Will a Return to Yesterday’s Labor Policies Bring a Return of Yesterday’s Wages?

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?

16 comments… add one
  • First, McDonald’s usually does pay above minimum wage, even to start. Or at least often does. On the one hand, that suggests that they are not bound by the minimum wage entirely. On the other hand, I worked at McD’s when the minimum wage was lifted from $4.25 to $4.75 an hour, and McDonald’s (errr, my franchisee, see below) raised my wages right along with them. Which suggests that they are using the minimum wage as a baseline.

    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.

    While not individually owned, the vast majority of McDonald’s are franchised. I think most of the time franchisees own and operate more than one, but that’s still a different model than people make it out to be.

    Anyhow, I think this is a case of walking a relatively tight line. I don’t think minor adjustments in the minimum wage could be absorbed. Relatively easily. All fast food joints would be affected, their price competition would be the same, just at a dime or quarter more per burger (or whatever).

    On the other hand, wages go up too much and prices go up too much, and you start having people avoiding all fast food restaurants and they all start losing money. Alternately, more of the jobs become automated because you don’t have to pay health insurance on a robot.

  • A day of so ago I went and checked up on that, Trumwill, and I think your info may be dated. Starting crew wages at McDonalds do seem to be right around minimum wage, see here. Wages at In-N-Out, the counter-example, are a couple of bucks more.

    However, prices at In-N-Out (except for the flagship Double-Double vs. the Big Mac) are substantially higher, too.

  • While not individually owned, the vast majority of McDonald’s are franchised.

    What I was talking about were the old diners and hamburger joints of when I was a kid, each with distinctive menus, recipes, look, etc. Chicago still has quite a few (I had lunch with a client in one last week) but they’re a dying breed.

  • PD Shaw

    @Dave, why do you think they are a dying breed? It could be that they have labor cost issues that would be exacerbated by McDs providing higher compensation. And by labor cost, I don’t simply mean wage scale, but all of the hassles of making sure you have enough employees at dinner. I suspect that many of the old breed were family – run, and you could expect a cousin or daughter-in-law to pitch in when needed.

  • Trumwill

    Dave, I’m not sure about those numbers. The low end of the range provided is well below minimum wage.

  • why do you think they are a dying breed?

    I don’t think it’s the result of labor costs so much as marketing and a change in preferences. For reasons I don’t understand people would rather spend $7 on a Big Mac, fries, and a Coke than on roast beef, mash, and a cup of joe.

    I can only guess. It’s advertised. It’s familiar. They think they know what they’re getting. It’s anonymous.

  • michael reynolds

    As you know, I’m no economist. (I pause for laughter.) But I’ve long been a critic of the chains which do not prosper by virtue of good food or good service but seem to survive by sheer brute force of capital.

    Some guy named Joe starts a restaurant. He has just enough capital, he works his ass off, but has good days and bad. The business is slowly building but it’s going to be a long, hard slog. Then the economy goes south, he’s struggling harder, borrowing more.

    At the same time the chain across the street faces none of Joe’s hardship. It was better capitalized to begin with, it comes with already established brand recognition, high quality ad campaigns, the physical plant is very well thought-out, the distribution system has no bottlenecks, there’s an existing inventory system, computerized payroll processing and ordering, regulatory compliance, etc…

    The chain store is inherently more survivable not because the food is better but because it’s a fight of BIG vs. little. Look at malls, freeway off-ramps, city corners, and just look at how little physical space is even available for the up-and-coming restaurateur. Typical American intersection is two gas stations, a Burger King and an Office Depot. So on top of everything else, Joe has to squeeze his restaurant into a lousy location because the chains own all the good locations.

    I just came back from Tokyo where both McDonalds and the independent restaurant are surviving. (I have no idea how profitable either is.) You can’t turn around without seeing some tiny, hole-in-the-wall independent noodle stand or sushi joint, often stuck up on the fourth floor of an office building, or down in the basement.

    I don’t know why Japanese businesses have not been crushed by McD and Starbucks – not to mention Wal-Mart or Costco – the way our small business sector has been. Some mechanism is at work, and I’d guess it’s a combination of social structure and governmental policy.

    Somehow, while praising entrepreneurship and innovation and all that good stuff we’ve ended up with a country dominated by chains carrying on a relentless inter-chain war that obliterates everything independent.

  • PD Shaw

    @Dave, might be location is an issue as well. At least around here, the old hamburger joints are in older neighborhoods, where the neighborhood supports them as both customers and labor. The newer parts of the city, the restaurants tend to be clustered in shopping strips, the restaurants are located to capture cars.

    The other point I alluded to is just an observation that a couple of very successful local diners (a chilli parlor and a soul food place) closed for a few years because the next generation of the family initially was not interested in working at these places. I think families are often a very important source of the success of the older places and its not something that can be easily bought.

  • The existence of all of the small restaurants in Tokyo is something of a mystery. The most significant reason appears to be land use costs.

