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July 18, 2024

Falling Wages and the Decline of Everything Else

Mark Risk

From its establishment in 1938 until 1968, the federal minimum wage was increased periodically to reflect overall productivity growth. Had that practice continued, it would be over $22 today, instead of the current $7.25. What else do you need to know about the deterioration of life in America for millions of people?

Michael Lind wants to say much more. He argues that falling rates of birth and family formation, increased personal isolation and soaring rates of “deaths of despair” from suicide and addiction, and the polarization of political life around moral and cultural issues, are all the product of “the existence of too many jobs with low wages, no benefits, and bad conditions” in our country.

Lind, a public intellectual who defies easy categorization as politically left or right, argues that elites have convinced the public that wages are set by market forces, when in fact they are set by market power, and that the market power of workers has been destroyed by American policymakers and leaders of both political parties.

In his readable and important new book, Hell To Pay: How the Suppression of Wages is Destroying America (Penguin 2023), Lind identifies the leading culprits as de-unionization, the offshoring of industrial production, and the immigration of low-wage workers. The result is a population of “working poor” who are paid too little to survive without government assistance, including wage subsidies. These subsidies in turn enable employers in “sweatshop sectors” to continue to pay low wages.

Creating Bad Jobs

According to Lind, despite having lost much of its manufacturing sector, the United States remains a world leader in one area: “creating bad jobs with low wages and inadequate hours and no union representation.” Since the 1960s, the share of private sector non-supervisory “goods-producing jobs” associated with higher wages has shrunk from 42 percent to 17 percent. The lost jobs have been replaced with low-wage service sector jobs.

The Bureau of Labor Statistics predicts that of the twelve job categories predicted to have the greatest numerical growth in workers over the next decade, only four pay more than about $29,900 per year. The official poverty threshold for a family of four in 2019 was $27,570. Thus, family caregivers are compelled to enter the workforce as a matter of subsistence.

The loss of the “wage premium” that once came with union membership has been replaced by the college degree as the imagined ladder out of low-wage work. The result is a large group of college graduates who find themselves working in jobs that do not require college degrees, creating another class of undercompensated and dissatisfied Americans.

Lind says that American companies have sent advanced production jobs to lower wage countries to reduce labor costs. This “global labor arbitrage” has wrecked American manufacturing. Our global market share of machine tool manufacturing has declined to five percent. In three decades the United States has lost 70 percent of its semiconductor manufacturing industry. In 2020, China made three quarters of the world’s lithium ion batteries, while our share was eight percent.

The COVID-19 crisis quickly revealed our dependence on other countries for drugs and personal protective equipment. Ninety seven percent of the world’s antibiotics are made in China.

Why would any nation tolerate public policies that would allow its productive economy to decline like this? Lind says that our elites, captured by multinational corporations and global investors, told the public that labor globalization was inevitable, that all Americans would benefit, and those who argued otherwise were bigoted or xenophobic, or did not understand economics.

Lind says that “global labor arbitrage” was a “deliberate policy to cripple or destroy organized labor and weaken the bargaining power of workers.”

A Hamiltonian Strategy

Lind says that America must return to the thinking of Alexander Hamilton, Abraham Lincoln, and presidents from Franklin Roosevelt through Richard Nixon, who presided over programs of national economic development, nurturing promising industries like the internal combustion engine and electricity, and including through federal subsidies like highway construction and rural electrification. And, of course, the Internet began as a Pentagon-funded project to link researchers who had Department of Defense contracts. He says that national economic policy efforts should nurture high-value-added industries with global export potential that employ American workers.

Minimum wage protection is needed for workers in the domestic services sector whose product cannot be exported. Government can also support the development of labor-saving technologies. A ready example is federally funded land grant colleges that have provided research support to agricultural manufacturers and farmers. Lind advocates the establishment of small business boards to help small firms with training and joint marketing activities. All this would make it easier for employers to pay higher wages.

But given the severely weakened unions of today, will productivity gains in export sector firms travel downstream to result in higher wages for their employees? Lind advocates “sectoral bargaining” in which wages are negotiated on an industry-wide basis, as currently takes place under the Railway Labor Act. For the less powerful workers in the domestic services sector, wages could be set by state and local wage boards in which representatives of labor, business and government would together determine industry-wide terms.

Lind abhors the “low-wage/high-welfare” system in which a substantial part of the workforce cannot survive without public assistance. He calls for a “living wage” capitalism in which wages are high enough to pay for a family’s expenses and for their contributions to government-organized social insurance programs like Medicare and Social Security.

Lind calls labor arbitrage a “ponzi scheme,” and reminds readers that all ponzi schemes must eventually end. Absent changes to increase wages, he says that existing social arrangements may harden into a “neo-feudal system run by a more or less hereditary aristocracy” and/or that “populist demagogues” will lead “ephemeral and disruptive rebellions by the marginalized and dispossessed.”

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Mark Risk

Principal, Mark Risk P.C.

Mark Risk is principal at Mark Risk P.C. in New York City.