The writer is a senior fellow at Harvard Kennedy School
The coronavirus has laid bare a major weakness of the US economy: the low quality of its labour market. The essential workers who kept the economy running during stay-at-home orders — grocery store employees, delivery workers, waste and sanitation workers — may have emerged as heroes, but they certainly are not compensated as such.
While they managed to hang on to their jobs, currently more than 30m Americans are claiming unemployment benefits, the vast majority from low-wage, low-hour sectors. When the virus is contained, we must seize the opportunity to reset as we rebuild.
Labour’s share of income versus capital has fallen for decades in the US; the overall pie for workers is shrinking even as stock market valuations and corporate profits have soared. At the same time, the ratio of high-wage/high-hour jobs to low-wage/low-hour jobs has fallen. In a recent paper, the economists Anna Stansbury and Lawrence Summers argue that workers are less able to share in the profits of their companies because labour’s power has fallen. Declining union membership is a big reason, down from 33 per cent in the 1950s to just 10 per cent today.
Unionised workers earn around 13 per cent more than their non-unionised counterparts. Falling membership has occurred alongside corporate union-avoidance tactics and the expansion of state right-to-work laws that undermine unions’ ability to fund themselves. Government policies to encourage collective bargaining and to penalise companies for interfering with organising efforts would help alleviate this.
Worker power and wages have also been sapped by a rise in shareholder activism. In order to maximise shareholder value, companies have been under increasing pressure to cut labour costs. Wages, paid leave, benefits and overtime policies are degraded in the process. Many misclassify employees as independent contractors to reduce or avoid benefits. This should be made a serious offence and government contracts should not be issued to companies who commit violations.
There is another reason US workers have been prevented from negotiating higher wages. Between 1997 and 2012, 75 per cent of industries became more concentrated. As economist Thomas Philippon argues in his book The Great Reversal this is driven by a lack of competition. As superstar companies rise to the top and squash potential rivals, they become less inclined to raise wages because competition for workers is limited. Beefing up antitrust policy would help reverse this trend.
We also need to create high-quality new jobs. The US transformation to a services-based economy means most of the millions of jobs created since the 1970s are badly paid and unstable. A massive infrastructure spending programme to retool the economy for sustainability could change this. With borrowing costs low, this is a no-brainer. It would employ construction workers, skilled trade workers and engineers, but not the millions of hourly services workers who have lost their jobs this year. Retraining will be necessary. The US government currently has nearly 50 employment and training programmes spread across 15 agencies. Those must be simplified. Most workers cannot afford to lose income while retraining, so the government must support them while they do, as well as the programmes they need.
The trends that have undermined US job security have persisted for decades, but the gap between those ordering takeaway and those delivering it has been widened by the pandemic. Rising inequality is bad for the economy and the social fabric. Crises provide opportunities for bold changes. The Depression produced the New Deal and the second world war the UK’s NHS. It’s time to do something equally daring for the American labour market.