April 1, 2017
Recently, I saw a graph, correlating union membership in America over the past about 100 years, and the portion of wage workers got in America and the graph was striking, because they correlated near perfectly, meaning, higher labor union membership, the higher American workers wage portion in total wage in society. And for much of that past 100 year, labor membership was very high and so workers wage was great, supporting the middle-class. Then union membership began to fall, and the rich and poor gap in America began.
But there are strong arguments that other factors are also involved, from GOP politics to keep wage low, with an attack on minimum wage, to robotics and to global trade & globalization.
So if we include declining union membership to the list, we have “Four Key” potential reasons, why American worker, back-bone to middle class, have been disappearing and hurting.
Currently, after stabilizing, labor union memberships have fallen again.
Figures released this week on union membership in the United States show a further sharp decline in both absolute and relative terms, with union rolls falling by some 240,000 in 2016. Union membership as a percentage of the labor force fell 0.4 percentage points to 10.7 percent. By way of contrast, union membership in 1980 as a share of the total workforce was over 20 percent.
The continued decline in union membership during a period of supposed economic recovery is a further verdict on the bankrupt and anti-working-class character of the unions. Both public sector unions and those in private industry saw major membership losses, with membership in public sector unions falling by more than 120,000 and private sector membership by a similar figure. By some estimates the unionization rate is now at its lowest level in more than 100 years.
The unionization rate among public sector workers was 34.4 percent, while the rate among private sector workers was a miniscule 6.4 percent. New York state had the highest unionization rate at 23.6 percent, although this figure was down 1.1 percentage points from 2015. South Carolina had the lowest unionization rate at 1.6 percent, down 0.5 percentage points from 2015.
Trade union executives have blamed the loss in membership on the spread of right-to-work laws that ban labor agreements mandating union membership as a condition of employment. The union apparatus has benefited from its ability in many states to negotiate contracts that force workers to pay dues into its coffers.
While right-to-work laws are generally directed against the democratic rights of the working class as a whole, workers have no interest in being compelled to pay dues which support the utterly corrupt trade unions. The state sanctioning of unions as the exclusive workplace bargaining agent serves to uphold the unions’ monopoly and creates a legal obstacle for workers seeking to develop alternative forms of genuine, democratic organization.
However, in 2016, the drop in union membership did not seem to be significantly affected by the existence of right-to-work laws. The decline was across the board, covering most states and demographics. In Michigan, where a right-to-work law was enacted by the state legislature in 2013, union membership fell from 621,000 to 606,000. However, in Pennsylvania, where there is no right-to-work law in effect, union membership fell even more sharply, from 747,000 down to 685,000.
Union declines hurt all workers (source)
The U.S. economy is sicker than it seems at first glance. Fortunately, there’s a remedy, though it might seem surprising: more union members and stronger unions.
The economy today suffers from an unhealthy imbalance. It is growing at a strong rate but providing less and less to average Americans. Since the recession ended four years ago, the economy has grown 12.9 percent, yet weekly earnings for production workers have actually fallen 1.2 percent since the last quarter of 2001, after accounting for inflation, and the median usual weekly earnings of all workers have fallen by 3.6 percent.
How can it be that a growing economy, with record profits and constantly improving productivity, provides diminishing returns to average working people? Incontestably, the loss of union power is part of the problem. With union membership declining, workers are less able to demand and win a fair share of the economic pie.
The “union effect” on pay is dramatic: unionized workers earn 20 percent more in wages and 28 percent more in total compensation than non-union workers. The beneficial effects of unions sometimes extend even to non-union employees because their employers tend to improve pay in order to compete for workers. For example, a high school graduate whose workplace is not unionized but whose industry is 25 percent unionized is paid 5 percent more than similar employees in less unionized industries.
Unionized workers are also much likelier to receive paid leave, health insurance, or an employer-provided pension plan. The pensions they get are more generous than those given to non-union workers — employers contribute 28 percent more to union plans. They get 26 percent more vacation time and more paid holidays, pay smaller health care deductibles, and are far likelier than non-union employees to receive employer-provided health care after they retire.
