As I’ve mentioned before the governor and the state legislature have been at an impasse over Illinois’s budget for the last nine months. The governor has refused to sign the budget enacted by the legislature because a) it’s out of balance—a violation of the state constitution and b) it doesn’t reflect any of what he sees as the economic realities facing Illinois, what’s referred to as “his agenda”. The legislature has refused to budge on the grounds that the governor’s agenda would hurt unions, hurt middle income people, etc. The legislature has also refused to override the governor’s veto although Democrats have the votes to do it which I think, at the very least, calls their stated rationale into question. I can’t help but wonder if the incomes they’re worried about are their own.
But that brings me around to a question I’ve been mulling over. I’ve been wondering whether the emphasis that Democrats and some economists, e.g. Paul Krugman, have placed on the role of the decline of union membership in the United States on increasing income quality. I can’t help but think that they’re engaging in a little cargo cult thinking, i.e. reverse causality.
Isn’t it possible that both the decline in union membership and increasing income inequality have a common cause: the de-industrialization of the United States? In other words an industrial America is a unionized America and an America with lots of heavy industry also provides higher incomes for more Americans? Especially Americans other than those with professional degrees?
I suppose some would quibble with me over whether the U. S. has de-industrialized. That manufacturing has declined as a percent of total GDP is hardly a state secret but that could be explained by the tremendous increase in the contributions of finance, healthcare, and education to the economy.
Here’s a pretty fair proxy:
or, in other words, U. S. production of iron and steel is half what it was 30 years ago. Or this:
We could argue about the reasons for the decline but I don’t think we can argue about the fact of it.
I don’t think that white collar jobs are nearly as fertile a ground for labor organizing as heavy industry, especially with the enormous increase in temporary workers and, in particular, foreign temporary workers over the last 25 years.
Somewhat related on the subject of steel:
“While the global economy struggled during 2009–13 to recover from the recession, the global steel industry, rather than consolidating and becoming more efficient, built more production capacity despite weak demand growth. An estimated 100 new mills are expected to be built by 2016. Much of this overcapacity was attributed to China, the world’s leading steel producer, which accounted for about 49% of global output and had 6 of the world’s 10 largest steelmakers. China’s total estimated capacity reached about 1,025 Mt, with a net capacity addition of about 65 Mt in
2013, but operated at only about 76% of capacity in 2012. During 2013, China added at least 58 new steel-making furnaces. China had, during 2013, 35%–40% more steel-making capacity than it needed. This surplus steel has been exported to other steel-making countries, including the United States.”
http://minerals.er.usgs.gov/minerals/pubs/commodity/iron_&_steel/mcs-2015-feste.pdf
In other words, the Chinese government will subsidize their steel industry until they put every other nations steel industries into moth balls. Like the Saudis are attempting to do with crude oil.
Anyone see the RBS panic advice today? Along with forecasts of crude oil going as low as $16 a barrel? That’s got to be close to costing more to produce & ship a barrel of oil than the crude is worth, even for the gulf states.
Well, doesn’t matter much to me. I’ve already been destroyed by the New world order. It’ll be fun watching everyone else cry this time.
Oil has been below most of the producers’ breakeven costs for months. Iran, for example, is a high cost producer (largely because their oil industry is in such dire need to of investment). Oil has to top $100 a barrel before they start making money.
I couldn’t find decent long-term steel productivity stats, so I’ll make my point with Illinois coal:
1978: 48,744,149 tons produced with 17,861 workers.
2012: 48,469,495 tons produced with 4,068 workers.
In just over 30 years, mechanization meant that less than 25% of the workers were needed to produce the same amount of coal. The other differences are that most of the coal I believe is shipped to China, because high sulfur coal is not favored by U.S. environmental regulations. In addition, there are no union workers, the last union mine closed in 2013, in the same county I believe that Mother Jones is buried.
I think there is a tale here of two different policy developments. One is union-supported occupation and employment standards applicable to all workers, whether union or not. In many cases, non-union workers are getting paid better than union workers, and at the very least have many of the same wage and safety protections. The other developments are the free-trade and environmental regulations that encouraged deindustrialization. The Unions do not appear to have had a seat at the table on the second set of policies.
