Can We Restore Broadly Shared Prosperity?

Abstract

Good Jobs, Bad Jobs and other Russell Sage publications greatly strengthen our knowledge of both the causes of low-wage work and what is required to improve jobs and economic opportunities. These multidisciplinary studies complement basic principles with detailed comparative fieldwork which shows that globalized product and labor market competition does not create immutable tradeoffs between the quality and quantity of jobs; although it won’t be easy in the American context, broadly shared prosperity can be restored by a combination of value-added competitiveness policies, collective bargaining, minimum and prevailing wages, human resource development, labor market policies, and social supports.

Keywords

Inequality value-added competitiveness worker participation shared prosperity

Good Jobs, Bad Jobs, by Arne Kalleberg, is one in a series of very valuable studies of low-wage work published by the Russell Sage Foundation. These studies deepen our understanding of the causes and consequences of low wages and the growing polarization of job quality, arguably the most important problem rich democratic countries face. Several characteristics of the Russell Sage research make it especially useful for policy purposes. First, it is multidisciplinary and therefore represents a more realistic assessment than discipline-oriented research by economists, sociologists, or psychologists. Second, the work combines the available quantitative and theoretical assessments of job quality with comparative analyses based on extensive field work. This method permits the separation of general principles from unique national, cultural, political, or institutional forces. It is especially important to view job quality in historical context in order to understand changes produced by such universal factors as globalization, technology, and demographic changes, thus providing a sense of spatial and temporal relativity.

A particularly powerful use of the comparative method is provided by Low-Wage Work in the Wealthy World (Gautié & Schmitt, 2010). This book, a useful complement to Good Jobs, Bad Jobs, was based on the comparative method, including studies by teams of scholars in the United States and five European countries; these analysts found that the United States had the highest incidence (25%) of low-wage work (defined as a gross hourly wage less than two thirds of each country’s median gross hourly wage). The other percentages were Germany, 22.7%; the United Kingdom, 21.7%; Netherlands, 17.6%; France, 11.1%; and Denmark, 8.5%. Analyses of these differentials show that there is no inevitable tradeoff between the quantity and quality of jobs, but that strong underlying economic forces can be modified by such policies and institutions as collective bargaining, minimum wages, protective labor legislation, and supportive services. A major determinant of wage equality is the inclusiveness of wage-determining institutions. For example, powerful Danish unions’ solidarity wage policies have strengthened the wages and opportunities for less powerful workers. Similarly, the government increases social wages by providing generous benefits (e.g., income support, child care, paid sick leave, vacations, pensions, and health insurance), thus strengthening workers’ bargaining power by removing these factors from competition. The Danish and other European governments also have impressive active labor market policies to upgrade workers’ skills and facilitate their adjustment to change. High and more equal wages in Denmark have not led to higher unemployment rates, which are lower in Denmark than in the United States. And Danish labor force participation rates are higher than America’s.

Low-Wage Work in the Wealthy World demonstrates, however, that price and cost competition policies tend to motivate employers and governments to increase the incidence of low wages by providing employers such “exit options” from national wage-determining institutions as narrow collective bargaining and regulatory coverage, youth differentials, lower wages for new hires, outsourcing, weakening the bargaining power of unions and individual workers, and lowering the real value of minimum wages.

Arne Kalleberg (2011, p. 9), using a broader definition than Gautié & Schmitt, defines a good job as one that

Pays relatively high wages and provides opportunities for future earnings increases;

Provides adequate fringe benefits, such as health insurance and retirement income;

Gives workers the opportunity for autonomy and control over work activities;

Allows workers some flexibility over scheduling and terms of employment; and

Provides workers some control over the termination of the job.

A bad job is one that does not do these things.

Kalleberg shows that work quality has polarized since the 1970s, reducing the relative size of the middle class and increasing the precariousness of work, especially for the most vulnerable workers. He also shows that the American system is not unique because similar trends are observable in the United Kingdom and other Anglo-Saxon countries, though nowhere near as extreme as in the United States.

Kalleberg (p. 23) traces the forces which produced work polarization and destroyed the

social contract between labor and capital…from the end of World War II until the 1970s. This social contract institutionalized the mutual expectations and obligations . . . held by workers, employers, and their communities. Workers received fairly secure and well-paid jobs in exchange for labor peace and productivity.

