Stronger Labor Laws Needed to Address U.S. Income Equality

Paul Krugman

Those on the reactionary side of the political spectrum are big proponents of equal opportunity-the outcome, whether you make a decent living, live high off the hog or suffer in poverty-is up to the individual.

In today’s U.S. economy, such reasoning is flawed, says economist Paul Krugman. Instead, the nation’s increasingly unequal distribution of wealth translates into unequal opportunity-a principle even conservatives should oppose. An array of forces-including growing imports, the falling real value of minimum wage and slower unionization-have contributed to this growing gap.

Krugman, a professor of Economics and International Affairs at Princeton University, delivered the keynote speech today at the second briefing of the Agenda for Shared Prosperity, a network of more than 50 progressive U.S. economists, policy analysts and academics sponsored by the Economic Policy Institute (EPI). Today’s event, held on Capitol Hill in Washington, D.C., featured top-name leaders spearheading the fight for workers and their families. Although they spoke on a variety of topics, their comments shared a common theme: The American dream is slipping away for many hard-working families, and one of the key ways to restore that dream is by enabling workers who want to join unions to do so.

Krugman, also a columnist for The New York Times, said a powerful union movement bolstered the middle-class economy of the post-World War II decades but, in recent years, a political climate that encourages or at best winks at corporate union-busting has meant fewer workers who want to join unions can do so.

In fact, as professor Harley Shaiken writes in one of the four reports the Agenda for Shared Prosperity released today: “The yawning gap between robust demand to join unions and anemic membership numbers reflects the fact that for many Americans joining a union has become a risky proposition. Twenty-three thousand people a year are disciplined or fired for union activity resulting in a big chill on labor’s numbers and a ‘democracy deficit’ for the entire society.” Shaiken, a professor in the Graduate School of Education and Department of Geography at the University of California, Berkeley, writes in “Unions, the Economy and Employee Free Choice”:

An effective way to address the “democracy deficit” is through the Employee Free Choice Act....It allows workers to form a union if a majority of people in a workplace sign up for one. In addition, it provides meaningful penalties for those who would violate workers’ rights and insures that if workers choose a union collective bargaining actually results. The act restores balance to a system that currently is driven by aggressive employers, anti-union consultants, coercion and fear.

Some 233 co-sponsors are backing the Employee Free Choice Act, introduced in the House earlier this month as H.R. 800, and working families and their unions are taking part in a week of action in more than 100 cities thanking lawmakers who support the bill and urging others to sign on.

In a paper analyzing polling and survey data, economist Richard Freeman from Harvard University further made the case for the need to change the nation’s labor laws that currently are tilted in favor of Big Business. In his report, “Do Workers Still Want Unions? More than Ever,” Freeman concludes that:

In 2002 the proportion of workers who said they would vote for a union rose above the proportion that said they would vote against a union for the first time in any national survey: a majority of nonunion workers now desire union representation in their workplace.

America’s workers know that by joining unions, they can significantly improve their livelihoods, job security and future for their families. As Tom Kochan and Beth Shulman note, millions of America’s working families fail to have the necessary means for basic self-sufficiency—and it looks no better for the next generation. In their report, “A New Social Contract: Restoring Dignity and Balance to the Economy,” they write:

In 2000, the average high-school educated workers age 25–29 started out earning about $5,000 less real income and could expect slower growth in earnings than those who entered the labor force in 1970. Workers with some college started about $3,500 behind their 1970 counterparts.

Kochan is co-director of the Institute for Work and Employment Research at the Massachusetts Institute of Technology and Shulman authored The Betrayal of Work: How Low-Wage Jobs Fail 30 Million Americans and Their Families. They find the decline in middle-class living standards, the elimination of institutions that support a growing middle class and the dramatic increase in income equality experienced in recent years is not the result of some invisible hand.

It is the direct result of policy choices that have undermined the bargaining power of every-day Americans. Instead of instituting policies in this global economy to ensure a broadly shared prosperity, we have made choices that benefit the few.

