In the interest of continuing the discussion of wages that’s been going on here, you might want to take a look at an op-ed from The American Prospect editor Robert Kuttner at Reuters. In the op-ed Mr. Kuttner argues that, if you want a return of the high wage America of fifty years ago, we must bring back the labor policies of fifty years ago:
America is moving, at an accelerating pace, toward an economy with tens of millions of poorly paid service jobs at one end, and a relatively small number of astronomically compensated financial jobs at the other. In between the fast food workers, who demonstrated this week for a living wage, and the hedge fund billionaires is a new creative class heavily based on the Internet. But the web entrepreneurs are too narrow a segment on which to rebuild a broad middle class.
For a quarter-century after World War Two, America was a far more equal society — with jobs that paid a “family wage” on a single paycheck. One question dividing economists now is whether the more equal, high-wage economy of the postwar era is irrevocably gone with the steel mills of Pittsburgh. Or whether a service economy can become an egalitarian one with a different set of policies.
I am among those who think America can still be a high-wage economy — but first we need to restore a lot of regulation.
Specifically, he wants a lot more trade unionism and stronger labor regulations:
hat means not just more aggressive prosecution of unfair labor practices by a newly invigorated board. During World War Two, for example, President Franklin D. Roosevelt issued executive orders barring labor violators from receiving government contracts. In the early 1960s, before civil rights laws passed, Presidents John F. Kennedy and Lyndon B. Johnson used the same executive power over contracting to insist that large employers cease practicing racial discrimination in hiring and promotion.
The Labor Department could also crack down on the bogus classification of regular employees as “contractors” — which saves companies payroll taxes, denies workers benefits and makes it impossible for them to unionize.
Obama could also use his authority to change the trade agenda. For three decades, industry has set the agenda for trade talks, making it easier for companies to outsource, hide profits offshore and avoid health, safety, labor and environmental standards. The trading system could instead put a floor under social standards.
He also calls for tougher financial regulation, more effectively progressive taxation, more public investment, and better education. He also wants the president to make use of the “bully pulpit”:
In his Knox College speech, the president, in an aside, called for a higher minimum wage. It would be helpful if he stood with the fast food workers who pointed out that in America today you can’t live on a minimum wage of $7.25 an hour. Who can dispute that?
He could call on industry to pay a living wage, and support local living wage campaigns. He could also call for a national policy of upgrading human service work — so that anyone who cares for the young, the old or the sick is paid a professional wage.
To what forces does he attribute the decline in wages?
What killed the more equal prosperity of the postwar era? It wasn’t just a shift from factories to services. Trade, technology, the unleashing of Wall Street, the gutting of progressive taxation, the failure to extend the welfare state to working families, the weakening of unions — all were implicated.
But one core point connects the others: The economy of that era was more heavily regulated.
I would be prepared to accept his prescription if he offered more evidence. Otherwise, he may be offering a post hoc propter hoc argument, false causation. One thing I notice is that there is very little role for supply and demand in the model that he presents. Under his model employers paid more because they were compelled to do so by law rather than by market forces.
Let’s return to the example we’ve been discussing, fast food. Why does McDonalds pay minimum wage to its crew? If Mr. Kuttner’s model is correct, it’s because that’s what the law forces them to do. That McDonalds can always depend on a continuing supply of entry level workers many of whom are recent immigrants is irrelevant and the company’s management is greedy.
Why doesn’t McDonalds charge $6 for a Big Mac rather than the 4-something it already does? Why not $10? Why not $50? Doesn’t the greed extend that far? Are they just vicious?
Why does In-N-Out, a largely Californian fast food chain to which McDonalds is sometimes unfavorably compared, pay more to its crew employees? I think it’s because it’s family-owned rather than publicly owned, all of its 280 some odd stores are operated by the company rather than being a mix of franchise and company-owned stores, and they need to pay more to retain the employees they want. That its owning family has a a strong Christian orientation may also be a factor.
Please note that I’m not defending McDonalds. One of the constants around here is that I don’t like big companies and McDonalds is no exception. I would prefer that our restaurants were the old individually-owned and operated joints of a half century ago rather than the mammoth, homogenous (like milk) chains of today but, obviously, my fellow citizens disagree with me. I’m not defending McDonalds’s top management, either. I think they’re drastically overpaid.
Political conservatives are sometimes scolded for wanting to return to some imaginary decade—the 1980s, the 1950s, the 1850s. It appears to me that progressives aren’t immune from this temptation. Mr. Kuttner wants to return to the 1950s. Paul Krugman has frequently written nostalgically about the 1940s, when the federal government controlled its largest percentage of GDP. The New Deal era of the 1930s is a frequent target. Or the Heroic Age of American progressivism, when the popular election of the Senate, prohibition, and the income tax were introduced.
I’m neither a conservative nor a progressive and I don’t particularly want to return to any imaginary era. You can’t go home again.
But the 1950s it is. In the 1950s the United States had the only functioning modern economy, imported relatively little, had no system of interstate highways, and controlled immigration very stringently with an eye to limiting the number of low skill workers coming into the country (read: black and Hispanic). Blacks were discriminated against systematically and either legally or by convention barred from participating in the larger economy. Which of these were relevant and which irrelevant to “America’s high-wage economy”? Which of them does Mr. Kuttner want to restore?