Rebuilding Worker Power
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Bibliographic details
- Authors: LAWRENCE MISHEL
- Published: December 1, 2020
Summary
- Systematic erosion of workers’ power relative to employers has suppressed US wages.
- Wage suppression has increased wage inequality and exacerbated racial disparities.
- Restoring broad-based growth requires policies focused on rebuilding worker bargaining power.
Major mechanisms explaining wage suppression
- Contractionary policy
- Monetary, fiscal, and trade policies have led to excessive unemployment, defined as unemployment above full employment.
- Since 1979, Federal Reserve Board policymakers have worried too much about inflation risks and have not embraced the benefits of full employment.
- Excessive unemployment has hurt low- and moderate-wage workers the most, with concentrated impacts among Black workers.
- If full employment of 5 percent had been maintained between 1979 and 2007, median wages would have been between 18 and 28 percent higher by 2007 (Bivens and Zipperer 2018).
- The extended high unemployment following the Great Recession, caused by austere federal and state fiscal policy, compounded wage problems.
- Excessive unemployment alone explains the 9 percentage point increase in the wage gap between Black and White workers since 1979.
- Globalization on capital’s terms
- Globalization proceeded in ways that maximized wage-suppressing effects, disproportionately harming Black and Latinx workers.
- Trade flows with low-wage nations were likely reducing wages for workers without a four-year college degree by roughly 5.6 percent—almost a $2,000 annualized loss (Bivens 2013).
- Policy failures amplified globalization’s damage: lack of compensation for losers, failure to address currency misalignments, and trade agreements that undercut workers’ leverage while protecting corporate profits.
- Employers substituted imports for US production, reducing domestic employment and wages.
- Weakened unions
- Collective bargaining is the key wage-setting institution for middle-wage workers; erosion of union representation is a major factor depressing middle wages, especially for men.
- Fortin, Lemieux, and Lloyd (2019) show union erosion explains from 29 percent to 37 percent of male wage inequality growth and 37 percent of the growing gap between high-wage and middle-wage men.
- Eroded unions lowered the male median wage by 0.33 percentage point each year.
- For women, union decline explains roughly 10 to 13 percent of overall wage inequality growth and 13 percent of the growth of the top-half wage gap.
- Private sector union coverage fell from about 23 percent in 1979 to just 7 percent in 2019.
- In 2017, almost half of nonunion workers wanted collective bargaining—an underrepresentation equivalent to approximately 58 million workers.
- Weakened labor standards and enforcement
- The federal minimum wage in 2019 was 25 percent below its peak value in 1968, even though productivity doubled.
- Erosion of the minimum wage explains most of the shift in the wage gap between low- and middle-wage workers.
- Overtime protections have weakened: nearly half of salaried workers in 1975 were covered by the overtime threshold, falling to just 10 percent of salaried workers by 2014.
- Low-wage workers lost more than $50 billion to wage theft in 2016.
- Wage theft represents about 3 percent of the total wages of the bottom 60 percent of earners.
- Experts believe wage theft has become epidemic; it is reasonable to say an additional 1.5 to 2 percent of wages are now lost as a result of wage theft compared with 1979.
- Roughly 6 percent of the workforce, including undocumented and guest workers, lacks full labor protections.
- Noncompete agreements now dim the prospects of between 28 percent and 46 percent of private sector workers.
- Forced arbitration provisions covered 56 percent of nonunion private sector workers in 2018.
- Millions of workers are being misclassified as independent contractors across sectors including ride-sharing, trucking, construction, and janitorial services, denying them social insurance and workplace protections.
- Corporate structure changes
- “Fissuring” (domestic outsourcing with dominant firms maintaining control via standards) redistributes profits to dominant firms and worsens wages/conditions at subcontracted firms.
- Between a fifth and a third of the economy is characterized by fissuring, a much larger share than four decades ago when it was likely half that.
