Raw Deal for Workers

Why have U.S. workers experienced a long-term decline in pay, benefits, and working conditions?

by Chris Tilly

Dollars and Sense magazine, July / August 2003

Few people have seen the inside of a "secondary meat processor"-a factory where large cuts of beef are turned into hamburger patties, roast beef, and other beef products. The workers who process beef do not have it easy. Many stand for long hours on wet floors. They are in constant contact with raw meat. In a typical plant the temperature ranges from 50° down to 3°F. Some workers rake 30-pound beef slabs from a huge bin onto a scale. Others heave giant roasts from one transmission belt to another. The work is repetitive and boring, but at the same time requires extreme attention to detail because of the potential for injury as well as food safety regulations. At one typical plant, entry-level pay is $7.75 an hour, or $16,000 a year- a poverty-level wage. There is no question that meat processors are getting a raw deal.

But the raw deal for workers is not limited to those workers who deal with raw meat. Pay, opportunities, and job quality have gotten worse for most workers in the United States over the past 30 years, across most sectors of the economy.

Obviously, the 2001 recession and the current jobless recovery have meant two-plus years of severe job shortages. But the deterioration of U.S. Iabor market conditions is a longer-term phenomenon. The spread of second-class jobs in the past three decades relates to fundamental changes in the economy and society, including sluggish productivity growth and employer assaults on workers' rights and protections.

The strongest evidence for the raw deal comes from looking at how workers were doing at the peak of the 1990s boom, three years ago. It was the longest boom in recorded U.S. history (lasting from March 1991 to March 2001). The expansion drove unemployment down to its lowest level in 30 years and spurred talk about a "new economy" that would turn productivity growth into endless prosperity. It should have been the best of times. But as a glance at the numbers reveals (see "Best of times?" p. 43), it was not the best of times for working people.

WHY THE RAW DEAL?

Why are workers getting such a raw deal? First, the economic pie is growing more slowly. Productivity growth during the "new economy" 1990s was only two-thirds as fast as in the "old economy" 1960s. That reflects the fact that companies have not invested as much in upgrading their equipment and training their workers as they once did-although the numbers are up compared to the 1980s, when productivity growth was even slower.

Why are these investments down? Businesses make an investment when they expect a payoff. But total global demand for goods and services grew only about half as fast in the 1980s and 1990s as it did in the 1960s and 1970s, and the increasing globalization of trade and investment meant that businesses were much more likely to face new competitors.

Second, over the last 20 years, businesses have aggressively attacked the protections that workers had built up for themselves. They have busted and blocked unions, shredded the unspoken agreements that governed many non-union workplaces, and lobbied to weaken pro-worker legislation. One consequence of these efforts: private sector workers are now less than one-third as likely to belong to a union now as they were in the mid-195Os. The minimum wage is only worth about two-thirds as much as it was at its high point in the late 1960s (after taking inflation into account). Because the low-wage workforce includes disproportionate numbers of women and people of color, the minimum wage and unions particularly benefit these groups.

Republican presidents have joined in the attacks on these protections. Every Republican administration since Ronald Reagan has doggedly opposed minimum wage increases.

When Reagan fired striking air traffic controllers in 1981, he set a precedent for the permanent replacement of strikers. George W. Bush out-did Reagan in 2002 when he demanded that the Department of Homeland Security not have civil service protections and announced plans to privatize half of the federal workforce. Republicans in the White House have also stacked the National Labor Relations Board (NLRB), other federal agencies, and the courts with anti-labor appointees. As a result, these agencies offer at best weak enforcement of labor protections. To provide two recent examples: the NLRB recently ruled that unions have no right to hand out leaflets in company parking lots, and the Supreme Court ruled in 2002 that if a company terminates an undocumented worker, it need not pay the worker his or her back pay. Further, under-funding of the Occupational Safety and Health Administration (OSHA) has reduced inspections in hazardous workplaces-like meat processors. Self-styled New Democrats have backed many of these changes in the name of aiding business.

Of course, at the same time as corporations have attacked rank-and-file workers' protections, they have increased the rewards to top executives and stockholders. CEO pay kept growing through 2001, even while profits and stock values declined.

The third reason for the raw deal is that businesses have pushed more and more risk onto workers. The most extreme example of this is the growth of temporary work, which has expanded more than twenty-fold since the late 1960s. (Temporary work has been shrinking for the last two years-which of course is exactly the point: you hire temporary workers so you can dump them when the economy goes south.) But beyond the temps themselves, the frequency of mass layoffs (see boxes) highlights the fact that really, almost all jobs are temporary today.

Benefits are another area where workers bear more and more risk. Twenty-five years ago, most workers with pensions had "defined benefit" plans which specified the amount they would be paid upon retirement. Today, fewer than half of all workers are covered by any retirement plan, and fewer than one in five has a defined-benefit pension plan. Businesses prefer to offer defined-contribution plans like 401(k)s which require employee contributions and tie retirement income to market returns. In the last two years, we saw the results for those who had invested their 401(k) savings in Wall Street. Similarly, employers who offer health insurance have made workers take on more and more of the cost of health benefits-with the result that a growing number of workers decide they can't afford their health plan and go without coverage.