Unions reduce wage inequality because they raise wages more for low- and middle-wage workers than for higher wage workers, more for blue-collar than white-collar workers, and more for the 70 percent of workers who don’t have a college degree than for the 30 percent who do. Until 1977, unions represented more than 30 percent of the entire U.S. workforce.
In 1978, union density fell below 30 percent for the first time since before World War II, and with minor exceptions, union membership as a share of the U.S. labor force has declined steadily ever since, to 12 percent today. Wage inequality began to grow at the same time.
Since 1979, the annual wages of the worst-paid 20 percent of the workforce grew by only 1 percent, or $124, while those in the upper 10 percent saw their annual wage grow nearly a third, or $19,000. Those in the middle haven’t done so well either as their wages rose about 10 percent over these 25 years. Declining and weaker unionization is one of the major reasons for this unequal pattern of growth.
As globalization, employer attacks, and changing labor laws make it harder and harder for unions to organize, the union wage premium is shrinking and the spillover effect for non-union employees is diminishing, too. Unions now represent only 8 percent of the private sector workforce — about one worker in 12. Few industries or occupations have the 25 percent unionization rate needed to help raise the compensation of non-union workers.
Inflation-adjusted wages are not falling because employers can’t afford to pay better. Corporate profits are soaring, but in many industries, the gains are not being shared with the employees who produced them. Without a strong union presence there is no mechanism to spread the wealth that we are producing more fairly. Faced with threats of offshoring and outsourcing, average employees have little bargaining power and no one to represent them.
On December 10, International Human Rights Day will be celebrated around the world. In the United States, where we think of ourselves as leaders and promoters of human rights, the time has come to take another look at our own society and economy. The right to organize unions and bargain collectively is a fundamental human right. If we protected it better here at home, American workers’ wages and fringe benefits would have a far better chance of keeping up and sharing in the rewards of higher productivity and a growing economy.
GOP on Minimum Wage (source)
We’re back to the minimum wage, with Los Angeles voting to increase their wage law to $15 per hour, which proponents say will help workers and boost the local economy. It should come to no one’s surprise that neither of those things will happen. In fact, FiveThirtyEight noted that the real increase for workers from raising LA’s minimum wage from $9 to $15 is a whopping $10. Bloomberg’sMegan McArdle noted that there won’t be a tsunami of business closures, but the law could prolong unemployment for many Americans:
When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.
These sorts of decisions take a while to make. They still add up, in the end, to deadweight loss — that is, along with a net transfer of money from owners and customers to employees, there will also simply be fewer employees in some businesses. The workers who are dropped have effectively gone from $9 an hour to $0 an hour. This hardly benefits those employees. Or the employee’s landlord, grocer, etc.
There are secondary effects beyond the employment market too. Proponents of a higher wage are claiming that this will boost the local economy by putting more money into the pockets of workers. This is the same sort of argument you frequently hear for the construction of massive new sports complexes. But of course, the money has to come from someone else’s pocket — the customer and the employer. What were those people doing with it? If the answer is “buying stuff from Amazon,” then maybe diverting more money to wages is a net gain for the Los Angeles economy. But if the answer is mostly “buying stuff produced in LA” — for example, paying rent, or buying services performed by low-wage workers — then this is like trying to get rich by picking your own pocket.
There’s no question that the wage increase will transfer money around within the economy — out of the pockets of commercial landlords, for example, and into the pockets of folks who own real estate in low-rent districts. But little evidence has so far been offered that any boost in local spending will cancel out the deadweight loss, much less exceed it. The long-term result will be higher wages for many low-wage workers, but the desperation of unemployment, or a forced relocation, for many others.
More from FiveThirtyEight:
Oh, sure, the headlines in Wednesday’s papers all said the council raised the wage floor to $15 an hour. That’s what the actual ordinance says, too. But $10 is a more accurate reflection of what low-wage Angelenos will actually experience.
There are two reasons for this. The first is inflation: Los Angeles’s minimum wage won’t go up to $15 tomorrow. Instead, the hike will be phased in over the next five years. Assuming inflation holds more or less steady, $15 an hour in 2020 will be worth the equivalent of about $13.75 today.
