Magazine article The American Prospect

How to Raise Americans' Wages

Magazine article The American Prospect

How to Raise Americans' Wages

Article excerpt

Once upon a time in a faraway land--the United States following World War II--workers reaped what they sowed. From 1947 through 1973, their income rose in lockstep with increases in productivity. Their median compensation (wages plus benefits) increased by 95 percent as their productivity increased by 97 percent. Then, abruptly, the rewards for greater productivity started going elsewhere--to shareholders, financiers, and top corporate executives. Today, for the vast majority of American workers, the link between their productivity and their compensation no longer exists.

As economists Robert Gordon and Ian Dew-Becker have established, the gains in workers' productivity for the past three decades have gone entirely to the wealthiest 10 percent. The portion of the nation's economy that went to workers' pay and benefits--which had held remarkably steady from 1947 through 1973 at 66 percent or 67 percent--last year fell to a record low of 58 percent, while profits reached a postwar high.

Today, the drive to restore workers' share has been narrowed down to the campaign to raise the minimum wage. That raise is long overdue. The real value of the federal minimum wage of $7-25 an hour is less than two-thirds of its level in 1968, which, in current dollars, would be $10.71. But even raising that wage wouldn't do much for most workers; they make well more than the minimum, but their own wages have been stagnating or shrinking for decades as well.

What, then, do we do for American workers more generally? How do we raise their wages? How do we re-create a growing and vibrant middle class?

For many business leaders, politicians, and commentators, workers' declining share is the inevitable result of globalization and technological change--forces of nature that nations, much less individuals, are powerless to stop. They also tend to blame the victim: According to conventional wisdom, workers lack the education and training to fill the new high-tech jobs the economy now demands.

Globalization and technological change have indeed played key roles in weakening workers' bargaining power, and a more educated workforce surely commands better pay than workers without the requisite skills. Nonetheless, the business leaders and their apologists are fundamentally wrong in both their diagnoses and prescriptions.

To begin, at least one major nation every bit as subject to globalization and technological change as ours hasn't seen the evisceration of its middle class and the redistribution of income from labor to capital that we've endured. Germany has a greater level of foreign trade than the U.S. and a comparable level of technological change, but it has managed to retain its best manufacturing jobs, because of the greater power that its workers exercise and the diminished role its shareholders play. In Germany, law and custom have enabled labor and required management to collaborate on making sure that the most highly skilled and compensated jobs remain at home.

The claim that American workers lack the skills they need is belied by workers in low-skilled jobs (those that pay two-thirds or less of the median wage) having much more education than equivalent workers four decades ago: 46 percent of low-skilled workers today have attended college; in the 1960s, just 17 percent had. Moreover, the incomes of many professionals, including lawyers and college teachers, have declined in recent years as well.

What corporate apologists won't acknowledge is that workers' incomes have been reduced by design. American business has adamantly opposed workers' efforts to organize unions. Millions of jobs have been outsourced, offshored, franchised out, reclassified as temporary or part-time, or had their wages slashed, in a successful, decades-long campaign to increase the return to capital. Indeed, the only way to explain the soaring profit margins and stock values of recent years despite anemic increases in corporate revenues is that profits have come at the expense of labor. …

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