These have been tumultuous times for labor. With Detroit filing for bankruptcy last month, public employees under contract could lose their pensions. This past Monday, fast food workers around the country have been holding one day strikes in an effort to unionize and earn higher wages. And in Wisconsin, pro-union protestors are being arrested for singing in the State Capitol, and Governor Scott Walker, fresh off eliminating collective bargaining rights for most public employees, is now considering expanding these restrictions to include police and firefighters.
But it’s not all bad news for labor: last month, much to the chagrin of Walmart, Washington DC passed a law that would require large retailers making over $1 billion annually in corporate profits to pay their workers a “living wage” of at least $12.50 an hour.
Despite this victory, labor has come under attack more than ever before. Especially in the aftermath of Detroit’s bankruptcy filing, the right wing pushes blame upon the city’s public-sector unions for making the city economically and fiscally bankrupt.
However, this false narrative is overly simplistic and does not tell the entire story. For years, Detroit was a prosperous city that relied primarily on the automobile industry, and grew in leaps and bounds in the first half of the 20th century. By 1950, Detroit was the fourth-largest city in America, with almost two-million residents. Both the Big Three (Ford, Chrysler, GM) and the UAW (United Automobile Workers) were cooperating for mutual benefit.
Workers earned good pay and benefits thanks to the collective bargaining agreements, like the groundbreaking Treaty of Detroit, that were negotiated on their behalf by the UAW. As a result, workers moved into the expanding middle class, were able to achieve the American Dream of home ownership, and had enough disposable income to stimulate demand in the economy.
In turn, the Big Three profited immensely because their employees now earned enough to become their customers, and to meet the growing demand in the market, more jobs were created. As a result, the “virtuous cycle of growth” of higher wages correlating with increasing productivity, originally championed by Henry Ford, created and sustained America’s post-World War II economic boom.
But somewhere along the way, around the late 1970s, the “virtuous cycle of growth” was cast aside by big business in the pursuit of increasing short-term profit margins. Factories were closed, workers were laid off, and production was outsourced overseas thanks to free trade. The UAW lost much of its leverage in collective bargaining negotiations, and those workers that were still employed were forced to settle for lower wages.
Not only did this erode Detroit’s commercial tax base, but in combination with race riots and white flight to the suburbs in search of jobs and a better quality of life, also drastically cut into the residential one as well. It also hurt that the city government was constantly plagued by corruption, and the State of Michigan still owes Detroit money to help stabilize the city’s finances.
Unable to secure this money from the state, and trapped in an economic situation that could be best described as a "vicious cycle of decay”, Detroit was forced to declare bankruptcy. And even though the city’s contracts with the public-sector employee unions are legally binding documents, the pensions of current and retired workers are still in danger of being cut, despite being protected under Michigan’s constitution. If Detroit was going to be unable to pay these pensions out, the contracts should not have been signed by the city to begin with. The public employees are not at fault for the bankruptcy; rather, they are victims of the city’s decline.
Detroit may be an extreme example, but it serves as a cautionary tale for the rest of America in the face of unsettling economic trends. From the end of World War II until 1973, both productivity and income for all classes increased while the economy prospered. But over the past thirty years, the income gap between the rich and everyone else has drastically widened. During this time, productivity continued to increase at the same rate it had before, but overall income had stagnated. That is, except for the richest 1%, who have seen their incomes skyrocket over 260% since 1979.
There are a few solutions to the staggering problem of income inequality. One would be to raise the minimum wage, something that President Obama, 80% of Americans, and two-thirds of small business owners support. While I find Obama’s proposal of $9 to be too little, and the demands of fast food workers to raise the minimum wage to $15 to be too much, I think that somewhere around $11 (the minimum wage's peak real value, which was back in 1968) and tying it to inflation is fair.
This is good policy for a number of reasons. Studies have shown that raising the minimum wage in most cases has no effect on employment, and in some instances has increased it. Since productivity has doubled while the minimum wage has decreased in real terms over the past few decades, a raise is indeed in order. Workers getting a raise from a minimum wage increase would have more money to spend in the economy. It also benefits big business too by having more customers in the market to buy their goods.
As I have explored in an earlier piece, taxpayers are actually subsidizing Wal-Mart and other big corporations in more ways than one. Despite corporate profits hitting record highs, multinational corporations have been receiving tax breaks for outsourcing production and other loopholes, while their minimum wage employees are forced onto government welfare programs like food stamps and Medicaid because they cannot afford the cost of living. This double whammy of taxpayers footing the bill, combined with the average CEO nowadays making 185 times more than the average worker, makes it clear that corporations can indeed afford a hike in the minimum wage.
Another solution would be to strengthen labor unions. Unions built up the middle class and were an essential part of the “virtuous cycle of growth” in the post-World War II economic boom. However, the decline in labor unions in the past thirty years has strongly correlated with the shrinking size of the middle class.
One of the biggest obstacles hampering the ability of workers to organize are the so-called right to work laws. The laws sound like something anybody would support based on the name alone, but the term “right to work” is a misnomer.
Right to work laws enable the unfair practice of “freeriding”; that is, workers are able to have all the benefits of union representation without paying union dues or agency/fair share fees. This eliminates the incentive to join a union, and compromises the union’s position in collective bargaining. As a result, unions lose membership and are starved for funding, while workers lose job security, earn less money, and are impeded from forming new unions. It is no wonder then that seven out the ten poorest states have right to work laws, and wages in right to work states are roughly $1,500 less per year than in free bargaining states.
The provision in the Taft-Hartley Act that allows the states to pass right to work laws should be repealed, which would end right to work in one fell swoop across the country. While I do not believe that workers should be forced to join a union (a right that is protected under current law), agency and fair share fees that require non-union employees to help shoulder the cost of collective bargaining on their behalf should be mandated nationwide in unionized workplaces.
Ultimately, income inequality and the concentration of wealth in the hands of the richest 1% threatens to cripple the economy in the long run. To combat this serious problem, we need strong labor unions to help rebuild the middle class, the engine of economic growth. This needs to go hand in hand with a minimum wage hike and a policy of fair, rather than free, trade. Only then will America see the "virtuous cycle of growth" once again.