Feeling stressed? Here’s some food for thought on a Friday afternoon: Americans now work an average 122 hours more per year than their Anglophone counterparts in Britain, and 378 hours more than the industrious Germans. That’s partly because we work more hours per week than anywhere else in the developed world. But it’s also a result of our weak labor laws. Every other country in the OECD has legal protections for weekends, paid annual leave and mandated days off for public holidays. And of course the United States is one of the only countries in the world that doesn’t guarantee paid maternity leave, along with Sierra Leone, Liberia, Samoa, Swaziland and Papua New Guinea. Enjoy the weekend!
What Slowing Productivity Growth Means for Tomorrow’s Jobs Report
The U.S. economy went on something of a crash diet during the Great Recession, cutting millions of Americans from the workforce and squeezing dramatic productivity gains from those who remained. Unit labor costs dropped and output per hour rose as busiensses became leaner and meaner. But slimming down can only increase efficiency to a point, and as the economy has recovered, the pendulum has appeared to swing back in favor of workers. Revised estimates released yesterday by the Labor Department show that productivity growth slowed to 0.9 percent annualized at the end of last year, down from 1.8 percent in the previous quarter. And unit labor costs rose 2.8 percent, more than doubling earlier estimates.
That bodes well for tomorrow’s jobs report, which is expected to show modest gains throughout the economy. If productivity is slowing, than the only way businesses can expand output is to hire more people. Hopefully that will put sufficient pressure on wages, which have plenty of room to rise against price markup without any inflationary effect.
But let’s not miss the forest for the trees—or in this case, the historic trend for the market correction. The graph below—which plots productivity growth against labor costs since 1990—shows that the divergence between efficiency gains and wage compensation is a long-term trend that is not likely to be altered by the recovering labor market. The underlying problem remains intensifiying income inequality, here expressed as workers’ decreasing share of corporate profits. Although tomorrow’s job numbers are likely to be another piece of good news for the economy—joining high consumer confidence and declining unemployment insurance applications on a growing list of positive indicators—it is critical that we do not allow the conversation about systemic inequality to fade into the shadows. The graph below illustrates a tectonic, not cyclical, shift. We’ll need more than a band-aid to correct our course.
Graph of the Day: Putting the Squeeze on Labor, Part II
Yesterday I commented on what Mark Thoma and Karl Smith both identified as one of the most significant graphs in the White House’s Economic Report of the President. That graph showed how the historical post-war relationship between wages and prices—or more fundamentally, between labor and capital—has broken down over the last thirty years. You can probably guess who has gotten the short end of the stick. Traditionally it has been the case that a competitive market prohibits businesses from raising prices too high or pushing labor costs too low, as both consumers and labor will look elsewhere for a better price. And historically, that dynamic has held: from 1947 until the mid-1980s, American wage earners accrued a proportionate share of economic output as productivity rose. But since the Reagan Revolution, corporate profits have surged while wages have flatlined, breaking the post-war trend that essentially created the American middle class. As I argued in my previous post, the present imblanace between capital and labor is unlike anything we have experienced in two generations. A global oversupply of labor and skill-biased technological change account for much of this inequality. But we cannot ignore that “laissez-faire” policies have encouraged this unprecedented redistribution of wealth to the richest 0.1%, while diminishing social mobility for the poor. Regressive tax policies that privilege capital gainsand loopholes like the carried-interest deduction have created the conditions that allow the Forbes 400 to control as much wealth as 150 million Americans while paying an average tax rate of just 18 percent. We cannot accept that disparity as the new normal.
Graph of the Day: Putting the Squeeze on Labor
The White House’s new Economic Report of the President—broadly, an annual overview of how the president and his Council of Economic Advisors (CEA) view the state of the economy—is generally optimistic for 2012, noting better-than-expected job growth and economic expansion for ten straight quarters. It also underscores just how severe the financial crisis was that the president faced, with revised estimates showing that the economy contracted at an 8.9 percent annualized rate in the last quarter of 2008, not the 3.8 percent initially claimed.
The outlook on wages, productivity, and prices is less rosy. The CEA notes ominously that for the first time since World War II, the historical link between wages and prices has broken. For the last ten years, inflation has been driven by rising price markup, while unit labor costs have fallen behind productivity gains. In other words, prices are increasing and corporate profits are soaring—but workers are being left behind, with labor share of output (the inverse of price markup over labor unit costs) at its lowest level in seventy years.
On the one hand, that means there is now considerable slack in the labor market, so the CEA can predict that the economy has plenty of room to expand without creating inflationary pressures. But it also indicates a tectonic shift, since the Reagan Revolution, in the relationship between unskilled labor and capital. If this new trend holds, then we are looking at an economic environment that is unlike anything we have experienced in the post-war era. Karl Smith is more blunt: “At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again. The reality of this new world is that you cannot simply work hard and make a good living.”
In a way, he’s right. The post-war era really was a unique time in American and economic history, with wage compensation tied to productivity growth—a rising tide that lifted all boats mostly equally. The past several decades have seen that relationship erode, as manufacturing and union jobs disappeared overseas, and corporations sought massive gains in competitiveness and profit at the expense of labor. Globalization and technology share much of the blame, but it is also instructive to look at the experience of other industrialized countries, many of which have been able to mitigate soaring income inequality with education and industrial policies designed to equalize opportunity and share the benefits of economic growth. Once, around the turn of the twentieth century, enterprising young progressives headed to Europe to study policy, returning to America with the seeds of what would become the New Deal, and later, the Great Society. Perhaps it is time, once again, to look abroad for answers.