- A speculative gauge: a shift of 15 percentage points of employment into fissured workplaces where workers earn 15 percent less would imply a 2.25 percent overall decline in wages.
- Dominant buyers’ ability to squeeze supplier profits increased: the share of nonfinance suppliers’ revenue obtained from dominant buyers rose from 5 percent in 1979 to 19 percent in 2014 overall, including from 6 percent to 26 percent in manufacturing and logistics (Wilmers 2018).
- Wilmers estimates this lowered annual earnings by 3.4 percentage points among publicly owned nonfinancial firms.
- Industry deregulation in the late 1970s (airlines, trucking, interstate busing, telecommunications, utilities, and railroads) affected 9 percent of the workforce in the 1980s and eroded middle-wage jobs, explaining the almost 7 percent higher male wage inequality between 1979 and 1988.
- Both monopoly and employer concentration can lower wages, but employer concentration primarily affects rural areas and does not appear to have grown significantly over four decades.
- The rise in labor’s share of income as unemployment fell during the recent recovery suggests eroded worker power, rather than monopoly profits, is a key factor in labor’s declining share.
- The enormous profits of the five big tech firms represent a monopoly problem, though their role in wage suppression is difficult to assess.
Key statistics and trends
- Top-earners and productivity
- Top 1 percent earnings increased 158 percent over the past four decades.
- Top 0.1 percent earnings increased 341 percent over the past four decades.
- Economy-wide productivity rose almost 70 percent.
- Hourly compensation for typical workers increased less than 12 percent.
- Since 2000, labor’s share of income has steadily eroded.
- Unionization and worker demand
- Private sector union coverage: about 23 percent in 1979 → 7 percent in 2019.
- Nonunion worker interest in collective bargaining in 2017: almost half; underrepresentation equivalent to approximately 58 million workers.
- Wage theft and protections
- Low-wage workers lost more than $50 billion to wage theft in 2016.
- Wage theft equals about 3 percent of total wages of the bottom 60 percent of earners.
- Additional 1.5 to 2 percent of wages lost to wage theft compared with 1979 (experts’ assessment).
- Roughly 6 percent of the workforce lacks full labor protections (including undocumented and guest workers).
- Noncompete agreements affect between 28 percent and 46 percent of private sector workers.
- Forced arbitration covered 56 percent of nonunion private sector workers in 2018.
- Fissuring and buyer power
- Share of economy characterized by fissuring: between a fifth and a third (much higher than four decades ago).
- Shift scenario: 15 percentage points into fissured workplaces with 15 percent lower earnings → 2.25 percent overall wage decline.
- Nonfinance suppliers’ revenue share from dominant buyers: 5 percent in 1979 → 19 percent in 2014 overall; manufacturing and logistics: 6 percent → 26 percent.
- Wilmers estimates a 3.4 percentage point reduction in annual earnings among publicly owned nonfinancial firms due to buyer power.
Policy recommendations (road ahead)
- Center future policy on restoring bargaining power to the typical worker.
- Keep unemployment low (achieve and maintain full employment).
- Provide adequate labor standards, including family leave and sick leave.
- Effectively enforce labor laws to prevent wage theft and exploitation.
- Eliminate forced arbitration and noncompete agreements to enable worker options and access to courts and collective actions.
- Rebuild collective bargaining and labor representation.
- These policies aim to reestablish economic fairness, invigorate civic engagement and democracy, and promote freedom in and outside the workplace.
Conclusion
- The narrative that wage stagnation was an inevitable by-product of globalization and automation is insufficient; policy choices and corporate practices played central roles.
- The disproportionate income growth for executives and the top 1 percent cannot be fully explained by automation or special skills.
- Political and policy action will determine whether workers receive a fairer share of economic growth.
Source: Rebuilding Worker Power — F&D Magazine, LAWRENCE MISHEL, December 2020
Content in this bundle
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- Rebuilding Worker Power – IMF F&D
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