But for some reason, this Labor Day feels different, a bit like one of those commissions the government sets up when it wants to pretend it’s dealing with a problem. Or like a dangling of the keys: “Look over here, not over there!”
Like I said, it’s great to celebrate working people for a day, but many of them haven’t seen a raise in far too long, and while everyone loves a holiday, there are a lot of folks out there who need and deserve something more lasting: a pay hike.
They’ve been holding up their side of the bargain, doing their jobs and contributing to the economy’s growth. But as economy-wide productivity trucks along, as the job market tightens up to the point where the Federal Reserve is worrying that it’s too hot and needs to cool down, a lot of working people have but little to show for it.
So we’ve got to do more for America’s workers than throw them a party. We’ve got to get to the bottom of the wage stagnation problem. There are two broad, fundamental forces in play here: the macroeconomy and bargaining power.
Overall economic conditions — notably the lack of full employment — are a key determinant of wage growth. But didn’t I just say the labor market has been tightening up? It surely has — the unemployment rate was 10 percent in late 2009; last month, it fell to 5.1 percent, the lowest it has been since spring 2008.
But here’s the point: Back when unemployment was so high, wages were growing at 2 percent (that’s nominal growth, i.e., before inflation). Now, after all this tightening, they’re still growing at 2 percent. True, given our unusually low energy prices, inflation is so low that even the current historically low growth rate translates into real gains. With gas at $2.50 instead of $3.50, even a stagnant paycheck can be stretched further. But once energy prices normalize, unless wage growth finally starts responding to the tighter job market, real wages will fall.
The reason wages aren’t growing faster at full employment is because we’re not really at full employment. That jobless number is deceptive: Add in missing factors, including the underemployed and the depressed labor force participation rate and you’d get an unemployment rate closer to 7 percent.
That’s the near-term story. As a new report from the Economic Policy Institute shows, decades ago, the compensation of the typical worker closely tracked productivity growth. But since the mid-1970s, inequality has increasingly diverted growth from middle- and low-wage workers, such that productivity is up 72 percent while the compensation of the typical, or median, worker is up just 9 percent — over 40 years!
The report puts it this way: “In essence, about 15 percent of productivity growth between 1973 and 2014 translated into higher hourly wages and benefits for the typical American worker.” It has gotten worse since 2000: That same figure would be 8 percent.
Much analysis reveals that persistent job market slack plays a significant role in these results. When middle-class wages grew with productivity, we were at full employment 70 percent of the time. Since wages and productivity have drifted apart, we’ve been at full employment 30 percent of the time.
All of which is to say that a key question on Labor Day, along with how do you like your burger, is how do we get back to and stay at full employment. That question is at the heart of a project we run at the Center on Budget and Policy Priorities, where we’ve commissioned over a dozen papers (and counting) on policies to get back to tight job market.
So far, we’ve identified the need to lower the trade deficit, invest in public infrastructure, recognize “asymmetric risk” at the Fed (the risk of tightening too soon before wage gains have reached working people is greater than the risk of spiraling inflation), facilitate more collective bargaining, directly create jobs when and where employment growth is weak, and improve labor standards ranging from overtime to minimum wages.
Then there’s bargaining power, the loss of which is a major determinant of the productivity/wage split. To be clear, bargaining clout is intimately linked to full employment, and the absence of the latter helps explain the deficit of the former. But there’s more to it.
Thematically, it’s useful to view the debate as YOYOs vs. WITTs: “you’re on your own” vs. “we’re in this together.” The YOYOs advocate privatization; they oppose unionization (and love “right-to-work” laws), regulation, safety nets, and labor standards. In YOYO world, you pull yourself up or you stay stuck at the bottom. The atomization of the “gig,” or freelance, economy has an inherent appeal to YOYOs; recent legal rulings that hold larger employers responsible for contracted employees are, thus, anathema to them.
I suspect they don’t even much like Labor Day.
WITTs go the other way on all of the above. They (we) want to preserve and expand social insurance, view the safety net and labor standards as key bulwarks against market failures, and view collective bargaining as an essential component of an agenda that reconnects growth and prosperity.
Clearly, the balance of power has shifted toward the YOYOs, and that’s making it much harder to both pursue the WITT’s reconnection agenda and to get back to full employment. Worse, in a political economy where money has so much political sway, YOYOism is self-reinforcing: Concentrated wealth becomes concentrated power. One sees this not only in the economic sphere, but in the climate debate as well.
So, here’s my Labor Day question: How do we WITTs take our MOJOs back from those YOYOs?
As noted, there has been some action on the legal front, pushing back on the atomized workforce, creating the potential for more unionization among permatemps and low-wage workers at franchises. Speaking of the latter, the “Fight for $15” — a valiant WITT effort to raise minimum wages — smartly focuses on local politics, versus the gridlocked national version, and they’ve been far more successful than the YOYOs would like.
The Obama administration has helped more than people realize in this space. Their fingerprints can be found on gains in labor standards, including overtime, minimum wages (for workers on federal contracts), and the recent ruling by the National Labor Relation Board on subcontractors referenced above. Even in our era of dysfunctional government, from the YOYO/WITT perspective, who’s the president matters a lot.
On the macro side, we’ve got a lot of work to do. While Federal Reserve Chair Janet Yellen is a staunch and sympathetic advocate of full employment, the models driving the Fed’s decision-making seem disconnected from what’s really going on in the macroeconomy. The trade deficit remains a significant drag on growth, and we’re under-investing in productivity-enhancing public goods, both in terms of human and physical capital.
In other words, a tangible, plausible, implementable reconnection agenda exists, one with the potential to reconnect growth and wages. So let’s enjoy Labor Day today and get to work on behalf of working people starting tomorrow.