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America's Big Labor Problem

185

USA - May 23, 2018
America's big labor problem is a part of its decline, but labor's solutions will be America's solutions. Or - What's good for US labor is good for a right-sized America in the post-globalization world. 

It's interesting to look at how the belief systems on the subject of labor are shaped in each country, in ways unique to that country's history, conceptions of right and wrong, and common sense. While the EU and US are considered 'the West', on the question of labor, in particular in organized labor, the EU and the US are an ocean apart - figuratively and literally.

The United States has significant problems with labor. This term is broad, and should be broken apart a little bit in order to understand what is meant by 'labor'. Labor can be understood as a 'cost of production', a potential consumer base for produced goods, it can refer to the work being done, or it can refer to the socio-economic class of people who perform that work. Specifically, labor refers to organized labor. It is in this last definition, that we find the largest crises in terms of sorting out a solution to the overall problem of labor as either a class or as a potential consumer base for goods and services.

According to the United States Department of Labor, Bureau of Labor Statistics, "Over the 12 months from April 2017 to April 2018, the Consumer Price Index for All Urban Consumers (CPI-U) increased 2.5 percent, not seasonally adjusted. Prices for food increased 1.4 percent. Prices for energy increased 7.9 percent. Prices for all items less food and energy rose 2.1 percent." (https://www.bls.gov/opub/ted/2018/consumer-prices-up-2-point-5-percent-over-year-ended-april-2018.htm)

Normative economists from the Chicago School generally explain that cost-push inflation, such as rises to the consumer price index, is one of the driving most causes of rises in the consumer price index. However, when compared to positive economic analysis, actual wages in terms of PPP (purchasing power parity) labor costs are generally depressed. For example, according to the Brookings Institute, "When we consider all working-age men, including those who are not working, the real earnings of the median male have actually declined by 19 percent since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 — nearly a half century ago. Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41 percent from 1970 to 2010."

https://www.brookings.edu/opinions/the-uncomfortable-truth-about-american-wages/

Labor of course loosely refers to the U.S workforce, mostly a combination of skilled and unskilled workers in the U.S economy. In strict economic terms, it refers to part of an equation in the cycle of production and distribution of goods and services, which both predicts costs incurred in the business cycle, but also predicts the consumer market. In that sense, the primary contradiction is that higher wages paid in labor is an increased cost at the production side of the cycle of production and distribution, but also increases the purchasing power of the population, which means that there is a larger market available for the goods and services produced.

More specifically, labor refers to organized labor - those segments of the U.S workforce which are represented by trade unions or labor syndicates within the framework of collective bargaining. The laws which govern the relationship between labor unions are established in many number of legal documents. Because the U.S's laws are within the realm of common law, many of these are established not in code, but in numerous court rulings. There are also codes, on both the state level, and federal level.

The two largest, and only really, American labor unions federations are SEIU and the AFL-CIO.

SEIU has led in new organizing campaigns, meant ostensibly to increase union density. Because of US population growth, unions must organize over 1 million new members into the ranks of organized labor every year, just to maintain relative statistical parity from year to year. While SEIU has found some nominal success, it has done so by increasing its interdependence with the Democrat Party, and more recently, with the non-profit and NGO sectors. For many complex reasons beyond the scope of this article, the belief-system of organized labor has transformed from that of a labor-centered conceptions of union militancy, into that of the 'charity' or 'non-profit' sector, giving unions today in the US the look and feel of something in between a charity and an 'work insurance' program. Historically, unions derive their power from neither, this the new dynamic is not only representative of the decline of organized labor, but compounds and contributes to it.

Because each business or enterprise seeks to reach a great part of the consumer market, they benefit from generalized increases of wealth of the population. But because each business or enterprise views its market as being far outside of beyond their own labor force, they benefit from a population with greater purchasing power, but they are harmed if their own employees have greater purchasing power. Thus, while each business benefits from a general population with greater purchasing power, they work to minimize the purchasing power of their own employees.

This problem is widely discussed within the business community, and is properly understood. Even within a single industry, cutting labor costs in terms of numbers of workers, such as in retail, can see a decline in sales. For example, the retail industry insider magazine, Retail Dive, quite clearly confirms the general view being promoted in this article. https://www.retaildive.com/news/retailers-are-understaffing-stores-and-losing-sales/513055/

They write:  "The big takeaway is that retailers need to move past the inclination to minimize cost by understaffing stores because it has a big impact on profitability," Oliva said. "They could be generating a lot more sales if they staff at the correct level. Stores should staff to maximize sales and profit, not to minimize cost."

The problem is evident. Each business wants to suppress wages, salaries, and benefits, but understand that overall, their goods and services have a broader market potential if wages, salaries, and benefits of the population are higher, not lower.

