Wayne O’Leary

The Roots of Inequality

Something in America just doesn’t compute. The Great Recession, as measured by consecutive quarters of negative growth — economists say two or more quarters of minus GDP (gross domestic product) constitute recessionary conditions — has ended; technically, it’s been over for six years. Productivity is up (by 4% per worker-hour since 2011, reports the Labor Department), as are corporate profits, executive salaries, and the stock market. Official unemployment, meanwhile, is falling; it’s reached 5.5%, the lowest in years. Yet, things still seem curiously out of whack.

Based on recent surveys, most Americans are downbeat and pessimistic about the economy’s future prospects; a majority (52% in a 2014 year-end Gallup poll) believe its performance is actually worsening. Income-wise, they’re right. Census data, adjusted for inflation, showed median US household income lower at the end of 2014 than when the recession ended in mid-2009 and lower, in fact, than in the year 2000, reflecting a long-term shrinkage of the middle class that began a generation ago. This, according to New York Times pollsters, has led over a third of us to entirely give up on the “American dream” of hard work leading to upward mobility.

The source of the pervasive disenchantment is not hard to pinpoint; it’s rooted in wage stagnation — a lack of improvement or an actual deterioration in the weekly paycheck earned by most employed people. As an economic phenomenon in modern American life, wage regression is nothing new; it started in the Reagan years of the 1980s, when capital began to be judged far more important than labor.

Between 1979 and 2014, the Economic Policy Institute’s Lawrence Mishel finds, while American GDP was growing by 150% and national productivity was rising by 75%, inflation-adjusted hourly wages for the median worker went up only 5.6%, essentially flat-lining on an annual basis at a 0.2% increase per year. Since 2002, he further reveals, 80% of all US wage earners have had falling or stagnant wages.

The laissez-faire Republicans, who are driving economic policy in Washington and in statehouses around the country, see no problem with what’s been referred to as “the great wage slowdown.” Wage earners, they believe, should be happy just to have a job, the compensation for which will be correctly set by the unimpeded free market, as it should be. Whatever that compensation level turns out to be is what workers deserve and what the almighty market, in its infinite wisdom, intended.

That the market is basically rigged to benefit those in a position to manipulate the grasping fingers of the “invisible hand” is rarely acknowledged. In reality, wages are set through an uneven power relationship between employer and employed. The experience of several decades, going back into the last century, establishes clearly that the unchallenged operation of market forces in this instance is not the route to economic justice.

What, then, is the solution to America’s income crisis? Politically, conservative Republicans, who don’t recognize the problem exists, oppose any action to redress it. Other, presumably more serious, members of the governing establishment (centrist Democrats at the Center for American Progress, for example) merely trot out familiar and ineffectual nostrums, such as increased education and middle-class tax cuts. But Americans already have education and training in abundance, and middle-class tax cuts, while fine (the budget permitting), work only at the margin.

Then, there’s raising the minimum wage, a worthy cause and something we should support, but no ultimate answer. A higher national minimum wage, traditional theory holds, will force businesses to boost wages across-the-board, starting just above the minimum and creating a beneficial, upwardly snowballing effect. But business attitudes have changed in recent years, and publicly-held companies are pressured to add “shareholder value” by controlling labor costs; so, the long-time conventional wisdom is no longer likely to apply. Economists at the Organization for Economic Cooperation and Development (OECD) have concluded, furthermore, that increasing the ratio between the minimum wage and higher, more typical wages in the US would have only a minimal impact on the yawning income gap.

What remains as a public-policy option is something policy makers have been loath to advocate: unionization of the workplace. Their reluctance is understandable, if somewhat craven. Labor unions are controversial. Standing with them is fraught with peril for politicians; it requires taking on corporate America and monied interests in general, as well as ideological opponents and often an unsympathetic mass media. It’s also the only plausible avenue toward closing the wage and income gap.

The evidence for this lies in both the historical record and present-day economic analysis. Historically, the 1930s were the golden age for American labor organizing. Union membership nearly quadrupled from 2.7 million to 10.2 million between 1933 and 1941 under the aegis of first the 1933 National Industrial Recovery Act (NIRA) and then the 1935 National Labor Relations (or Wagner) Act, New Deal measures that federally guaranteed workers the right to organize and bargain collectively for wages and benefits. In tandem with this massive recruitment drive came a decade-long yearly upsurge in annual worker earnings that, according to preeminent labor historian Irving Bernstein, was directly attributable to “growing union power.”

Studies of the modern world of work show much the same thing. A 2008 examination of employment in the greater Los Angeles area by Occidental College researchers revealed that union members earned 27% more than nonunion workers doing the same job; they also indirectly created an estimated 60,000 new multiplier positions by spending their added pay in the local economy.

Most recently available are the eye-opening and confirming findings of International Monetary Fund economists Florence Jaumotte and Carolina Buitron, just published in the March 2015 issue of the IMF quarterly Finance and Development. Declining percentage levels of trade unionization found in advanced world economies between 1980 and 2010, they report, were in direct inverse correlation to increased concentrations of national income at the top. Lower union density, in other words, equaled lower wages, which translated into higher income shares for the upper 10%.

The lesson should be obvious to anyone searching for the roots of inequality in the US: look at the level of wages paid to America’s workers. And while you’re at it, look for the union label.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He is the author of two prizewinning books.

From The Progressive Populist, June 1, 2015

Populist.com