The implicit social contract that governed work for many years—the norm that hard work, loyalty, and good performance will be rewarded with fair and increasing wages, dignity, and security—has broken down and been replaced by a norm in which employers give primacy to stock price and short term gains at the expense of America’s workers.

As a result, the American Dream is slipping away from millions of Americans and their families. A majority of Amer­icans now worry their children will not be able to improve on the standard of living they experienced growing up. If this is not the legacy we want to leave the next generation, then we need to start now to put in place forward-looking policies and labor market institutions to build a new social contract tailored to today’s workforce, families, and economy.

Throughout the year, the Agenda for Shared Prosperity will address the economic issues facing working families and offer solutions through reports on jobs, the economy, health care and more. In January, the Agenda for Shared Prosperity launch highlighted economist Jeff Faux’s “Globalization that Works for Working Americans” and Jacob Hacker’s “Health Care for America: A Proposal for Guaranteed, Affordable Health Care for All Americans Building on Medicare and Employment-Based Insurance.” In setting out a course of action for coming years, the Agenda for Shared Prosperity seeks to steer a stronger course for the nation’s economy—which some opinion-makers in the Democratic Party deny is headed in the wrong direction. As economist Tom Palley writes this week on TomPaine.com:

This denial was recently on display in a report, "The New Rules Economy," issued by Third Way, an influential new Democrat think tank in Washington. The report denies America’s working families have been shortchanged. In doing so, it misrepresents economic reality, undercuts working families and gives comfort to supporters of corporate excess. That makes the Third Way the wrong way.

Palley goes on to point out how such groups as the Third Way deny that family income has stagnated and that there is no problem with excessive CEO pay, the massive trade deficit or household debt.

In another TomPaine article, Palley offers a “memo” to presidential contenders in which he suggests a road map for progressive Democrats to reverse the laissez-faire extremism of the past 30 years. Read it here.

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Globalization Barreling Down the Highway Toward America's Middle Class

When Muhammad Yunus accepted the Nobel Peace Prize last month, the Bangladeshi banker who invented the practice of making small, unsecured loans to the poor, said the globalized economy was becoming a dangerous “free-for-all highway.” According to The New York Times:

Its lanes will be taken over by the giant trucks from powerful economies… Bangladeshi rickshaws will be thrown off the highway.

Further, as The Times paraphrased Yunus as saying:

While international companies motivated by profit may be crucial in addressing global poverty…nations must also cultivate grassroots enterprises and the human impulse to do good.

Yunus has accomplished untold good for his nation’s impoverished citizens, even as he and others for years have sounded the alarm about the negative impact of globalization on the world’s most impoverished. But more and more, it’s not only the poor who are being run off the road. America’s middle class increasingly finds itself faced with the effects of globalization—and seemingly no way to stop the collision. And white-collar professionals are among those now in the headlights.

The United States always has traded with other nations—but until the 1970s, the international share of the U.S. economy was modest, and exports and imports were generally in balance or showed a small surplus. As Economic Policy Institute (EPI) economist Jeff Faux notes:

...in the last 25 years, foreign trade has risen 700 percent, more than doubling as a share of gross domestic product to 28 percent. In 2006, the excess of imports over exports will reach some $900 billion—7 percent of GDP [gross domestic product].

Faux’s briefing paper, “Globalization That Works for Working Americans,” was released Jan. 11 at the launch of a new network of progressive economists, the Agenda for Shared Prosperity. In it, he continues:

This dramatic shift reflects more than simply an increased movement of goods and services between the United States and other nations. It reflects an unprecedented economic integration with the rest of the world that is blurring the very definition of the "American" economy.

American business is steadily moving finance, technology, production, and marketing beyond our borders. Some 50 percent of all U.S.-owned manufacturing production is now located in foreign countries, and 25 percent of the profits of U.S. multinational corporations are generated overseas—and the shares are rapidly growing.

As EPI economist Larry Mishel puts it, more trade, regardless of its terms, is not better for all of us. For many working Americans, the huge growth in foreign trade has resulted in the loss of family-supporting jobs, downward pressure on wages and increased inequality: From 2000 to 2005 alone, 3 million manufacturing jobs disappeared, at least one-third because of our trade deficit. But the greatest damage has been to wages— Mishel estimates as much as a loss of $2,000–$6,000 annually for the typical household. The doubling of trade as a share of our economy over the past 25 years has been accompanied by a massive trade deficit, directly displacing several million jobs.

