Matt Bruenig is the founder of People’s Policy Project.
When Amazon announced Tuesday that it was raising all of its employees’ wages to at least $15 per hour, it helped prove a point about labor markets that has fallen out of favor in recent years: Wage levels are determined as much by social forces as they are by market forces.
Amazon’s decision came on the heels of widespread criticism of its pay practices from labor activists and lawmakers, such as Sen. Bernie Sanders (I-Vt.) and Rep. Ro Khanna (D-Calif.). Sanders and Khanna had even introduced a bill, the Stop BEZOS Act, that put intense public pressure on Amazon chief executive Jeffrey P. Bezos by threatening to impose devastating — if strangely designed — penalties on the company and other low-wage employers.
Bezos (who owns The Post) made clear in statements that social forces were the ultimate factor that pushed the company to raise its wages, not any particular market imperative. The fact that the pay increase took the form of establishing a $15 floor, as activists have demanded, rather than general across-the-board wage bumps as is more typical for businesses, suggests that these statements are sincere.
What this shows is that wage-setting is driven not by invisible hands, but by the decisions of real people who can be affected by collective-pressure tactics and other forms of social power. This is an important lesson for Democrats as they deliberate on how best to boost the wages of the nation’s working class.
For the past couple of decades, Democrats have often focused on education and skills as the solution to working-class woes. The idea was that, since workers with more education get paid higher wages, increasing the number of workers with high educations will mechanically improve overall wage levels. Instead, we saw big gains in educational attainment but also persistent wage stagnation.
More recently, some Democratic policy shops have emphasized antitrust enforcement and job guarantees as chief planks of their working-class agenda. In both cases, the goal is to create more competition for workers that will naturally result in higher wages through ordinary labor-market processes. When individual workers have more employment options, the theory goes, they can use those options to get higher pay for themselves, either by switching employers or threatening to switch.
Like the educational emphasis that came before it, this new policy agenda doubles down on the strategy of improving the market position of individual workers with the hope that it will result in employer responses that make the invisible hands more generous. This might help some depending on the policy in question.
But the more fruitful approach, as Amazon’s wage hike suggests, is not trying to smooth out labor-market frictions on the hope that job-switching will bring up wages, but rather putting pressure on employers themselves.
This calls for a new strategy that includes reforming labor laws to promote mass unionization, giving workers seats on corporate boards and establishing industry-wide wage schedules through, for example, wage boards. These policies give workers the collective power to increase wage levels and reduce wage differences where they already work rather than trying to use indirect market mechanisms to achieve the same result.
It is this kind of strategy that has succeeded in many European countries, especially Sweden, Finland, Norway and Denmark. In those countries, wages are generally set through industry-wide collective bargaining agreements, and the vast majority of workers are covered by union agreements. Workers also have representation on corporate boards in all but Finland.
The result has been a wage structure in which the gap between high earners and low earners is half the size of the same gap in the United States and a wage-setting system that generally ensures that productivity gains translate to higher wages.
The activists and elected officials who pushed Amazon to implement a $15 minimum wage just showed the world what is possible when people other than bosses are able to exert some collective power over the wage-setting process. If we want more outcomes such as this, then we need to institutionalize this sort of collective power into the basic design of our economic system. Merely increasing competition in the labor market will never be enough to deliver the wage gains we need.