The United Auto Workers’ failure to organize the employees at Volkswagen’s plant in Chattanooga, Tenn., has been greeted with predictable hosannas from the sworn enemies of American unions. Survey their celebratory columns, though, and you won’t find the slightest consideration of most Americans’ primary economic problem: How do workers get a raise in today’s economy? With the rate of unionization so low that even unionized employees have trouble winning good contracts, how can workers profit from the gains in their productivity? What will it take for workers to regain the power to reap what they sow?
In recent decades, they’ve reaped precious little. Between 1947 and 1973 — roughly the one period of union strength in U.S. history — productivity increased by 97 percent and workers’ compensation (that’s wages plus benefits) by 95 percent. Since 1973, however, as unions have weakened, productivity has increased by 80 percent and compensation by just 11 percent, according to the Economic Policy Institute.
If no longer to workers, where have those gains from productivity gone? According to economists Robert Gordon and Ian Dew-Becker, they have gone entirely to the wealthiest 10 percent of Americans — increasingly in the form of capital gains and dividends. Wages today account for the lowest share of the nation’s economy, and profits the highest, since World War II.
The conventional wisdom among critics of unions is that the decline in workers’ income is their own fault. Today’s workers, we’re told, lack the skills to compete in the harsh new economy. But with all the gains in productivity accruing to the top 10 percent, and with most of those gains coming in capital rather than labor income, it’s unlikely that schooling explains all this inequality. Is the difference in the rewards to investors and workers really a matter of training? Do the traders overseeing the computer programs that buy and sell stocks every few nano-seconds have a more legitimate claim to cashing in on workers’ productivity gains than the workers themselves? Or is it that workers, without unions, have lost the power to realize the rewards from their work?
In his Wall Street Journal column on Wednesday, the Brookings Institution’s William Galston wrote: “For the sake of economic growth, social mobility and political stability, we must think more boldly about reforging the connection between compensation and productivity.” Galston proposed linking corporations’ tax rates to their compensation strategies: Firms that reward workers for productivity gains would be taxed at lower rates than firms that do not.
Galston is not a man of the left — indeed, he was the leading intellectual light of the centrist Democratic Leadership Council as it paved the way for Bill Clinton’s presidency. But his proposal is one that should unite and galvanize Democrats, both centrist and liberal. Democrats have long said that theirs is the party that promotes broadly shared prosperity. Strengthening unions has been one of their primary tools in realizing that goal and should remain so. But they also need to find other ways to link productivity increases to Americans’ incomes, and using the tax code is a good way to do it.
Let me suggest a few ways that could happen. The Securities and Exchange Commission is expected to soon issue an order, mandated by the Dodd-Frank financial reform act, requiring every corporation to publish annually the ratio between its CEO’s compensation and the median pay of its employees. Once that median pay is public knowledge, Congress could create a lower tax rate for companies that increase their median wage in line with the annual increase in the nation’s productivity. To be sure, companies could game that system by reducing workers’ wages — thereby reducing the median — and then giving workers that productivity increase to qualify for the tax break without actually raising wages. To offset this, Congress could also cut taxes on companies with a low ratio between CEO pay and median pay — something that could persuade CEOs not to cut their workers’ wages.
For years, discussions about rising inequality and reforming corporate taxes may as well have been taking place on separate planets. But combating inequality must become the primary goal of corporate tax reform. Raising the minimum wage would help millions of underpaid workers. Remedying the systematic underpayment of the great majority of Americans whose pay is both higher than the minimum but nonetheless stagnant, however, could best be done — and in the absence of union power perhaps can only be done — through rewarding corporations that link increased productivity to wages and taxing more heavily those that don’t.
The Senate Finance Committee, which has jurisdiction over taxes, has a new chairman: Democrat Ron Wyden of Oregon. Senator, take it away.