Mishel, who testified Tuesday before the House Committee on Ways and Means, told lawmakers:

That trade will make the distribution of income worse is embedded in fundamental economic logic. When American workers are thrown into competition with production originating from low-wage nations, both those workers employed directly in import-competing sectors and all workers economy-wide who have similar skills and credentials will have their wages squeezed. In fact, at the same time as trade flows with low-wage nations have increased, the distribution of income and wealth in the U.S. has grown more and more unequal.

Such a view is not confined to progressive think tanks. David Autor, an economist at the Massachusetts Institute of Technology The New York Times yesterday:

The consensus until recently was that trade was not a major cause of the earnings inequality in this country. That consensus is now being revisited.

After years of thinking the nation’s economic gains were passing primarily by manufacturing workers, middle-class professional and technical workers are recognizing the oncoming car wreck is headed in their direction as well.

Discussing a recent Center for American Progress study, White Collar Perspectives on Workplace Issues, Jim Grossfeld and Celinda Lake wrote on The America Prospect online that “many young, white collar workers are now as bewildered by the ‘new economy’ as manufacturing workers have been for a generation.”

As a 20-something techie in the once bustling Silicon Valley told us: "I think a lot of people, you know, 30 years ago, could get a job that was relatively stable, but, here I am, five years out of school, and I've had four jobs. It's not because I'm not good because I've gotten praise from every single job I've been at. It's just that the fact that the companies don't seem stable."

But it's not just that these workers' future career prospects look murkier. The quality of their work lives is tanking, too. It is difficult to overstate the importance of this decline. Technical and professional employees share a profound conviction that their work ought to be intellectually satisfying—even an expression of their values. However, when employers press for cost savings and workloads soar, psychic wages take a plunge. Echoing the sentiments of many of the workers we spoke to, when asked to describe her office, one San Jose woman answered: "Busy, overworked, under staffed, not enough people in the group to do all the work we need to do so everyone's doing a lot of work and just running around like a chicken with a head cut off."

In fact, new data compiled by EPI show employment growth in the past five-year post-recessionary period has been subpar due to a weak economy. This conclusion is supported by the fact that employment rates, which some thought were at the demographically set peaks, have risen sharply in response to job growth and falling unemployment in 2006.

The union movement doesn’t oppose trade and globalization. In fact, it’s precisely because we recognize we live in a global economy that we see a lot of policy changes that should be made at the federal level to enhance the quality and stability of jobs in this nation. And when trade deals are negotiated, they need to do more than line corporate pockets—they need to ensure workers don’t get run off the road.

Faux offers many solutions in his issue paper on globalization, one of many the Agenda for Shared Prosperity will issue in coming months in advance of the 2008 elections on topics such as pension, health care and more. One solution he offers: Eliminate perverse tax incentives.

By law, corporations that invest in the United States pay taxes when they are earned. But corporations that invest overseas can delay the payment of taxes until they repatriate their profits—which can take a long time. In 2005, in order to get some short-term relief to the fiscal deficit, the Congress voted to offer corporations that brought their money back that year a 5.25 percent tax rate, a much lower rate than they would pay on profits made in the United States.

This loophole might have been justified after World War II as a way of helping Europe and others get back on their feet. But it has long outlived its rationale and should be eliminated.

Indeed, U.S. integration into the global economy requires us to rethink our whole approach to taxation. Other nations, for example, use "border-adjustable" value-added taxes (VATs) to favor exports over imports. A progressive VAT is some-thing that ought to be considered as an instrument to level the playing field.

In contrast to the Hamilton Project, which supports unfettered globalization, Faux offers many other options to making globalization work for working people. It’s all here.

As AFL-CIO President John Sweeney wrote recently in a USA Today op-ed:

Without dramatic changes in trade policy, we will continue to hemorrhage good jobs, while corporations take advantage of workers whose basic human rights are violated daily.

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