbying, while labor unions have had far less. In 1978, for example, congressional campaign contributions by labor Political Action Committees were on par with corporate PAC contributions. But since 1980, corporate PAC giving has grown at a much faster clip, and today the gulf is huge.

The combination of high corporate profits and growing corporate political power has created a vicious cycle: Higher profits have generated more political influence, which has altered the rules of the game through legislative, congressional, and judicial action—enabling corporations to extract even more profit. The biggest losers, from whom most profits have been extracted, have been average workers.

The shift in bargaining power from workers to large corporations—and consequentially, the dramatic widening of inequalities of income, wealth, and political power—has had a more unfortunate and, I fear, more lasting consequence: an angry working class vulnerable to demagogues peddling authoritarianism, racism and xenophobia.

Past Columns
America’s Bullies

October 10, 2018

Meltdown Lessons Unlearned

September 19, 2018

The Next Crash

September 5, 2018

Preparing for War

March 28, 2018

A Prescription of Greed

March 14, 2018

The true path to prosperity

December 6, 2017

Dynasty Dystopia

September 20, 2017

Anti-Labor Day

August 30, 2017

Trump’s Big Loss

August 2, 2017

The End of Trump

May 17, 2017

First 100 Days

April 26, 2017

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