But the bigger issue is that $15 doesn’t go as far in Los Angeles as it does in most of the rest of the country. Not even close. According to data from the Council for Community and Economic Research, it costs workers about 40 percent more to live in Los Angeles than in the average American community. That means that $15 in LA is the equivalent of less than $11 in the U.S. overall.
Put the two together and LA’s new minimum wage of $15 in 2020 is worth about $9.75 to the typical American worker today.
Besides the obvious counterpoint that minimum wage increase proposals are nothing but liberal window dressing aimed at mobilizing their bloc of voters who earn less than $49,000, that, in turn, does little to help their current economic situation; do Republicans need to think about the ramifications of opposing such measures?
Some have argued that then-Sen. Jim Talent’s (R-MO) response to such a question cost him votes–and a new term–in his tight re-election bid against Claire McCaskill in 2006. That year, Missouri had a ballot initiative aimed at increasing the minimum wage; it passed with 76 percent of the vote.
Yes, these policy positions are incredibly popular with people across the socioeconomic and political spectrum–Rick Santorum is in favor of increasing the minimum wage.
It’s also one of the few issues where white working class men actually side with Democrats on a policy issue. They represent a substantial share of the electorate, which has been tilting towards the GOP, and Democrats might see the minimum wage as an avenue to bring at least some of these voters back into the fold. So, the fallout would be immense, right?
No, not really (via NYT):
Here’s the thing about the minimum wage: Most voters don’t live in households where anyone earns it, or are even close enough to it to get a raise when it goes up. If you ask people whether they favor a higher minimum wage, most will say yes, and even vote that way on a binding referendum. But if a politician opposes raising it, middle-class voters won’t necessarily get angry, and their votes may not be moved.
The lesson of Tuesday’s minimum wage votes is that Democrats can do more on the minimum wage, not that they can help themselves politically by talking about it more. Just because a proposal is popular does not mean it can be a keystone in your economic agenda. As Kevin Drum of Mother Jones has noted, Democrats have an economic agenda that is heavily attuned to the poor; it’s much less clear what they would do for the middle class.
Many policies that help the poor are favored by the middle class. But if politicians want to win the votes of the middle class, they have to campaign on issues that affect them directly. Minimum wage increases do not serve that political end.
At the same time, Republicans should craft a cogent narrative against such minimum wage increase talking points (hurts workers, doesn’t energize local economy, etc.) since this issue isn’t going away. After all, the thing that improves the economic future for any American is a good education–and school choice is part of that discussion. It’s also an issue that has 70 percent of Americans’ support.
Robots are hurting middle class workers, and education won’t solve the problem, Larry Summers says (source)
Two weeks ago, the famous economist Larry Summers sat in a chair on a stage at the National Press Club, talked with several other smart people for an hour and briefly upended a major debate in economics.
The occasion was a forum, hosted by the Brookings Institution’ Hamilton Project, on technological change and its effect on American workers. Summers, the former Treasury Secretary who is arguably the most influential economist in Democratic Party circles today, joined a discussion on whether rapidly advancing technology — like robots — is killing jobs and hurting incomes for the middle class.
Many economists say yes, because automated technology replaces the need for human labor and thus devalues it. And their answer is, at least in part, more education, so workers have better skills to earn jobs less replaceable by machines and algorithms. But there’s a loud group of liberal economists who argue that the answer is, for the most part, “no” — that other changes in the economy, such as the decline of unions and collective bargaining, are much more to blame.
In his remarks, Summers, who previously had endorsed the idea that technology and automation are threatening middle class wages, seemed, to some, skeptical of the idea that technology is a major driver of stagnating wages. He also appeared dubious that education policy could fix the problem. America needs more jobs and workers need more power, he said. Betting on more education and skills training to fix things would be an “evasion.”
Liberal economists celebrated the argument. “Larry Summers demolished the robots and skills arguments,” Mike Konczal, an economist at the Roosevelt Institute, wrote. Other economists, however, including Hamilton director Melissa Kearney, didn’t agree, and a debate has erupted since.
