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Why Unions Matter, Part Two

August 9, 2018

It’s unclear how many at the time took Lewis Powell’s memorandum seriously.  What is not in dispute, however, is that what occurred in the subsequent decades makes it clear that business and corporate leadership began to behave as if they were following Powell’s suggestions.

Between 1970 and 2014, the United States lost over eight million manufacturing jobs–five million of those since 2000.  The vast majority of these jobs, or course, were union jobs.  This would make sense if this decline of manufacturing was coupled with a decline in consumer spending and Gross Domestic Product (GDP), but the opposite is true.  What happened?

Many argue that the issue is automation–the replacement of industrial laborers with robots and other improved technologies.  Economist Dean Baker, though, makes the case in his book “Rigged” that there is no evidence for that assertion.  Simply put, automation does not account for the amount of job loss coupled with the increase in GDP (which now stands at over $19 trillion).  What would account for it, then?

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The answer is simple: globalization.  Most of those manufacturing jobs have been lost to overseas firms in the developing world, wherein wages, benefits and regulations are significantly less expensive.  American workers earning cost-of-living wages simply cannot compete with the poverty wages of a teenager from El Salvador.

Thus, the process becomes two-pronged:  first, you ask high wage union workers to accept wage freezes, reduction in benefits, shorter shifts, etc. to keep costs down.  If the union doesn’t accept the terms, then the factory is moved, and all workers are out of a job (not to mention all of the service workers in the factory towns who will be thrown out of work due to a decrease in economic activity).  So, the unions accept the pay cuts in hopes of keeping their jobs, only to lose them anyway when the factory closes a few years later.

This is the thing to keep in mind: the auto, textile, steel factories, etc.  that shuttered their doors to move their operations to cheaper developing world outposts were all turning profits at the times of the plant closings.  Most in the hundreds of millions, a few in the billions.  But stockholders have to be satiated, so the plants were closed, profits rose–and wages fell.

Part two: the transition from a manufacturing economy to a service economy.  Service jobs tend to be low skilled, highly compartmentalized, and easily replaceable.  As a result, service jobs are usually low wage.  The combination, then, of globalization and the expansion of the service economy has pushed wages down to the extent that a minimum wage worker today earns less than 3/4 the wage value as a minimum wage worker in 1968.  Of course, that statistic wouldn’t be troubling if today’s cost of living was 3/4 what it was in 1968.  But it’s much higher. That drastic change cannot all be attributed to some assembly line robots.

This is why the idea of a minimum wage set at $15 is not unreasonable: what is being requested is the equivalent of a five dollar increase spanning the last fifty years.  To put it another way–one dollar per decade. That’s ten cents a year.  By that standard, a $15 minimum wage request nearly qualifies as conservative.

Lower wages have also produced this consequence: many Americans who are employed full-time at low wage service jobs still qualify for public assistance.  The federal government last year spent $6.2 billion providing welfare benefits just to gainfully employed citizens.  This amounts to a subsidy to multi-billion dollar multinationals who can’t be bothered to pay their employees a living wage.

This is the legacy of Neoliberalism.  It is important to remember that theses are policies not limited to Republicans, as the presidencies of Carter, Clinton, and Obama can attest.

With the destruction of private sector unions and a reduction in the real value of wages, there was still one target left for Powell’s disciples: the unions of the public sector.  Undermining these collective bargaining units would prove to be more complicated.

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