Remember the Raise?
The markets are anxious. There's every sign that the world's investors have grown nervous about the continued ability of the American consumer to keep the economy perking along. Companies that sell big-ticket items are floundering: General Motors reported a $1.1 billion quarterly loss yesterday. Conversely, drug and utility stocks are doing all right; companies that rely on nondiscretionary spending remain a safe bet.
Part of the problem is that gas prices are siphoning off a bigger share than usual of Americans' incomes. But the bigger problem is that Americans' incomes are stuck or even in mild decline. Though the economy grew by 4.4 percent last year and added 2.2 million jobs, real wages fell by 0.9 percent. The last time U.S. wages fell was in the recession year of 1991. Now they're falling in the middle of a recovery.
Time was when wage increases tracked gains in productivity and profitability -- but that time is long gone. Since 2001 yearly productivity growth has averaged 4.1 percent, while wages and benefits have grown on average by just 1.5 percent. No longer does a rising tide, as John Kennedy famously pronounced, lift all boats. We are now in the 11th quarter of the current recovery.
Averaging all the recoveries from 1947 through 1982, at this point -- the 11th quarter -- private-sector wages and salaries had risen by 18.2 percent, according to a study by the Economic Policy Institute. By the 11th quarter of the Clinton recovery of the early '90s, however, wages and salaries had grown by just 7.4 percent. And in the current Bush recovery, they've increased by an anemic 4.5 percent. In the new American economy, rising tides don't raise boats; they swamp them.
Plainly, two factors have altered our economy, profoundly and for the worse.
The first is our free-market form of globalization, which exerts downward pressure on the income from all jobs -- from software writer to shirt stitcher -- that can be performed elsewhere. The second is deunionization, which removes the bargaining power of employees. Get rid of unions -- and the rate of unionization in the private sector is 7.9 percent, the lowest level since before the New Deal -- and who is it that even bargains for wage increases?
On one hand, this is a consummation for which American employers have devoutly wished. Employer opposition to workers' attempts to unionize is the rule, not the exception. The share of revenue going to profits and shareholders has increased as wages have flat-lined. On Wall Street and in boardrooms, deunionization has been an elegant solution to the problem of increased global competition (or, for companies not subject to global competition, simply an elegant source of profits).
Except last week, when even on Wall Street the solution began to look more like a problem. Home values may keep rising and consumers may keep going deeper into debt, but there's a limit to how much Americans will spend if their wages can't keep up with prices -- even in the midst of a recovery.
Given the abysmal way in which economic history is taught in the United States, we tend to forget that the New Deal legalized unions as part of a strategy to stabilize and restart an economy that had been subject to chronic under-consumption. "The inequality of bargaining power between employees who do not possess full freedom of association" and employers, reads the preamble to the 1935 National Labor Relations Act, "tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners." The law worked for about 40 years, until employers figured out that they could violate its terms with relative impunity. Since the 1970s, however, employers routinely fire workers engaged in organizing drives and threaten to shutter their doors if their workers go union -- tactics proscribed by the act but not seriously penalized. The percentage of unionized workers in America plummeted.
And now the percentage of Americans able to keep the global economy afloat by buying the world's goods may be falling, too.
Yesterday a bipartisan coalition in Congress introduced the Employee Free Choice Act, which would make it possible for workers to join unions without putting their livelihoods on the line. Not that President Bush would ever sign it, but the bill is a twofer, creating a civil right for American workers and resurrecting the very idea of the raise. Which is something the American economy could use right about now.