I agree that there’s more than one factor at work, PD. My point however is that if somebody’s got a plan for a society that consists only of fast food workers, retail sales clerks, and medical doctors and there are open borders and everybody gets paid a living wage, I’m all ears.
If, on the other hand, you think that we need to have a diverse economy, the policies you like need to support that. There are other alternatives besides dividing the human race into Morlocks and Eloi.
“I don’t think that white collar jobs are nearly as fertile a ground for labor organizing as heavy industry, especially with the enormous increase in temporary workers and, in particular, foreign temporary workers over the last 25 years.”
I think immigration played a big role as well. Just a correlation, but union membership declined in step with increased immigration beginning in the 1960’s. Is it a coincidence that unions were strongest when immigration was at its most restrictive? I doubt it. I think you’d find a similar correlation with exports vs imports.
In contrast, Democrats seem to believe it’s possible to keep high levels of immigration, support “free-trade” agreements and policies that move capital and jobs overseas while, at the same time, increase wages via unions. It does not compute.
Of course, unions haven’t done themselves any favors with policies mired in an industrial past that focus on increasing benefits, even if that means less workers – in other words, through the emphasis on seniority – they are working toward fewer workers with better benefits. It’s a strange choice to make while complaining about declining union membership, particularly for public employee unions.
While we are de-industrializing, China and other places have been industrializing. AFAICT, that has not resulted in high paying middle class jobs for the Chinese. Manufacturing jobs pay a bit less that average salaries there IIRC.
Steve
Here I was worried that Andy might have been detained by the Iranian Revolutionary Guards.
“they are working toward fewer workers with better benefits.” This is what I was trying to get at. Whatever the causes, valuing unions for higher pay and benefits and security is to value something that will over time tend to decrease the number of jobs and require greater skills. I don’t think skill requirements are a bad thing, but it has to be part of the policy discussion. I interpret Democratic actions (or perhaps inactions is a better word) as being unhinged from the consequences of this dynamic.
PD,
Thankfully not – I’m in Tucson on business. It’s such a contrast to Florida, but it feels good to be out West again, even if it’s only a few days. I’m kind of tuned out on current events at the moment, so have not had a chance to hear much of anything about the sailors in the gulf.
The last two major productivity improvements in steelmaking were the open hearth to basic oxygen furnace conversion, a sixties phenomenon, and thin slab casting, a nineties phenomenon. The other process engineering improvements have been more cost and quality related.
Dave is correct in citing unit volumes. One used to be able to “set ones watch” by steel production to GDP, or steel intensity. No longer, due to the growth in services.
Countries have been building excess capacity and dumping the output in the USA since the seventies.
The USWU shot it’s weenie off more through work rules than bennies, although bennies went berserk beginning in the seventies. Same for the UAW. You can thank union leadership. You can’t recover from needing 2-3 people to do one persons job, except to mechanize. To Dave’s point, believe it or not some of the most skilled/local knowledge jobs are in heavy industry. More complex than picking and packing vegetables or cleaning rugs and showers. So they pay.
There is still plenty of manufacturing, though far less than historically. Many functions are coming back from China in industries requiring high levels of customer/supplier collaboration (think change orders; design), because of stolen intellectual property, and quality problems.
Quite frankly, one can manage labor issues more readily than regulatory issues. I doubt Prof Krugman wants to embrace that reality, however.
Getting back to the Illinois governor’s agenda. One of the items is that he wants local governments to have the discretion to not require prevailing wages be paid on construction contracts. Prevailing wage rates in Illinois are set above market-rates and above the federal prevailing wage rates. So, for example a school that needs to expand or renovate a building will end up paying significantly more than a private school in the area. This means that the public school will either need to borrow more, defer construction or substitute building for rental/purchase of double-wide trailer classrooms.
I think the primary purpose of government is to provide public services. These regulations restrain government’s ability to provide those services by directly increasing costs.
I am much less favorably disposed towards the state legislature than most Democrats are. I think that if they believe what they say they should enact their budget over the governor’s veto and be willing to run on that at the next election. That they are not calls everything they say into question for me.