It’s wages, stupid!
Analysts are pondering why millions of the same voters who favored President Obama in 2008 and (less enthusiastically) in 2012 pivoted to favor his antithesis, Donald Trump, in 2016. Economic frustration centered on stagnant wages is mostly the answer, reflected in a generalized desire for “change” expressed by 39 percent of voters in exit polling.
American corporate executive suites were provided political and philosophical support to divert cash flow to profits from wages beginning in the 1980s by the Reagan administration, which also demonized trade unions. This executive suite transformation, symbolized by an embrace of job offshoring and Randian rational selfishness, is the genesis of the ensuing decades of wage stagnation. Wages are inching up for the moment as American labor markets episodically tighten. But the Bureau of Labor Statistics (BLS) reports that the median weekly wage of a full-time American worker in the all-encompassing nonfarm business sector in 2016 was a bare 5 percent ($17) higher than in 1979, adjusted for inflation. In Germany, by contrast, real wages are 30 percent above 1985 levels. In fact, the average 2.5 percent real wage gains reported by the Statistische Bundesamt (Federal Statistics Office) for German workers in 2015 alone was one-half the cumulative rise in median real American weekly wages since 1979.
Globalization, technology change and a handful of other exogenous factors are typically blamed for this stagnation. Yet, experience in other rich democracies during the past generation belies that thesis. Real salaries abroad have risen steadily enough for decades so that wages and benefits in the capstone manufacturing sectors in 13 other rich democracies have soared well above America. Compensation in 11 of them is more than $10 per hour higher than in the US, according to the Statistische Bundesamt and the Conference Board. That is because new jobs being created in America (unlike in other rich democracies) over the course of the business cycle in recent decades have consistently paid less than the old ones they replaced. More than 40 percent of the 8.5 million jobs lost in 2008 and 2009, for instance, had median wages above $20 an hour. But only 30 percent of the new jobs created through February 2014 were comparable. The consequence is documented by the OECD, which has concluded that the US has the largest share of low-wages jobs of any rich democracy. That explains the Federal Reserve finding that 22 percent of Americans work two or more jobs.
Other rich democracies like the Low Countries or Germany are more engaged in international trade than the US and have no better productivity records of late than America. Yet, wages have steadily inched up in Northern Europe for the past generation, because the quality of their democracies is higher. Middle class hopes of rising prosperity are satisfied by politicians who demand both codetermination in the governance of larger domestic corporations and insist that smaller employers provide steady if modest real wage gains annually. The outcome is steadily rising real wages apace with productivity gains, no job offshoring, greater workforce participation than in the US and more security for life’s challenges via quality and affordable health care, education, child care and retirement. It is why their households suffer fewer pathologies such as addiction or suicides than the economically beset and shrinking American middle class. Indeed, as documented by OECD data, America has come to most resemble Turkey or Uruguay on important economic measures such as income disparities or the small size of its middle class.
The election outcome is not a panacea for middle- and working-class Americans seeking higher wages. Trumponics will mimic Reaganomics, with the Republican Party agenda of higher profits, tax cuts for the most cosseted, wage suppression, indifference to budget deficits and deregulation de rigueur. President Reagan nearly tripled America’s national debt, for instance, and Trump may well match that. Federal anti-poverty health care and food programs will likely devolve to become state-administered grants, worsening the plight of America’s poorest. And a new Supreme Court justice or two will ensure that body remains in the hands of steadfast economic Darwinians.
Donald Trump campaigned to drain the swamp of pay-to-play Washington politics. And Trump campaigners like former Republican Senator Trent Lott – a powerful lobbyist – are eager to help: “He is going to need some people to help guide him through the swamp – and how do you get in and how you get out? We are prepared to help do that.”
The one inescapable, absolutely ineluctable reality is that wage stagnation can only be ended by reforms to American corporate governance. Token proposals (domestic content regulations, wage subsidies) may be introduced. But Republicans will assuredly reject the necessary systemic reorientation of American executive suites that is viewed with great hostility by their affluent donor class.
This easily predicted stasis is an opportunity for Democrats. The election results obviously require them to advocate for a new American wage bargain more alluring than their tepid agenda now centered on minimum wages, paid family leave, speedier unionization elections, overtime pay, Independent Contractor reforms and the like. It requires a centerpiece able to capture the imagination of America’s middle and working classes.
That centerpiece should be co-determination – reforming corporate boards of directors to make them amenable to sharing productivity gains with both shareholders and employees. Prime Minister Theresa May will unveil a co-determination proposal shortly for British enterprises and the American Democratic Party should do no less. As evidenced by Germany and many of its neighbors, co-determination has proven over decades to be the globe’s most powerful and dynamic technique for enabling the middle class to realize a portion of the gains from growth without endangering international economic competitiveness.
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That success makes it the prescription of choice for a Democratic Party eager to be recast as genuine enablers of the middle and working classes, a role they have bungled since Ronald Reagan.
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.