Kalleberg argues that because of the “growth of polarized and precarious employment systems in the United States . . . we need a new social contract” based on the idea of “flexicurity,” “which can be found in other countries with differing institutions and structures.” Flexicurity “provides employers with the flexibility they need to compete while also providing employees with the security they need to construct career narratives” (pp. 93-94). This new social contract would include “an adequate level of current and future income to provide greater security,” perhaps through “building a better safety net outside of the labor market”; insurance

to “socialize” risks . . . help . . . cope with losses and compensate for bad events, [and] give people the self confidence to take entrepreneurial risks. The highest priority should be on providing . . . portable health insurance . . .; more generous retirement benefits; and expanded unemployment benefits and other wage supports…to help people navigate the increasingly treacherous transition between jobs and employers. (pp. 187-188)

Kalleberg also calls for greater representation security by strengthening workers’ rights to organize and bargain collectively and to engage in other forms of worker representation and “skill reproductive security” through improved access to lifelong education and training.

Perhaps the best example of “flexicurity” is Denmark, where employers have relatively free internal (or functional) flexibility through well-trained workers and high-performance work practices stressing improvements in productivity, quality, and flexibility, coupled with the ability to freely lay off workers (numerical flexibility) who have income security through active labor-market and full-employment policies, all of which is negotiated and enforced by labor organizations with considerable economic and political power.

Several major conclusions flow from Good Jobs, Bad Jobs and the Russell Sage studies of low-wage work:

First, all wealthy democratic countries face similar contextual forces that have eroded traditional, less competitive, and less knowledge-intensive economies since the 1970s.

In the United States, this traditional paradigm, which produced a long period of broadly shared prosperity between World War II and the 1980s, consisted of an economic base established by the mass production system, which caused relatively rapid improvements in productivity (the chief source of economic progress) through economies of scale strengthened by the world’s largest and richest internal market and relatively abundant natural resources. Economies of scale were most apparent in basic industries, but their benefits spread widely throughout the economy through cheaper capital and consumer goods. The system was reinforced by supportive public policies to provide infrastructure; a mass public education system; very good higher education and scientific research institutions that were greatly strengthened by the G.I. Bill, which opened college and university education to millions of veterans; and social safety nets, which not only moderated the worst effects of unstable markets but also helped sustain aggregate demand, the failure of which was a major cause of the Great Depression. Aggregate demand also was enhanced by a commitment to full employment as the main goal of macroeconomic policy; and, by strengthening the right of workers to organize and bargain collectively, which not only increased aggregate demand, but also strengthened workers’ voices in the work place and the polity. New Deal market policies sanctioned some “natural” monopolies, limited competition in the agricultural sector and oligopolies in basic industries, and restricted international competition. Similar policies and institutions were developed in other wealthy countries, with the major differences that most countries had stronger social safety nets and did more to strengthen workers’ political and economic power.

The policies of all democratic countries nevertheless reflected the Great Depression’s main lesson of economic interdependence. President Franklin Roosevelt emphasized this reality when he declared that America could not have enduring prosperity unless the benefits were broadly shared.

Second, since the 1970s, the traditional paradigm has been eroded by three interrelated universal processes: technological change, globalization of product and labor markets, and some powerful demographic changes.

Technological change is fundamental; it provided the benefits of scale with more flexible producing processes, causing the mass production system to be less effective within a country, elevating the importance of education and human resource development, and greatly strengthening competitive domestic and international markets. Technological change helped clarify the basic source of economic progress: improvements in productivity by using fewer manual and physical resources and more ideas, skills, and knowledge. Technology also changed competitive processes by automating routine work (high- and low-wage) and facilitating outsourcing and offshoring. The globalization of product markets, greatly enhanced by information and transportation technologies, also clarified two basic choices for domestic and international competition: costs (mainly wages) or value-added (productivity and quality). Most wealthy and many emerging countries have rejected the direct-cost, or “low road,” option because it implies a growing inequality of wealth and income and limits economic progress since it relies mainly on using more physical and manual resources (working harder) and fewer ideas, skills, and knowledge, a process with virtually unlimited potential. Value-added competition, by contrast, stresses reducing costs by improving productivity and quality, as well as the flexibility to adjust to dynamic markets. The value-added option is clearly both more compatible with democratic institutions and more sustainable.

The globalization of labor markets, accelerated by the globalization of product markets, produced some equally important challenges. The size of the international labor market more than doubled as a result of the entry of India, China, and the former Soviet states into the international trading system. Global labor market integration has been greatly deepened by newer and cheaper transportation and communications. International labor competition also is intensified by differential rates and levels of economic progress, which create strong incentives for people to move from poorer to richer countries and for capital and goods to move to poorer countries. There are especially strong pressures for people to enter the United States, a wealthy country with weak immigration and labor market controls.

Demographic changes in all wealthy democracies have affected labor market competition. Perhaps the most important labor market development of the 20th century was the increased labor market participation of women, partly because of growing career opportunities and sometimes to sustain family incomes as the real wages of men fell. The increased employment of women also led to a demand for child care and other services, thus contributing to the growth of low-wage labor markets.