Therefore, historically, labor unions have served an important and integral role in the U.S economy. They work to organize the workforce of a particular business, towards increasing the wages (etc.) of the workforce. This has some impact on price, but a number of studies show that rather these affect profit margins alongside price, as cited in the Brookings Institute opinion letter above. So the price does not rise in direct proportion, but is also mitigated by the willingness of the business to deduct labor costs from profits in order to remain competitive.

For an industrialized country, the U.S has the lowest labor union membership density. In addition, the U.S has numerous times overturned or ignored anti-trust legislation, which makes the competition concerns less relevant, and more problematic for organized labor as well.

According to the United States Department of Labor, Bureau of Labor Statistics,

"The union membership rate--the percent of wage and salary workers who were

members of unions--was unchanged at 10.7 percent in 2017, the U.S. Bureau of

Labor Statistics reported today. The number of wage and salary workers

belonging to unions, at 14.8 million in 2017, edged up by 262,000 from 2016.

In 1983, the first year for which comparable union data are available, the

union membership rate was 20.1 percent and there were 17.7 million union

workers. " https://www.bls.gov/news.release/union2.nr0.htm

A recent study by Forbes, shows where the US stands in relation to other countries in terms of union density. We'll note the relationship between high labor density, and high purchasing power, as well as a high position on the UN's human development index, or HDI.

"Across OECD countries, labor union density varies considerably, and Iceland has the highest membership rate at 91.8 percent. The Icelandic Confederation of Labour alone has 104,500 members, accounting for approximately half of the country's workforce. Sweden also has a high rate of union membership at 67 percent while just over a quarter of Irish and Canadian workers are part of a union. The United States has a labor union density of 10.6 percent today compared to 20.1 percent in 1983."

Their ranking has the US ranked at 13 out of 15 countries in terms of union density, only above South Korea and Turkey, and below all western European countries.

https://www.forbes.com/sites/niallmccarthy/2017/06/20/which-countries-have-the-highest-levels-of-labor-union-membership-infographic/#34fd7b5a33c0

 

The American neo-liberal ideological structure, more and more evident since the early 1980's under the headings 'Reaganism' (similar to Thatcherism) has led to a business practice, especially in monopoly conditions, of seeing all labor cost increases as reductions to profit. This is a narrow and short-sighted view, and has in its own part played into the vicious cycle of declining wages and declining market potentials in the U.S domestic economy.

Immigration to the US has also harmed labor - that is, laborers as a socio-economic class, whether they are organized into labor unions or not.

To compound that problem, outsourcing the necessary labor to labor forces in developing or 'third world countries' has reduced the potential consumer market in the U.S, thereby negatively effecting both the standard of living, and long-term viability of an enterprise or business. It is short-term profitable, which makes sense in the logic of speculative trading of shares of publicly traded corporations, but in the long term places the business model in jeopardy.

In broader terms, we can say that immigration, outsourcing, and automation have been the three largest trends in the U.S economy that have reduced the wages, and hence standard of living, of the American worker.

However, these problems can be managed. In a similar manner to how labor unions actually acted to the benefit of businesses by forcing - through collection action and collective bargaining - business to pay higher wages (etc.), this led to businesses overall having more market potential, as there are more potential consumers for these goods and services.

Because the U.S was the bulwark of global anti-communism, especially in the post-WWII period, and because one of the strong ideologies in organized labor relates to types of communism, socialism, anarchism, and similar economic collectivisms, it was easier in the U.S for the business sector to succeed in their ideological campaign against labor unions.

While this buttressed and reinforced a domestic environment of anti-communist patriotism, it became also a convenient excuse by which businesses could stop, harass, or interfere with the organizing work of labor unions.

Therefore, as the US has faced these increasing problems - endemic to globalization - of immigration, outsourcing, and automation, there has not been an organized labor union movement capable of managing the general interests of the american worker, and  by extension the american people, from the more atomized and 'zero-sum game' approach of each business venture in competition with the next.

As a result, the U.S has the lowest organized labor force among industrialized countries. This is why the anti-popular austerity proposals seen in countries like France, Spain, or Greece  for example, are met with fierce resistance from the organized labor sector. Those fights against austerity in the US were consequently never possible, and that is why the legal rights of laborers as a socio-eocnomic class, organized or unorganized, are lowest or weakest in the US when compared to similar GDP countries.

However, unions still exist in the US, but their leadership is ideologically, politically, and economically vested in with the existing, and failing, US model, which compels and propels the globalization process. This explains in part why their density - the proportion of the workforce organized into unions - is so low. It becomes a viscous cycle.

The US, with strong labor unions armed with a more localist understanding of economies of scale, and pursuing an economic vision of autarky or internal self reliance, will work against outsourcing of labor, eliminate immigrant labor except in rare cases of expertise not available in the U.S, increase the purchasing power of the american worker, and develop a pro-social process of integrating automation so that the forth-coming changes which automation brings will be managed to the benefit of the people, instead of its present course which is ideologically and socially prepared to solve the automation problem through misanthropic solutions which materially benefit only a small fraction of the top 1%.

Author: Joaquin Flores