Pollin: Standard of Living Must Be Raised

Posted May 14, 2009 at 2:10pm

Working people in the United States are currently experiencing the most severe blows to their living standard since the 1930s. Amid the bank bailouts, home foreclosures and auto industry collapse, the official unemployment rate for April rose to 8.9 percent, the highest monthly level since 1983. The figure rises to 15.8 percent if we use the Labor Department’s broad measure of unemployment and underemployment.

Given the immediate calamity, it is easy to neglect that the crisis for U.S. workers began long before the recession. As of 2007 — prior to the recession — the average nonsupervisory worker in the U.S. earned $17.42 an hour. This figure is 11 percent below the 1972 peak of $19.34 per hour (in 2007 dollars). And this is only half the story.

The other half is that average labor productivity in the United States rose by more than 90 percent over this 34-year period of declining wages. That is, the total basket of goods and services that average U.S. workers produced in 2007 is 90 percent larger than what they could manage in 1972. The workers’ reward for producing 90 percent more goods and services in 2007 than 1973 is an 11 percent pay cut.

What is the root cause of this extraordinarily unfavorable long-term trend? Despite many complexities, at the most basic level, the answer is simple. The only way average wages could possibly fall over almost two generations when productivity has persistently risen is that workers have experienced a dramatic decline in bargaining power.

Why then has workers’ bargaining power eroded? Globalization is an important part of the story. Over time, globalization is making more and more jobs within the U.S. economy vulnerable to outsourcing competition from low-wage economies. This includes not only manufacturing jobs, but also service jobs that can be delivered online, such as phone operators, back-office accountants, lawyers, engineers and laboratory technicians as well as their support staffs.

Of course, not all U.S. companies are moving offshore. But U.S. workers nevertheless face an increasingly credible threat that they can be supplanted by workers in poor countries willing to accept much lower wages. This by itself erodes their bargaining power.

At the same time, how globalization affects the well-being of working people depends on the broader policy environment. Beginning in the 1970s and continuing at least until the 2008 election of Barack Obama, most elected politicians have been either openly hostile to the interests of U.S. workers (Ronald Reagan), or at best, timid, inconsistent and ineffective in offering support (Bill Clinton).

What is to be done about this situation? In fact, there is only one viable choice, which is for the idea of full employment at decent wages to again become a moral centerpiece of economic policy, as it had been for a generation coming out of the 1930s Depression.

Even in the face of globalization, U.S. policy could today advance a successful employment agenda. Step one entails transferring substantial amounts of spending in favor of activities that address crucial social needs and that also generate high levels of job creation per dollar of spending. This means shifting roughly 2 percent to 3 percent of gross domestic product out of the military and the fossil fuel energy sectors — oil, natural gas and coal — and into health care, education, public infrastructure and, most urgently, constructing a clean-energy economy.

Step two is to restore a financial regulatory system that channels private credit toward social priorities and away from hyperspeculation, which caused the present disaster. The Obama recovery program that passed Congress in February, despite being too small and loaded with tax breaks for corporations, was a major step in the right direction. But the recovery program lasts only two years.

Over the longer haul, workers also need to be able to defend their interests within a fair bargaining environment. Here is where it becomes imperative that Congress pass the Employee Free Choice Act that is now under consideration. At present, more than half of non-managers say they would like union representation at their work sites, yet only 7.5 percent of private-sector workers are represented by a union.

The straightforward purpose of the EFCA is to enable workers to more easily join unions. Once workers have the collective support of a union behind them, they can begin rebuilding the bargaining power they have lost over the past 35 years.

In recognizing these benefits, nearly 1,200 U.S. academic colleagues across disciplines have joined me in signing a petition endorsing EFCA. The full text of the petition and the list of signatories can be found at: https://www.peri.umass.edu/sefca/.

The argument we advance in the petition is simple: If Congress passes EFCA, it will have succeeded in establishing one major underpinning for restoring the U.S. economy on a foundation of fairness.

Robert Pollin is professor of economics and co-director of the Political Economy Research Institute at the University of Massachusetts-Amherst. He recently co-authored “Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy— (Center for American Progress, 2008) and “A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States— (Cornell, 2008).