So I called Summers and asked him to clarify what he meant.
We talked for 45 minutes on the phone about technology, inequality and education. He reaffirmed the idea that more education won’t solve the inequality problem. He also called technological change an important fuel for the rising economic share captured by the top 1 percent of American earners.
His comments are lightly edited for length and clarity.
Tankersley: How do you think about the effects of technology and automation on workers today, particularly those in the middle class?
Summers: No one should speak with certainty about these matters, because there are challenges in the statistics, and there are conflicts in the data. But it seems to me that there is a wave of what certainly appears to be labor-substitutive innovation. And that probably, we are only in the early innings of such a wave.
The rise of the top 1 percent is likely very tied up with technology.
– Larry Summers
Whether it is robots in manufacturing, automated check-out of retail establishments, e-shopping taking people out of distribution networks, information technology replacing what used to be done by low-level, white-collar managerial and clerical labor, the ability to take blood pressure and perform other medical tests with much less human labor input, automated call-center systems – it appears that technology is permitting very large-scale substitutions.
To take my sphere, in a university economics department when I started, there was one assistant for every two professors. Today, there are a couple of assistants for a couple of dozen professors. And the reasons are voice mail, word processing, spell checking and email.
Do you see that wave spilling into effects on wages?
It would be surprising if this didn’t show up in having consequences for some combination of the price of labor and the quantity of labor. In the 1960s, about 1 in 20 men between the age of 25 and 54 was not working. Today, the number is more like 1 in 6 or 1 in 7. So we have seen some troubling long-term trends, and they appear to be continuing trends.
Now, to say that technology is important is not to say that technology is the only important factor, or even that it is the dominant factor. Globalization, which in substantial part has been made possible by technology, has also had an impact, particularly on the lowest-skilled. And I believe that a combination of softer labor markets and the growing importance of economic rents (excessive profits due to lack of competition) of various kinds have also contributed to rising inequality.
Technology in my judgment has likely been an important factor, and I suspect is likely to be a substantial factor pushing toward more inequality in the future.
[T]o suggest that improving education is the solution to inequality is, I think, an evasion.
– Larry Summers
It’s important to recognize that a large part of the inequality patterns we observe have less to do with the differentials between more skilled and less skilled workers than they do with huge increases in the top 1 percent, top 10th of a percent and top 100th of a percent, versus everybody else. As a rough estimate, if the income distribution was the same it was in 1979, the top 1 percent would have about $1 trillion less, the bottom 80 percent would have about $1 trillion more, and the middle 19 percent would be in about the same place.
The rise of the top 1 percent is likely very tied up with technology. When George Eastman had a fantastic idea for photography, he got quite rich, and the city of Rochester became a flourishing city for generations, supporting thousands of middle-class workers. When Steve Jobs had had remarkable ideas, he and his colleagues made a very large fortune, but there was much less left over – there was no flourishing middle class that followed in their wake. So, understanding what’s happened to the top 1 percent is important in understanding the overall picture.
If we educated everyone below the 1 percent better, would that help them capture some of those spoils?
It’s important to be careful here. All of my reading of the evidence suggests that the returns to more and better education is very high. Raj Chetty’s research demonstrates that having a better kindergarten or first-grade teacher can make an enormous difference of a few percentage points in wages across your lifetime. Eric Hanushek has presented calculations that suggest better teacher quality in American schools could be worth trillions of dollars down the road.
The evidence is that – just how it is trending may be a subject of debate – but the return to college education, as opposed to high school education, is vastly greater than ever before. So, education is an immensely worthwhile investment, and the project of improving education is hugely important for the United States. That said, the main way in which strengthening education is desirable is that it will raise productivity and raise overall incomes in our society. It is not likely, in my view, that any feasible program of improving education will have a large impact on inequality in any relevant horizon.