Wealthy industrialized countries also are aging, which creates additional demands for both service workers and immigrants to offset the declining supplies of domestic workers, who tend to shun low-status jobs as incomes rise and better opportunities become available. As Kalleberg shows, low-wage immigration sustains low-wage jobs by creating a demand for foreign workers who often are preferred for these jobs, at least partly because of their vulnerability and willingness to work hard in those jobs.

Global labor competition causes wages to tend to converge between countries, presenting policy makers with the choice of how convergence will occur. Unfettered market forces and wage competition could cause convergence to occur mainly by reducing wages in high-wage countries, which would strengthen resistance to an open and expanding international economic system. A better approach would be to achieve accelerating wage increases in low-wage countries through value-added strategies. Value-added immigration will increase the wages of domestic workers whose jobs are complementary to those taken by foreign workers. The challenge therefore is to manage immigration to maximize complementarity and minimize labor market competition (Marshall, 2011).

So far, however, the globalization of product and labor markets has weakened the bargaining power of workers in almost all countries, especially the United States. American employers and governments have opposed unions much more than their counterparts in other high-income countries and have provided fewer non-collective-bargaining participatory processes. Because of limited and declining government support, American unions have been less able to withstand the technological, demographic, and economic changes affecting all countries. American union strength was concentrated in industries with limited product market competition, where the parties could take labor out of competition through collective bargaining and government regulations. The globalization and deregulation of product markets and the expansion of employment into more competitive sectors, driven primarily by price and wage competition, has greatly weakened American private sector unions. Labor organizations have been able to retain more strength in the public sector, but intensified cost competition also threatens these unions. The decline of union strength likewise weakens support for minimum and prevailing wages, whose values also have declined with inflation and market competition.

The ideological support for labor organizations is weaker in the United States than in other wealthy countries, though the United Kingdom has moved closer to the United States since the 1970s. However, British workers have more political influence through the Labour Party than their American counterparts, who are relatively unique in not having a successful labor party.

Europeans commonly refer to labor organizations as “social partners” and understand President Roosevelt’s dictum that good public policy and strong democratic institutions require participation by all major economic interests.

The weakening of collective bargaining means that worker bargaining power rests increasingly on the possession of marketable knowledge and skills, which is why, as Kalleberg stresses, education has become a major divide between good jobs and bad jobs.

While workers with more education have fared better than those with less, since 2000 even college-educated workers have experienced declining real earnings, as can be seen from Table 1. In the absence of high-value-added and shared-prosperity policies, these trends can be expected to continue, because there are millions of well-educated, highly motivated foreign workers willing, at least for a while, to work for a fraction of American wages.

Table 1.

Median Income for People 25 and Older, by Educational Attainment and Sex, 2000-2009 (in 2009 CPI-U-RS adjusted dollars)

	Male				Female
Education attainment	Median income (US$) 2000	Median income (US$) 2009	Change (US$) 2000-2009	% change 2000-2009	Median income (US$) 2000	Median income (US$) 2009	Change (US$) 2000-2009	% change 2000-2009
Less than high school
Less than 9th grade	US$17,601	US$16,473	-US$1,128	-6.4	US$10,644	US$10,516	−US$128	−1.2
9th to 12th (no diploma)	23,560	19,720	−3,840	−16.3	12,534	12,278	−256	−2.0
High school graduate	34,228	30,303	-3,295	−11.5	18,874	18,340	−534	−2.8
Some college, no degree	41,501	36,693	−4808	−11.6	25,118	23,107	−2,011	−8.0
Associate degree	47,363	42,163	−5200	−11.0	28,802	27,027	−1,775	−6.2
Bachelor’s degree or more	66,622	61,280	−5342	−8.0	41,288	40,766	−522	−1.3
Bachelor’s degree	61,132	54,091	−7036	−11.5	37,887	35,972	−1915	−5.1
Master’s degree	74,399	69,825	−4574	−6.1	50,593	50,576	−17	−0.03
Professional degree*	104,254	102,398	−1856	−1.8	57,400	60,259	2,859	5.0
PhD	88,772	89,845	1073	1.2	64,096	65,587	1,491	2.3

Note: For a comparison between 2000 and 2005, see Marshall (2010).

Professional degrees include MD, DDS, DVM, LLB, JD.

Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Table P-16: http://www.census.gov/hhes/www/income/data/historical/people/index.html, accessed April 13, 2011.

Should We Worry About the Polarization of Incomes?

