Rebuilding America’s high-wage economy
Good for President Barack Obama for emphasizing the need to restore America’s middle class. However, the actual proposals in his new summer offensive would not go very far toward that worthy goal.
America is moving, at an accelerating pace, toward an economy with tens of millions of poorly paid service jobs at one end, and a relatively small number of astronomically compensated financial jobs at the other. In between the fast food workers, who demonstrated this week for a living wage, and the hedge fund billionaires is a new creative class heavily based on the Internet. But the web entrepreneurs are too narrow a segment on which to rebuild a broad middle class.
For a quarter-century after World War Two, America was a far more equal society — with jobs that paid a “family wage” on a single paycheck. One question dividing economists now is whether the more equal, high-wage economy of the postwar era is irrevocably gone with the steel mills of Pittsburgh. Or whether a service economy can become an egalitarian one with a different set of policies.
I am among those who think America can still be a high-wage economy — but first we need to restore a lot of regulation.
The fact is, we are a lot richer — on average — than the United States of the 1950s. The problem is how our bounty is distributed.
You may recall the fellow who had one foot in a bucket of ice and the other in a bucket of boiling water — and on average was very comfortable. On average, Warren Buffett and I are both very rich.
What would it take for America to spread that wealth around — as candidate Obama memorably suggested to “Joe the Plumber” in 2008? And, given wall-to-wall Republican obstruction of even the tamest Obama proposals, what might the president do that does not require legislation?
The Republicans, after years of trying to shut the agency down, have just confirmed Obama’s appointments to the National Labor Relations Board. The administration could get a lot more proactive about defending workers’ rights to organize and join unions.
That means not just more aggressive prosecution of unfair labor practices by a newly invigorated board. During World War Two, for example, President Franklin D. Roosevelt issued executive orders barring labor violators from receiving government contracts. In the early 1960s, before civil rights laws passed, Presidents John F. Kennedy and Lyndon B. Johnson used the same executive power over contracting to insist that large employers cease practicing racial discrimination in hiring and promotion.
The Labor Department could also crack down on the bogus classification of regular employees as “contractors” — which saves companies payroll taxes, denies workers benefits and makes it impossible for them to unionize.
Obama could also use his authority to change the trade agenda. For three decades, industry has set the agenda for trade talks, making it easier for companies to outsource, hide profits offshore and avoid health, safety, labor and environmental standards. The trading system could instead put a floor under social standards.
The administration took a constructive baby step in this direction when it denied Bangladesh benefits under the Generalized System of Preferences, as a way of pressuring the Bangladeshi government to respect the worker rights guaranteed (in principle, anyway) under the accord negotiated after the deadly April garment factory fire.
There is nothing inherent about the new economy that requires the top 1 percent to make off with so much of our national wealth. The president could appoint tougher financial regulators — beginning with the vacancies at the Federal Reserve.
Other measures to rebuild the middle class — progressive taxation, public investment, better education from pre-kindergarten through college — will take legislation. But Obama could be even more forceful about making that legislation popular politics.
In his Knox College speech, the president, in an aside, called for a higher minimum wage. It would be helpful if he stood with the fast food workers who pointed out that in America today you can’t live on a minimum wage of $7.25 an hour. Who can dispute that?
He could call on industry to pay a living wage, and support local living wage campaigns. He could also call for a national policy of upgrading human service work — so that anyone who cares for the young, the old or the sick is paid a professional wage.
What killed the more equal prosperity of the postwar era? It wasn’t just a shift from factories to services. Trade, technology, the unleashing of Wall Street, the gutting of progressive taxation, the failure to extend the welfare state to working families, the weakening of unions — all were implicated.
But one core point connects the others: The economy of that era was more heavily regulated.
Take labor markets. Most jobs were based on a standard workweek. Wage and hour laws were enforced. So was the right to join a union. The real minimum wage was a lot higher, both in purchasing-power terms and in relation to the average wage. This was the heyday of the blue-collar middle class — when a single paycheck supported a decent standard of living for a whole family.
One-third of the workforce belonged to unions then. Even non-union employers often matched union pay scales and benefits — as a way of keeping unions out.
The postwar era was also a time when the affluent paid marginal tax rates as high as 91 percent, but most regular people paid modest taxes. Payroll taxes, for example, topped out at 1.5 percent for workers and 1.5 percent for employers. Corporate income taxes brought in a far higher share of federal revenue than they now do.
As a consequence of all this, the income distribution was far more compressed than it is today. That shared prosperity did not prevent the economy from growing at a real rate of nearly 4 percent per year during the quarter-century after World War Two. On the contrary, the broadly distributed purchasing power was good for economic growth.
The tight regulation of finance also prevented the top 1 percent from running off with a disproportionate share of the economy’s gains. There were no hedge funds. Bankers made a very nice living, thank you, but few became super rich.
We had a lot of trade, but we had few competitors who produced the core products that America made, at a fraction of the wages. And we were not ashamed to defend our social contract with tariffs.
It took several decades of struggle in the middle of the last century, including union organizing and supportive public policies, for factory work to pay a living wage. Now, with factory jobs being replaced by robots or by Third World workers, the economy is more productive and wealthy (on average) than ever, while the service economy pays mostly wretched wages.
With the exception of a small elite of skilled trades, there was nothing inherently high-wage about factory jobs. The work was semi-skilled, repetitive and mostly soul-killing. The jobs were “good” only because they paid decently — thanks to the efforts of unions and government policy.
Now we need to do it all over again with the service economy.
PHOTO: President Barack Obama speaks about the economy during a visit to Knox College in Galesburg, Illinois, July 24, 2013. REUTERS/Kevin Lamarque
PHOTO (Insert A): President Lyndon B. Johnson and Martin Luther King Jr. in the White House. CREDIT: LBJ Presidential Library.
PHOTO (Insert B): Demonstration during the Chrysler strike in Detroit, Michigan in 1937. Credit: Walter P. Reuther Library