Ignoring Cheap Ways to Boost Middle-Class Living Standards

David Autor and David Dorn had an op-ed in the NYT this weekend, outlining their case that technology has been the primary headwind for middle-class living standards over the past generation. We tend to have a different view; we think that the cumulative effect of economic policy decisions made over this time-span has been the real barrier to decent growth in middle-class living standards.

The first question lots of people have upon hearing this dispute is “does it actually matter?” Autor and Dorn accept (and document) just how rough a go it has been for middle-wage/middle-income workers and clearly accept that the rise in inequality that has seen rewards flow away from the middle-class is a problem that needs to be rectified. Who cares why they think it happened if they’re on-board with attempts to fix it?

The answer to this is simple and important: the diagnosis matters because it implies a prescription. In Autor and Dorn’s NYT piece, the only real policy solution they nod to is boosting the share of workers with higher education, noting that “the payoff for college and professional degrees has soared.” And if one believes that technology is boosting demand for high-skill workers and that’s why middle-wage jobs are suffering, this policy solution does make sense. But in fact, the payoff to a college degree has actually been pretty flat for more than a decade now. Wages for those with an advanced degree have done better, but this group is just over 10 percent of the workforce—which is a key reason why Autor and Dorn note that boosting the share of workers with college or advanced degrees can’t be a “comprehensive solution to our labor market problems.”

Conversely, we would argue that institutional factors like the eroding value of the minimum wage as a labor standard and eroding protections for willing workers that want to form a union are more important drivers of inequality and disappointing middle-class living standards over the past generation. This implies a different policy priority—raising minimum wages and changing the legal landscape to protect workers that want to form a union and bargain collectively.

The problem with analyses (like Autor and Dorn’s) that greatly de-emphasize these solutions is not just that they lead us to different solutions that will be less effective in combating inequality, but they lead us to much different and much more expensive solutions that will be less effective. As I’ve written before:

…boosting the share of workers with a 4-year college degree is indeed a heavy economic lift—it takes real resources (books, labs, classrooms and most expensively teachers) to provide the skills and education needed to qualify for a college degree. But boosting the share of workers with union representation really doesn’t cost much at all—there is really no serious research linking economy-wide productivity declines to increased unionization. Instead, boosting the share of union workers in the U.S. would redistribute money, but would not cost the U.S. economy anything in the aggregate. And given that so much of the decline in unionization seems to be policy-driven (PDF), the real lever to make this increase happen is essentially the costless act of changing the policy stance towards unionization (there is no CBO score, for example, for the Employee Free Choice Act because it doesn’t cost anything)…

And yet you still find many policymakers and DC think-tank types willing to salute the need to boost the share of U.S. workers with a college degree than willing to publicly say we need to make it easier for American workers to unionize—even though the college commitment is far more expensive in economics terms. Further, as Janelle Jones and John Schmitt have shown in an excellent paper, the expected gain in job quality that would stem from boosting the share of U.S. workers represented by a union far exceeds the gain that would stem from boosting the share of U.S. workers with a 4-year college degree.

Given how much cheaper (in actual economic costs) it is to change policy to boost workers’ bargaining power, it seems odd at first how little enthusiasm there is to make this the first priority for those concerned about middle-class troubles: after all, shouldn’t the low-hanging fruit at least be picked first?

But of course it’s not that odd – because boosting workers’ bargaining power would redistribute income away from those being served very well by today’s status quo, even if it’s cheap in overall economic terms, it’s a very heavy political lift to try. And as often happens in today’s United States, politics trumps economics.


  • http://asymptosis.com Steve Roth

    Even cheaper: a big EITC increase, paid for with taxes on the wealthy or just deficit spending. (As long as we’re not facing inflation, siegnorage is free.)

  • ddrew2u

    The single most effective way to reset the pay and benefit
    distribution– is reunionization — which would reset the power balance
    in the political forum as well as in the labor market.

    As always
    (my obsession if no one elses) the only way to reunionize — the only
    time tested, around the globe way to unionize — is with legally
    mandated, sector-wide labor agreements.

    This system chased 88
    Wal-Mart big boxes out of Germany because same could not compete on
    quality only — being forced to pay the wages and benefits as everyone
    else. US supermarket and airline workers would kill for sector-wide
    bargaining. Maybe if I spout it a million times in a million different
    venues, someone will pick up on it — the only mechanically feasible
    (and I think super-salable) way to totally reset American life back to
    normal.

  • ddrew2u

    JUST POSTED AT: http://economistsview.typepad.com/economistsview/2013/08/the-single-most-effective-way-of-avoiding-another-financial-crisis.html#tpe-action-resize-498
    ****************************
    The biggest block to re-unionization (see my sector-wide labor agreements comment just [above) is male situational response to group opinion. For decades I have found, on all political issues, that females (think Senator Warren’s $22/hr possible minimum) will deal with an issue solely on merits — but males always check, first, to see what’s doing in the “big world (hunting pack)” outside and if the proposal is too different from today’s ways the issue is dead to them. (Try to get a progressive male economist to so much as say the words “sector-wide labor agreements” out loud.)

