Monday, March 9, 2009


This week Congress will take up discussion of legislation that will make it easier for workers to unionize. In a few words, the legislation would allow workers to simply sign a card demanding a union. Employers don't like it.

Employers would prefer to have mandated elections because they give employers time to bring in anti-union teams, fire organizers, and generally intimidate the workforce. Passing this legislation would be a first step in helping to address the imablances that have grown between management and labor over the past 29 years; imbalances which have produced stagnant wages for America's middle class, bloated CEO wages, and now - with the economy collapsing - growing tent cities that resemble the Hoovervilles that dotted the American landscape almost 80 years ago.

How badly needed is this legislation? Pay gaps between labor and management have grown so out of hand that wage gaps are as bad as they were when Herbert Hoover left office. Today, as more and more observers are pointing out, labor is now confronting the worst economic situation since the Great Depression.

What follows below is an edited excerpt from Chapter 10 of my forthcoming book, The Myth of the Free Market: The Role of the State in a Capitalist Economy. It explains, in part, how labor has seen its economic position deteriorate over the past 29 years to the point that more and more families are now 1 or 2 paychecks away from being out on the street. FYI, I have 5 charts and graphs in my book - scheduled for release this week - that provide figures for what's presented in this section. If I can get them on a pdf file I will post them later ...

Among the forces that fed the market exuberance of the late 1990s and the early 2000s were cheap credit and debt. By feeding consumption, credit and debt fit the goals of both major political parties in America, but for different reasons. Democrats saw the democratization of credit; Republicans saw increased profits. Few thought it was necessary to take a look at collapsed savings rates and soaring debt levels in America . . . rarely was this question asked: What are the factors that cause many ordinary Americans to borrow beyond their means and that lead many into bankruptcy?

We know from Chapter 2 that divorce, job loss, and catastrophic illness cause 90 percent of all bankruptcy filings in America. But we need to shift the issue from uninvited life events to specific, policy-driven areas if we want to understand why Americans have been nudged to take on more and more debt over time. This means looking at wages in America.

In a 2007 speech, Federal Reserve Chairman Ben Bernanke considered incomes and focused on the growing gap between America’s middle class and the financial elite. Bernanke reported that, in spite of rising labor productivity and technological advances—which usually find their way into growing wages—income gaps had increased significantly in America since 1979 . . . perhaps his most significant observation was what he had to say about the impact that organized labor has on wages. According to Bernanke, unions not only reduce wage inequality, but at least 10 to 20 percent of wage inequality in America can be attributed to the decline of unions.

This is important, because organized labor was put on the defensive after Ronald Reagan entered the White House by an alliance of convenience between corporate America and political conservatives. According to Businessweek, things worked out so well for industry that as “[c]orporate America has perfected its ability to fend off labor groups” labor union membership dropped from 20.1 percent of the labor force in 1983 to 12 percent by 2006 . . . Economist, and Nobel laureate, Paul Krugman explains what happened:

It’s often assumed that the U.S. labor movement died a natural death, that it was made obsolete by globalization and technological change. But what really happened is that beginning in the 1970s, corporate America, which had previously had a largely cooperative relationship with unions, in effect declared war on organized labor . . . hardball tactics have been enabled by a political environment that has been deeply hostile to organized labor, both because politicians favored employers’ interests and because conservatives sought to weaken the Democratic Party. “We’re going to crush labor as a political entity,” Grover Norquist, the anti-tax activist, once declared.
The relationship between corporate America and the Republican Party has reaped financial benefits for America’s business elites and political payoffs for Republican political candidates. But it has been financially devastating for America’s working class.

Since the late 1970s, inflation, declining or stagnant wages, weakened unions, lax immigration policies, deregulation, and the challenges of having jobs shipped overseas have left ordinary Americans with an increasingly tough financial line to hoe. The arrangement, however, seems to have worked out well for America’s CEOs, who have seen their salaries rise in relation to the average worker: from a ratio of about 40:1 in 1980 to 262:1 in 2005 (other reports put the figure around 431:1).

Given that the federal government has been increasingly reluctant to intervene on behalf of labor over the past thirty-five years, ordinary working Americans have had to cope with rising costs and stagnating wages in a number of ways.

* Two-Income Households, 1970s: With the women’s movement came the rise of two-income households. Two working parents increased household income significantly.

* Credit and Charge It, 1980s: Americans began racking up serious personal debt in the 1980s when, as former Federal Reserve Chairman Alan Greenspan put it, “innovation and deregulation” worked to “expand credit availability to virtually all income classes.” At the end of 2008 total credit card debt stood at $969.9 billion (Graph 10.1).

* Decline of Leisure, 1990s: Although divorce and personal debt put a dent in disposable income, Americans began working more hours to make ends meet, even surpassing the Japanese in 1995.

* Household ATMS, 2000: To keep the American Dream alive, many Americans went on a borrowing binge, this time using their homes as ATMs.
With more and more households using their homes as ATMs, we can understand why home-owner equity in America was less in 2007 (at the height of the housing boom) than it had been seven years earlier. At the end of 2008 it was poised to drop below 50 percent for the first time since the government had started keeping track of this data.

The end result of stagnant wages, an increasingly hostile environment for labor, and easy credit was a savings rate that effectively stood at zero at the end of 2008. Not surprisingly, when the refinancing boom stalled because of plummeting housing prices and dried up credit markets, more and more Americans found other ways to cope with life’s expenditures—they began using “hardship withdrawals” to tap into retirement funds . . .

- Mark

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