    The economics of restaurant operation in Japan is quite different from that in the U. S. The balance among food costs, labor costs, and rental is extremely different than it is here—food is more expensive and rent is much, much more expensive.

    More people eat out because they don’t have cooking facilities at home. Tiny restaurants operated by a single individual aren’t particularly common here but are, apparently, quite common in Tokyo. The same person is cook, waiter, scullery, and janitor.

  • steve

    The mom and pop places take longer to serve you. They are inconsistent. Most importantly, they dont have the advertising. If you have kids, you have probably been subjected to the nagging in the car to go to some fast food place to get some horrible action figure or cards.


  • michael reynolds

    Yes, Tokyo is very different. Not really my kind of town, with the exception of the Robot Restaurant of Kabukicho. My new favorite place. http://www.youtube.com/watch?v=w2lQCLS8IxY

    My frustration with the discussion of wages and income inequality grows out of an American tendency toward fundamentalism combined with a sort of general assumption that we must be right, we Americans, and that government must necessarily be the problem.

    We believe in a free market, so we elevate that to a religious fundamentalism that seems to me to deny even the possibility that we might structure things differently. That we might make different choices. That there are considerations other than productivity and efficiency to consider. That there is potentially interesting territory somewhere between Ayn Rand and Lenin. (Granted that in the end we do come down in the middle, but only in a grudging, backhanded and therefore ineffective way.)

    The only answer we allow is something along the lines of, “Well, if McD’s wants to pay slave wages, what can we possibly do but wait for In-N-Out to put them out of business?”

    There’s a helplessness and lack of imagination rising out of fundamentalism and sheer laziness. Our guide in life cannot be productivity and profit alone. We still have to set some moral boundaries and have in mind some greater goal. The United States is not Wal-Mart. We are not a corporation.

    The Japanese have pretty clearly made some different choices. Walk through a Japanese department store and you trip over employees. Walk through a Macy’s and you have to fire off a gun to draw the attention of the sole employee. Of course Tokyo makes New York look like a Dollar Store in terms of prices. But they have 4% unemployment.

    They have made different choices. Maybe not choices we’d prefer. But it is possible to make different choices, to put the value of social cohesion ahead of the profit motive, to pick just one example. And I don’t accept the argument that, shrug, hey they’re different. We’re different, too, different than we were 20 or 40 years ago. We are not helpless, and we are not set in stone.

  • michael reynolds


    Yep. You pick a random Mom n’ Pop and maybe it’s a 10, but maybe it’s a 1. Go to McD’s and you know it’s not a 10, but it’s also not a 1. They’ll suck, but there’ll be a floor under their suckage.

  • You pick a random Mom n’ Pop and maybe it’s a 10, but maybe it’s a 1.

    Being able to pick a good place is an art and, undoubtedly, a dying one. William Least Heat-Moon said that you could tell how good a place was by the number of calendars on the wall.

    I’ve found that I’m a pretty fair judge of such places. I’ve written about that here on occasion. As I said to a couple of young friends last week, if you go out to dinner with me and you let me pick the place, it’s likely to be a joint.

  • michael reynolds

    You’re a neighborhood guy with deep roots. Most of my dining experiences come down to 1) Convenient location, 2) Parking, 3) What will the kids eat. We eat out probably 60% of meals, but it’s much more about, “What’s on the way?” than about “What’s good?”

  • Andy

    In addition to factors others have mentioned, I think I would put zoning and suburbia near the top of the list. Mom and pop places can survive better in dense, multi-use urban areas because there are more potential customers due to density. The opportunity for “street” advertising from potentially thousands of passers-by is something you rarely get outside the city. A lot of people (such as New York), walk or use public transport. At the other end are small rural communities where there isn’t much besides the Mom-and-pops.

    Suburbia, by contrast, is a wasteland only navigable by car with a lot of zoning and other restrictions. I would, for example, be very surprised if a Mom-and-pop could get a loan to open a family style restaurant in one of those ubiquitious mall parking lot locations. Get an Olive Garden franchise, however, and I bet your chances are a lot better. Also, one can drive by a strip mall for years and never notice the little restaurant there that may be excellent – in short it’s harder to discover new places unless they are readily visible by car.

    I also agree completely with Steve, especially regarding kids. I think McDonalds puts some kind of meth in their food that only affects kids. We indulge ours occasionally.

    Finally, we’re a more mobile society and people are resistant to change. Predictability and consistency are more valued today. Quick service is expected.

  • steve

    Dave- I dont remember any of your posts on picking out a good local place. Would love to compare notes. The wife and I have a pretty good track record when we work together. If we both agree, it is almost always good. I still remember walking the streets of Toronto on a Sunday night, disappointed that the place we were planning to go had closed. After about 30 minutes we saw this dive-like Mexican place that my wife and I looked in the windows, we looked at each other, and both said at the same time, “this looks like it will be good.” Best tamales ever. Of course, this could just be bias and we forget the bad ones.


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