    Here are the gradual steps I took seeking a path around the boy blockade on the the $15/hr minimum wage — but first, the last effort that actually works seemingly — got raised up from comments to a post on Angry Bear: 88% of overall income goes to the top 70 US million workers — $15/hr is the median wage (close enough) — the top half are not going to find no more need for the bottom 70 million’s output if 4% of income is shifted to them. Worked!

    My first effort — unavailing: simply explained that a $15/hr minimum would give half our workforce a average $8,000/yr raise while causing only 3.6% direct inflation. Need say no more to a female (like recent L.A. mayoral loser Wendy Greuel (46%) who pushed a $15/hr living wage for hotel workers.)

    Next male enlightening ploy — at least so, so: the “black hole theory” of the minimum wage — Wal-Mart workers would get a 50% increase and prices would only rise 5% (10% pass through), etc.

    Next — a good try: my minimum wage work sheet that showed multiple no-raise stretches near 5-10 decades long since 1968. IOW, NOTHING HAPPENED (in the positive sense) to sink the wage so low. The end showed 36% as the fraction of today’s minimum’s compared to a minimum double-indexed for inflation and growth. IOW, WE DON’T HAVE TO DO MUCH — make up about half that gap would get you to $15/hr. OH, AND EVERYBODY’S TALKING ABOUT IT — the list included the Larry Kudlow crew (star’s night off) finding fault with Wal-Mart for resisting D.C.’s $12.50/hr living wage for big-box retailers. (Could have noted Forbe’s, “capitalist’s tool” printing a article supporting a $15/hr minimum if it came out in time.) Had to wait for the 88-12% comparison for a breakthrough.
    * * * * * *
    How to sell reunionization (which can only mean legally mandated, sector-wide collective bargaining if it hopes to achieve its purpose) — selling being the operative work here? Simple (as in primitive?): first, got to get the $15/hr minimum wage through. The, that should be open up pack hunting mid-brains of progressive males everywhere to the possibility of doing a lot more. That primitive? ???

    Beginning February this year I sent out 10,000 emails (improving versions) on the $15/hr minimum wage and 4,000 on sector-wide labor agreements. I slowly crossed 47 states and hit all addresses at substantial local papers who might be interested in the longer sector-wide issue (includes the 3.6% minimum wage cost) and hit every state legislator with an address with the shorter $15/hr issue. So, if you are a male reading this it should help you to know that the path for both proposals has been well fertilized.
    ****************************
    VERY ANNOYING; but not unexpected — I just posted the above two (first modified) at http://www.epi.org/blog/ignoring-cheap-ways-boost-middle-class-living/ .

    The first (short one) stayed for a while so I posted the second one — both quickly disappeared — which sort of underscores my point of male progressives (or male anything) running away from anything too different. And God — and the working class — certainly know that America has to go in a whole new direction.

  • ddrew2u

    The single most effective way to reset the power balance in the political forum as well as in the labor market would be legally mandated, sector-wide labor agreements. Combined together (redundant?) the 99% have more money than the 1% and 99 X more votes.

    As always (my obsession if no one elses) the only way to reunionize — the only time tested, around the globe way to unionize — is with legally mandated, sector-wide labor agreements.

    This system chased 88 Wal-Mart big boxes out of Germany because same could not compete on quality only — being forced to pay the wages and benefits as everyone else. US supermarket and airline workers would kill for sector-wide bargaining. Maybe if I spout it a million times in a million different venues, someone will pick up on it — the only mechanically feasible (and I think super-salable) way to totally reset American life back to normal.

  • urban legend

    All of the above. But policy now is nothing but politics. Take back a majority in the House and advance a seat or two in the Senate, and it becomes possible to imagine some of these things being voted in. If progressives can take credit for the turnout that produces it, and present a legitimate threat that withholding their support will mean defeat in the next election, they will have more clout.

    It’s a long game. Commitment to a modern record mid-term turnout for turning one Republican after another out of office — even at the risk of electing a Democrat who is barely different from historical but currently non-existent moderate Republicans and is lukewarm on labor issues — is the first step. Get what we can, and keep the pressure on to make it bigger and better.

  • Roger Chittum

    Let’s not ignore the fact that creating a greater glut of college graduates will drive down their wage levels too, which is actually the goal of some education entrepreneurs such as Gates and Lumina:
    http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/undereducatedamerican.pdf
    Even without making higher ed much more accessible, the current glut of college graduates has resulted in many being stuck in jobs that do not require college degrees.

    Elsewhere Autor and Dorn have found that globalization is a large contributor to unemployment and low wages in the US: http://economics.mit.edu/files/6613

    ABSTRACT: “We analyze the effect of rising Chinese import competition
    between 1990 and 2007 on U.S. local labor markets, exploiting cross-market variation in import exposure stemming from initial differences in industry specialization and instrumenting for U.S. imports using changes in Chinese imports by other high-income countries. Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import-competing manufacturing industries. In our main specification, import competition explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment. Transfer benefits payments for unemployment, disability, retirement, and healthcare also rise sharply in
    more trade-exposed labor markets.”

    From page 42: “Our analysis finds that exposure to Chinese import
    competition affects local labor markets not just through manufacturing employment, which unsurprisingly is adversely affected, but also along numerous other margins. Import shocks trigger a decline in wages that is primarily observed outside of the manufacturing sector.”

    Despite this diagnosis, it appears the authors–like the political class in general–do not favor mitigating changes in US policies toward trade and globalization.