First, almost two-thirds of the labor force in 2030 is already out of school today. Second, most of the inequality we observe is within education group – within high school graduates or within college graduates, rather than between high school graduates and college graduates. Third, inequality within college graduates is actually somewhat greater than inequality within high school graduates. Fourth, changing patterns of education is unlikely to have much to do with a rising share of the top 1 percent, which is probably the most important inequality phenomenon. So I am all for improving education. But to suggest that improving education is the solution to inequality is, I think, an evasion.
An evasion of what?
It’s an evasion because it’s unlikely to have a large impact on inequality. It’s important to understand, though, that what’s most important is raising middle-class incomes. And that, albeit with substantial lags, improving inequality will raise middle-class incomes. But insofar as the goal is to address inequality, I think we will need a combination of more substantially more progressive taxation than we have at present in the United States.
There is, for example, no reason why the estate tax should be so riddled with loopholes and sheltering devices, as is currently the case. We need to look at places where there are substantial economic rents being earned, whether those are property values protected by exclusionary zoning, franchises contributing to the politically fortunate, overly generous protections of intellectual property, or implicit subsidies to the financial system, as examples.
Third, we need a commitment to running a high-pressure economy. When jobs are scarce, companies have the power. When workers are scarce, they have the power. That’s why I’ve put such emphasis in recent years on overcoming secular stagnation, by promoting demand, especially through public investment.
How should the country help workers displaced by technology?
Your daily policy cheat sheet from Wonkblog.
More progressive taxation means they will have to pay a smaller share of tax burdens. And in the case of poorer workers, more support for their work through the earned income tax credit may be possible. Reduced economic rents mean lower prices, which mean higher real wages, and a larger share of a firm’s revenues going to compensation.
Part of reducing rents is adequately empowering workers, whether it is through increases in the minimum wage, through giving collective bargaining a serious chance, or whether it is through promoting arrangements that give workers a share in profits.
How will these issues play out in 2016?
I don’t think there’s a more fundamental question facing the United States than what happens to middle-class incomes. Responding to seismic changes associated to technology and globalization is a central challenge of our politics. The transformation to our industrial economy brought about huge changes in society, with leaders like Wilson and the two Roosevelts in the United States, Gladstone in Britain and Bismarck in Germany.
I’m not sure – I think we are all groping towards the right ways of responding to contemporary challenges, and I suspect that this issue will be with us in the next presidential campaign, and several to come.
Globalization Helps the Rich & Asia While Hurting the Middle Class in the West. Here’s What Can Be Done About It (source)
WASHINGTON — Behind all the handwringing in the West about a declining middle class and growing income gap lurks a stark fact — while a new middle class has emerged in resurgent Asia, middle classes in the West have seen no or very little improvement. Globalization may have succeeded in creating wealth, but its failure to enrich the middle class in the West risks pushing western governments to turn their backs on globalization through trade barriers and anti-immigration policies.
The period of globalization extending roughly from the late 1980s to today can be described as a period of the two middle classes and their economic trajectories. One, relatively poor, did well, and another, quite well off, did poorly.
To see that in actual numbers, consider Figure 1. The vertical axis shows the cumulative real income gain, in percent, between 1988 and 2008, and on the horizontal axis global income percentiles, ranging from 1, the poorest 1 percent of the people in the world, to 100, the global top 1 percent. The middle group, those between the 50th and 60th percentile on the horizontal axis, shows real gains with income almost doubling in the two decades. The other group, those richer, around the 80th to 85th percentile registered almost no growth.
The group that did very well was much poorer than the group whose incomes stagnated. In effect, the first group — “the winners” of globalization — had incomes ranging between $3 and $8 international dollars, that is, dollars of equal purchasing power across the globe, per person per day, amounts so low that in western countries virtually no people subsist on so little or amounts that are barely in the territory of what, again using rich world’s standard, is considered the lower middle class.
For small wage earners, no place to go but up: The world’s poor made gains over the past two decades, particularly Asia’s middle class, while the West’s middle class, between 70 and 90, saw stagnant wages. Graph by Branko Milanovic
Thus while many relatively poor people did well during this latest globalization episode, those somewhat richer may have more complaints. People around the 80th global percentile, with incomes ranging from $13 to $27 international dollars per day, saw few improvements. Their incomes were stagnant or barely increasing.