Some scholars and politicians argue that growing inequality is really not a very serious problem because the presence of high incomes motivates lower income groups to improve their economic conditions. This would be a valid argument, of course, if the United States had an opportunity structure that facilitated upward mobility. But Good Jobs, Bad Jobs and other research shows that, despite greater inequalities, Americans’ chance of upward mobility probably is declining and is no higher than those of other countries with much less inequality. Indeed, the United States has greater educational inequality than any other major industrial country; American students face higher costs for postsecondary education and have many fewer social supports than their counterparts in many European countries.

Furthermore, inequality is a major barrier to educational equity, a very serious problem in the United States. Wealthy Americans often resist high academic standards for poor children, partly because they are unwilling to finance the high-performance public schools needed to educate all students to those standards and partly because of the mistaken belief that disadvantaged students are unable to meet high standards.

But America’s disadvantages extend to adults as well as school-age children; the United States has a very poorly developed adult education and workforce development system, federal funding for which has declined by as much as 80 percent since 1980 despite an economy that is twice as large and a work force that is 50 percent larger.

Those who minimize the importance of poverty and inequality likewise ignore a large body of evidence about the noneconomic costs of inequality, which not only weaken the national unity needed to solve important problems but also have serious social and psychological consequences. There is evidence, for example, that inequality is associated with such pathologies as mortality, suicides, homicides, and lower life expectancy (Marmot & Smith, 1989; Merva & Fowles, 1999; Smith, Bartley, & Blane, 1990; Wilkerson, 1989, 1992).

Restoring Broadly Shared Prosperity

What should we do to restore broadly shared prosperity? In addition to the policies suggested by Kalleberg, I recommend the following:

Adopt a high-value-added, shared-prosperity strategy to guide U.S. social and economic policies. Shared prosperity not only moderates inequality but, as experience in East Asia and elsewhere demonstrates, by rewarding work and innovations, provides powerful economic incentives.

Strengthen the right of workers to organize and bargain collectively by more meaningful penalties for employer violations of the NLRA and more effective certification processes.

Create other forms of worker participation in the work place and in corporate governance to improve productivity and quality, strengthen the enforcement of safety and health and other labor laws, and moderate short-run corporate decision making.

Restore the full-employment emphasis of macroeconomic policy, including public employment for workers—especially youths who are unable to find private sector jobs.

Pass comprehensive immigration reforms to legalize the status of unauthorized workers, minimize future undocumented entries, better protect foreign and domestic workers, better match foreign worker flows with the needs of a value-added economy, and provide more effective federal responsibility for this important function (Marshall, 2011).

Create a world-class public education system with internationally benchmarked standards; highly professional, better paid teachers funded by the states instead of local property taxes (a major barrier to equity); and distribute funds to schools on the basis of students’ needs and with districtwide public school choice and negotiated performance-based incentives. Make preschool for 4- and 5-year-olds universally available (Marshall, 2010).

Create a world-class workforce-development system that would coordinate labor market, economic, education, and support services at the federal, state, and local levels. In local labor markets, combine these functions in a regional development authority with bonding power (Marshall & Plotkin, 2010).

Improve the financing of education and training for individuals through a combination of educational benefits for national service, tax-advantaged individual and employer-based training, and a wider use of student loans and grants.

Strengthen adult education and training, including a high school education or equivalent entitlements for every adult, paid for by the federal government (National Commission on Adult Literacy, 2008).

Increase the minimum wage and index it to average wage levels. As noted earlier, a high minimum wage could greatly reduce wage competition at the lowest levels, reduce the need for nonwork income support, generate added aggregate demand, and provide incentives for employers to automate and improve productivity. As James Galbraith (2012) points out, a minimum wage of US$12 an hour (the current rate is US$7.25, but some states already have higher rates) would not hurt U.S. competitiveness because workers in tradable sectors already earn more than US$12 an hour.

Include enforceable labor standards in all international trade agreements. The United States currently has labor standards in these agreements, but because of weak enforcement provisions, these compacts do not prevent international trade from depressing American wages and working conditions. Labor standards should be enforced at least as vigorously as other trade provisions.

Conclusion

It will not be easy to establish a shared-prosperity agenda, mainly because it will be resisted by many higher income groups whose ranks have been swelled by deregulated competitive market policies since the 1970s and whose interest in the welfare of all Americans has receded since the Great Depression, World War II, and the 1970s.

Their political influence has been augmented by the power of money in American politics and the accelerating use of filibusters to block progressive legislation supported by strong majorities in the Congress. It would, however, be hard to imagine anything more important than value-added shared prosperity for America’s future.

Footnotes

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.

Bio

Ray Marshall holds the Audre and Bernard Rapoport Centennial chair in economics and public affairs at the University of Texas–Austin. He served as U.S. Secretary of Labor under President Jimmy Carter. He has a PhD in economics from The University of California–Berkeley and has authored or coauthored more than 30 books and monographs and approximately 200 articles and chapters.

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