BECAUSE THEY CAN

Why are businesses attacking worker protections and demanding that workers bear more risk? The first answer that many people give is "globalization"-and the increased competition that comes with it. Globalization has certainly had an important impact, but it does not offer an adequate explanation for business's newly combative stance. After all, it is the National Restaurant Association-representing an industry that experiences absolutely no global competition-that has fought hardest to keep the minimum wage low. To a large extent, businesses have gone on the offensive not because they must, but because they can.

Of course, businesses have always had the ability to lobby against the minimum wage, to cut health benefits, and to run anti-union campaigns. What has changed is the social acceptability of such actions. Princeton economist Paul Krugman recently argued that this is what accounts for the stratospheric rise of CEO pay: businesses have torn up the old social contract that placed important restraints on corporate self-seeking. Once a few large companies did this, the pressure mounted for other companies to go along or else face a competitive disadvantage, both in the stock market and in the market for goods and services. And as the social contract got rewritten, the government stopped enforcing the old rules. Cases in point are recent changes by the Supreme Court, the NLRB, and OSHA, mentioned earlier.

What can be done about this raw deal? It's tempting to think about the Arnold Schwarzenegger solution. In the 1986 movie Raw Deal ( "They gave him a raw deal. Nobody gives him a raw deal."), Schwarzenegger used fists, guns, and explosives to wipe out the Chicago mob. But leveling the playing field for workers is no Hollywood action film. Complicating the task of winning a fairer share are three paradoxes.

THREE PARADOXES

The first is the paradox of corporate thrift. Again, businesses are spending less on investments in equipment and training, and are also doing their best to keep wages and benefits low, all because the demand for the goods and services they sell is not growing very fast. For any business individually, this kind of thrift makes sense. But the paradox is that for businesses taken as a whole, it's counterproductive. Because if businesses are keeping down their own spending, and giving workers as little as possible, the overall result is to keep down the demand for goods and services. It's a vicious circle.

Handing another million dollars to a CEO is not a good way to stimulate the economy. True, some CEOs, like Tyco's Dennis Kozlowski, found creative ways to spend the money-on art, furniture, boats, and travel. But in general, rich people save most of their income. If you took a million dollars of executive pay and divided it among 1,000 poor families, you would get a lot more economic impact.

The second paradox is what University of Massachusetts economist James Crotty calls the neoliberal paradox. With slow global growth and increased global competition, it's become harder for most businesses to keep profits up. But at the same time, changes in the stock market mean that investors now demand consistently high profits. The growth of large institutional investors and the invention of the hostile takeover have made it possible for investors to threaten companies with takeover or destruction unless they generate high returns. Crotty points out that profit for non-financial corporations actually peaked in 1997. But corporations knew what would happen if they told their shareholders this bad news. In this context, the pressures for accounting games and even fraud became irresistible.

These first two paradoxes point out that the economy is far too important to let businesses run it. But when we think about how to take more control away from businesses, we run into the third paradox, the Arkansas Traveler paradox, named for an old song in which a traveler comes upon a man whose roof is leaking in a rainstorm. When the traveler asks him why he doesn't fix the roof, he says, "I can't fix it when it's raining." Asked why he doesn't then repair the roof when it's sunny, he replies, "When it's sunny, there's no need to fix it."

Similarly, when the economy is booming, workers have more economic leverage. Businesses run up against labor shortages, so they're more willing to make concessions to in order to ensure they can get the workers they need. It's a good time to organize a union, push for a higher minimum wage, or demand that employers provide a training program. Governments have the money to enforce regulations or to help pay for training.

But when the economy is booming, many workers don't see as much need to band together to defend their interests. Why form a union or lobby for a higher minimum wage when you can hop to a better paying job? Why push for a training program when even unskilled workers are getting jobs? The 1990s may not have amounted to a workers' paradise, but employment rates and wages were relatively anemic compared to the two decades that came before.

On the other hand, when the economy crashes, all of a sudden even the corporate media and mainstream politicians begin to focus on all the ways that business falls short. But when businesses are struggling for survival, they will fight desperately against any attempt to give workers a bigger share. The large numbers of unemployed job seekers put a damper on any attempts to organize unions or boost minimum wages. Governments face budget shortfalls, so they are not inclined to take on new activities.

The only way out of this box is not economic, but political. We have to build a movement that sees beyond the current situation in any given year. In the boom years, we have to remember all the problems of a business-dominated economy and use our economic leverage to strengthen institutions and business practices that help workers. In the bust years, like now, we have to keep in mind that economic resources will soon enough be growing again, and put in place rules that will more equitably distribute and effectively use them. We know what rules make a difference: the most important are strong wage floors and collective bargaining protections. By making businesses work under a better set of rules, we can actually help grow those resources by steering the economy out of the paradox of thrift and the neoliberal paradox.

If the problem is a raw deal, the solution is a new New Deal. The New Deal of the 1930s and 1940s saved U.S. capitalism from itself. It looks like we're going to have to do it again. n

Chris Tilly, an economist teaching at the University of Massachusetts-Lowell, is a member of the Dollars & Sense editorial collective. This article is based on a talk he gave at the Ethical Society of Boston in November 2002.

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