President Obama has belatedly awakened to the plight of America’s middle class whose economic fate is dependent almost entirely on wages. Taking a lead from his predecessors since Ronald Reagan, Obama proved indifferent during much of his first term to the deterioration in the collective bargaining position of employees at US workplaces – the key to wage growth. He has been more attentive since 2012, pursuing policies to redress this imbalance. But Obama’s efforts to strengthen wages lack an overarching principle or long-term vision to sustain them.
The administration still has an opportunity to articulate such a vision. And it should feature an American middle class paradigm where wages rise each year by the sum of inflation plus one-half or more of the previous year’s gain in productivity. The Department of Labor each spring should publicize a wage standard for raises based on such a fixed formula. Employers would not be legally obligated to meet the standard but it would be widely publicized.
Hostility To Wage Increases
The Republican Party is hostile to higher wages for the American middle class. The party’s lawmakers reject higher minimum wages, overtime pay reforms, paid parental leave proposals and the like and are openly rejecting collective bargaining. Indeed, raising middle class wages has become a third rail of Republican politics, akin to favoring marriage equality. The Democrats are more sympathetic to middle class aspirations, but President Clinton emulated GOP Presidents beginning with Reagan in systematically weakening key government agencies charged with responsibility for maintaining the balance between employees and employers in the workplace. Collective bargaining that underpins rising wages has faced an antithetical GOP and an apathetic Democratic Party since Reagan demonized the air traffic controllers’ union in 1981.
Strengthen Collective Bargaining
Experience in northern Europe/Oceania and American history teaches that collective bargaining is the indispensible element – both necessary and sufficient – to realize broadly based real wage gains. Higher union density is linked to higher real wages in America and in peer nations. In Germany, for instance, most employees received real wage gains in 2014. But the 55 percent of Germans working in union settings received twice (2.2 percent) the real wage gains of those in non-union work settings. Employees obviously benefit. But northern European firms also benefit from their collaborative labor environment that includes works councils where both management and workers are focused on ensuring long-term company prosperity. That helps explain why investment is greater, and wages are $10 per hour higher, at northern European and Australian enterprises than at US firms.
All democracies have entities designed to enforce labor laws, such as Australia’s Fair Works Commission. In the US, the Department of Labor sets standards, but collective bargaining is mostly the purview of the National Labor Relations Board (and its important adjunct the National Mediation Board). Unlike its sister national organizations, the NLRB has been hobbled by partisan opponents, with the GOP slowing its efforts to boost wages. The 3-2 Democratic majority on the board is focusing a lot on administrative changes, but is also finally getting around to important cases. In particular, the NLRB has just made a start at curtailing the independent contractor job scam. Leading firms such as McDonalds, Uber and FedEx cut labor costs by mislabeling staff as self-employed to evade federal hourly and wage laws and deny benefits normally afforded to employees. Such independent contractor scams were rare until Reagan’s NLRB relaxed the rules in 1984.
Raising American wages requires that the NLRB aggressively supports collective bargaining. Employers today can fire union activists with few penalties, for instance. Even when a majority of employees embrace a union, employers are able to derail formal recognition of that union by demanding redundant and superfluous representational elections. And even when unions are formally recognized, employers can simply slow-walk bargaining negotiations in perpetuity with impunity. Joseph Stiglitz described the devolution initiated by Reagan this way:
The right to freely associate and bargain collectively is universally recognized as a basic human right, but in the United States the ability of workers to organize has been greatly diminished by a decades-long campaign to erect barriers to unionization, place restrictions on union activity, and weaken labor laws across the board.
Wages In The Gig Economy
The urgency of restoring collective bargaining rights is dramatized by the emergent “gig economy”. The fastest growing worker cohort in America is serial part-timers working irregularly on demand. The consulting firm Economic Modeling Specialists International has concluded that the number of such freelancers and contingent workers (including independent contractors) increased to 32m in 2014 from 20m in 2000. The “gig economy” has emerged as an alternative business model in good part because weak labor laws enable firms to utilize the digital revolution to commoditize employees.
This prospect holds great peril as well as promise. The “gig economic” model can improve job opportunities and satisfaction for workers, with autonomy and choice replacing traditional inflexibility. Highly skilled workers can benefit. But workers with fewer skills or education will not fare well. For them, “gig” jobs pose a genuine threat to middle class living standards, just another route to wage stagnation. Indeed, for tens of millions of Americans, jobs in the “gig economy” resemble those in middle-income nations that feature informal relationships. Aside from enjoying more pleasant working conditions, on-call workers in America holding insecure jobs at $10 per hour bear disconcerting similarities with commoditized south Asian sweat shop workers who similarly earn subsistence pay.
The urgency of restoring collective bargaining rights is also dramatized by the emerging Darwinian work culture at non-union firms like Amazon where more is relentlessly demanded from commoditized employees in a throwback to 18th century industrial practices. Loyalty and morale are scant, with dystopian work sites featuring confrontation, workaholism (70 hour weeks), stressful office politics and predatory harassment of colleagues until they are fired or burnt-out. And that’s the white-collar workforce at Amazon.
A Vision Of Rising Wages
The evidence from rich democracies teaches that empowering collective bargaining is an indispensible step toward higher wages. An energized President Obama should aggressively reassert collective bargaining rights common before the Reagan era. Changes on top to close loopholes exposed by the “gig economy” are also appropriate. Joint responsibility for labor law protections for firms utilizing the independent contractor model should be broadly re-established. Such obligations should encompass those firms responsible for 50 percent or more of an employee’s working day as proposed on this website recently by former labor secretary Robert Reich.
Genuinely independent contractors not tied to a steady employer pose special challenges, unduly reliant as they are on the social safety net. Compared to other rich democracies, that net in America is relatively thin. But progress is evident. In particular, the Obama administration has facilitated independent work with the Affordable Care Act. And it should build on that progress by promulgating a national wage paradigm where every worker should enjoy annual raises linked to national productivity trends as I indicated above. That expectation will certainly benefit employees in traditional workplaces, but it will also facilitate independent work by providing moral leverage to those men and woman who by choice or circumstance are on their own.
Collective bargaining and a national wage paradigm must become central to the American economic experience or presidential candidates in 2036 will still be lamenting wage stagnation and rising income disparities.
George Tyler is a former US deputy Treasury assistant secretary and senior official at the World Bank. He is the author of What Went Wrong: How the 1% Hijacked the American Middle Class ... And What Other Nations Got Right.