Nine out of 10 people around the global median, the “winners” of globalization, are from “resurgent Asia.” They are people from rural China, including some 150 million who have seen their real incomes increase by a factor of 2.5; rural and urban Indonesia, 40 million people whose real incomes doubled; or urban India, 35 million people with increases in excess of 50 percent. There are also workers from Vietnam, Philippines and Thailand. These “winners” belong to the middle or upper parts of their own countries’ income distributions.
On the other hand, those who did not see much of a gain in income are predominantly from the advanced economies. Lower income groups from three big rich countries particularly stand out: the U.S., Germany and Japan. The average real gain of the lower bottom half of U.S. income distribution was 22 percent — that is, growth of less than 1 percent annually. For Germany, it was a mere 4 percent, and Japan showed negative growth.
Suppose that the gains of the Asian middle class and the stagnation of the rich world’s middle class incomes are somehow related — be it through trade that depresses wages or pushes low-skilled into unemployment, or through outsourcing to low-wage economies — then the comfort that accompanies news of globally good changes evaporates. People might accept lack of income growth for a noble cause or a reason so abstract that there is no recourse. But if the cause is relatively concrete and if losses are linked to others’ gains, even if these others are less well-off, the workers with stagnant wages are less willing to accept the outcome.
Nine out of 10 people of the so-called “winners” of globalization are from resurgent Asia.
Moreover, the workers in the advanced economies do have the channels through which to manifest their discontent: political activism, representatives in government and the media. They can express their concerns and push for remedies.
This dissatisfaction, if translated in a derailment of globalization through greater protectionism, new anti-immigration policies, capital controls, or various enervating requirements like “domestic content” could lead to a pause in income gains realized by the poor and the middle classes in Asia. Such a populist response in the West — evident in Europe with the UK Independence Party, Front National, Alternative für Deutschland, Five Stars, or True Finns — directly grows on the back of middle-class dissatisfaction. In a scenario portrayed by populists, the two middle classes, one still relatively poor in Asia and the other relatively rich in Europe, North America and Japan are linked like communicating vessels: If one improves, the other loses, or so the message goes.
This is not a zero-sum game though, because total global income increases, but the relative gains are unequally apportioned between the two middle classes.
The populists warn disgruntled voters that economic trends observed during the past three decades are just the first wave of cheap labor from Asia pitted in direct competition with workers in the rich world, and that more waves are on the way from poorer lands in Asia and Africa. The stagnation of middle-class incomes in the West may last another five decades or more.
Globalization’s “losers” have little voice because the rich have come to control the political process.
This calls into question either the sustainability of democracy under such conditions or the sustainability of globalization.
If globalization is derailed, the middle classes of the West may be relieved from the immediate pressure of cheaper Asian competition. But the longer-term costs to themselves and their countries, let alone to the poor in Asia and Africa, will be high. Thus, the interests and the political power of the middle classes in the rich world put them in a direct conflict with the interests of the worldwide poor.
These classes of “globalization losers,” particularly in the United States, have had little political voice or influence, and perhaps this is why the backlash against globalization has been so muted. They have had little voice because the rich have come to control the political process. The rich, as can be seen by looking at the income gains of the global top 5 percent in Figure 1, have benefited immensely from globalization and they have keen interest in its continuation. But while their use of political power has enabled the continuation of globalization, it has also hollowed out national democracies and moved many countries closer to becoming plutocracies. Thus, the choice would seem either plutocracy and globalization — or populism and a halt to globalization.
Another solution, one that involves neither populism nor plutocracy, would require enormous effort at the understanding of one’s own longer-term self-interest. It would imply more substantial redistribution policies in the rich world. Some of the gains of the top 5 percent could go toward alleviating the anger of the lower-and middle-class rich world’s “losers.” These need not nor should be mere transfers of money from one group to another. Instead, money should come in the form of investments in public education, local infrastructure, housing and preventive health care. But the history of the last quarter century during which the top classes in the rich world have continually piled up larger and larger gains, all the while socially and mentally separating themselves from fellow citizens, does not bode well for that alternative.