Union Membership Grew in 2011, But Remains at Historic Low
Despite ongoing government cutbacks and a series of threats from states seeking to limit collective bargaining rights, the latest data shows that gains in the private sector helped overall union membership to increase slightly last year to 14.8 million. While that number is “essentially unchanged” from 2010, according to the Bureau of Labor Statistics, it indicates that declining union participation may have finally bottomed out—for now.
While the addition of 110,000 new union workers in the private sector—primarily in health care and construction—helped to offset the loss of about 61,000 government employees, the overall percentage of unionized workers remains, at 11.8 percent, the lowest since the Great Depression. Interestingly, that’s something of a reversal from the trend the last thirty years: public sector union membership was growing steadily until the financial crisis of 2008, even as private sector unions all but disappeared with the offshoring of American manufacturing.
It is a precarious moment for the labor movement. If, as labor leaders hope, we have indeed hit the bottom for private sector unionization, we may see unions begin to rebuild as the economy recovers. But in the face of continuing budget shortfalls, the future for the public sector remains uncertain. “We may have reached a level where the union numbers simply can’t decline anymore,” says Gary Chaison, a labor professor at Clark University. “But if you’re not expanding, how can you call yourself a movement?”
Graph of the Day: One Job Available for Every Four Unemployed
The recently released December job numbers were a mixed bag in many ways, with optimism over the lower headline unemployment rate tempered by still historically high long-term unemployment, a 15.6 percent “U6” unemployment rate (a broader definition of unemployment), and critically low labor force participation.
The latest data from Washington is similarly difficult to get excited about. According to the Labor Department’s new JOLTS survey (Job Openings and Labor Turnover), there were 3.16 million job openings in November, or approximately one job for every 4.2 unemployed workers. That’s a 30 percent improvement since the trough of the Great Recession in June 2009, but a 2 percent decrease from the number of job openings in October, pointing to a still dismal job market. What’s more, JOLTS makes no distinction between part-time and full-time job openings, meaning many millions of Americas are still working fewer hours than they need to make ends meet.
Graph of the Day: Has the Decline of Unions Made America Less Equal?
By Benjamin Landy
Last week, The Century Foundation hosted author and labor lawyer Tom Geoghegan and Senior Fellow Richard Kahlenberg for an informal panel discussion about their upcoming book, “Labor Organizing as a Civil Right,” which is being co-written by civil rights layer Moshe Marvit. TCF plans to release the book in April to coincide with the anniversary of the assassination of Martin Luther King Jr., a champion not only of civil rights, but also economic justice and the rights of labor.
King’s last act, before his untimely death in 1968, was to support the Memphis sanitation workers, who were striking for higher wages and equal treatment. In their forthcoming book, Geoghegan, Kahlenberg and Marvit aim to expand upon King’s legacy as a labor leader by proposing an amendment to the Civil Rights Act that would improve legal protections for workers trying to unionize. By framing the issue as a matter of civil rights, the authors hope to reenergize the debate over labor law reform, which is too often perceived as benefiting only “special interests” at the expense of the public.
Part of the problem is that union participation itself has fallen dramatically since King’s day, from a high of around 35 percent in the private sector during the 1950s to less than 7 percent today. And as the power of labor has declined, wage inequality, predictably, has shot up—40 percent since 1973. In fact, according to a recent study by Bruce Western and Jake Rosenfeld, published in American Sociological Review, income inequality today would be 20 percent lower if union density had remained at 1973 levels, and a full third lower if you account for the effect of union wages on nonunion employers, who often raise wages to stay competitive.
Source: Western and Rosenfeld, 2011
That shouldn’t come as a surprise to most Americans. Until the early 1970s, working class families shared in the increased prosperity created by rising productivity. But as union participation began to decline, the link between productivity gains and rising wages decoupled. As a result, 33 percent of all income gains since 1979 have gone to the top 1 percent, while the household income for most middle class families has stagnated. That trend, Western and Rosenfeld argue, has been intensified by the weakening of institutionalized norms of equity.
[Our] analysis suggests that unions helped shape the allocation of wages not just for their members, but across the labor market. The decline of US labor and the associated increase in wage inequality signaled the deterioration of the labor market as a political institution… The de-politicization of the US labor market appears self-reinforcing: as organized labor’s political power dissipates, economic interests in the labor market are dispersed and policymakers have fewer incentives to strengthen unions or otherwise equalize economic rewards.
[Prior to 1973,] unions offered an alternative to an unbridled market logic, and this institutional alternative employed over a third of all male private sector workers. The social experience of organized labor bled into nonunion sectors, contributing to greater equality overall. As unions declined, not only did the logic of the market encroach on what had been the union sector, but the logic of the market deepened in the nonunion sector, too, contributing to the rise in wage inequality.
There are a number of theories that help explain the decline of labor over the last half century. Tom Geoghegan places much of the blame on the Taft-Hartley Act, which imposed limits on unions’ ability to strike, while others point to shifting cultural and business norms and the evolving structure of the market, from a manufacturing to a post-industrial consumer economy. More important, though, is to focus on what we’ve lost: a crucial economic and political institution that has been a relentless advocate for workers’ rights and middle class families throughout America’s history. If Congress can be convinced that labor rights constitute a civil right (as the UN Declaration of Human Rights already acknowledges), perhaps we can reduce the income gap and once again expand the middle class.
