October 16, 2013
By Oren M. Levin-Waldman, Ph.D.
America is built on a tradition of individualism. The myth that America is a land of opportunity, and with hard work and perseverance people can make it, still persists. For more than two centuries this myth has fed the illusion that there is upward socioeconomic mobility for those who were so motivated. It is, after all, up to the individual to make it happen.
And yet, the low-wage labor market would seem to suggest otherwise. In fact, the increasingly dual economy — educated and skilled workers earning high wages at the top and poorly educated and low-skilled workers earning low wages at the bottom poses a serious challenge to this American tradition. That is, is individualism really compatible with a complex economy?
The history of economic regulation is one whereby increasing governmental intervention in economic affairs became necessary because the economy became ever more complex. As we progressed from an agrarian economy where one’s farming activity would not likely affect others through industrialization to the now post-industrial and ever more global economy where one firm’s economic activity can have profound, and even devastating, effects on others, there has been a need for institutions.
We increasingly hear calls, especially from the right, for government to get its hands off of the economy and let the free market do what it is supposed to. Clearly this is a throwback to the underlying tradition of individualism. But the nature of the modern economy has clearly shown that large segments of the labor market need help. Those in the low-wage labor market are often not in a position to pull themselves up by their own bootstraps. Rather they are trapped in low-paying and dead-end jobs. They essentially lack capabilities, which economist and philosopher Amartya Sen, suggests is a consequence of poverty. It is a given that they could benefit from education and investments in worker education programs. But more than that, they need to have greater voice, which can only come about through greater monopoly power, either through organizing efforts or public wage policies that will boost their wages.
Unions were born out of a need to redress the asymmetrical power imbalance between management and labor. Similarly, minimum wages and other wage policies effectively give workers in the low-wage labor market a measure of monopoly power they otherwise lack. As we find ourselves in the new global market, these institutions are even more essential if there is to be some hope of maintaining any semblance of the middle class. The middle class in this country was not born out of manufacturing jobs, but out of institutions intended to address those economic forces that were otherwise pushing workers out of the middle class and into poverty. It was during the early days of industrialization that low-skilled and low wage workers could be found on the assembly line. Unions were intended to give these workers dignity in their work. The answer to greater globalization — greater economic complexity — is not wage flexibility which has become the mantra of American industry pushing the low road strategy.
Rather labor market institutions like unions and minimum wages are necessary to ensure not only a level playing field in labor-management negotiations, but that workers will continue to have voice in determining what the future course of the economy that so profoundly affects their lives. With labor market institutions, there tends to be less income inequality, a stronger middle class, and greater worker involvement in communal affairs. With greater worker voice we might actually see a greater sharing of productivity gains with workers, which despite increases in productivity since the end of the Great Recession in 2009 have not been shared in the form of higher wages. With greater worker voice, we might be able to arrest the wage stagnation that has plagued the American economy for more than three decades now. Workers who earn wages sufficient to support themselves and their families in dignity are better able to develop their capabilities and live fuller and independent lives.
As labor institutions seek to organize more workers and rebuild their ranks, which have diminished over the years, they should focus more on the low-wage labor market, perhaps on an industry basis, rather than the old firm basis. As the low-wage labor market has expanded, it is the low-wage labor market that is in more need of organizing and other types of wage policies that will enable low-wage workers to develop their capabilities. But unions can do more. In addition to fighting for better wages, working conditions and promoting national policy that benefit the middle class, they can also bargain for increased worker education investment by employers as the basis for further developing the necessary human capital to move the economy forward.
When we get right down to it the key to a strong nation is a strong and vibrant middle class. As inconvenient as a government shutdown might be, it really is nothing more than a diversion from the real issues that need to be addressed, which are that in a complex economy institutions matter and must be developed for the maintenance of the middle class.