The Case for Presidential Action

For more than three decades, the wages of American workers have been close to flat while economic insecurity has risen massively. Although the productivity of the U.S. economy has doubled in a generation, most of those gains have not been captured by workers. And in the decade that began in 2001, inflation-adjusted wages have fallen for all but the most affluent 3 percent of the population.

This pattern of deepening inequality was well entrenched before the financial collapse -- which only made things worse. In 2006, economists at Goldman Sachs, sounding almost Marxian, reported that "the most important contributor to higher profit margins over the past five years has been a decline in labor's share of national income." By 2006, wages as a percentage of gross domestic product were already at their lowest share -- 45 percent -- since government began keeping statistics in 1947. In the past three years, the decline in worker earnings has only intensified, as worker bargaining power has been undermined by very high unemployment. As the economy has stumbled toward a feeble recovery, corporate profits and executive bonuses have rebounded smartly, but salaries and wages have not.

In the 1940s, 1950s, and 1960s, wages and productivity moved upward in lockstep. Beginning in the 1970s, as government regulation of labor conditions faltered, trade with nations that exploited their own workers increased, and corporations declared open war on unions, the lines diverged. Productivity kept increasing, while median wages were nearly flat.

What can government do about these trends? Some would say not much -- this is supposedly the verdict of the free market. With globalization, more than a billion workers in Asia are willing to perform jobs once done by Americans, at far lower wages. Yet this shift is better understood as globalization undermining the power of wage and salary workers, worldwide, to capture a fair share of what they produce.

One fashionable storyline holds that the main cure is education. It's true that well-educated U.S. workers have been better defended against these trends. On the other hand, economists report that tens of millions of Americans with college degrees are already performing jobs that don't require a college education. It is neither feasible nor necessary for every American to get an advanced degree as a defense against faltering earnings.

Indeed, the economy's output was far more equally distributed in the 1940s and 1950s, back when most Americans did not attend college. The difference was a set of equalizing institutions and policies -- stronger unions, a higher minimum wage, more reliable unemployment compensation, and better enforcement of labor standards. A tacit social compact also existed between labor and management that workers were not to be treated as expendable factors of production. That compact, in turn, was embedded in both public policies and in the power of organized labor to set standards in its contracts that in turn influenced other employment patterns.


This special report by The American Prospect reveals that government could be doing a great deal more to give today's workers something closer to their historic share of national output, and much of this strategy would not require legislation. For starters, government could be doing more to produce an economic recovery, using direct public employment to soak up unemployment and create jobs that pay decent wages. Going forward, government could also rededicate itself to a policy of full employment.

But as the three-decade trend suggests, reducing unemployment is necessary but not sufficient. For even during periods of near full employment, the deeper pattern persisted.

Several laws on the books already prohibit theft of wages and phony classification of permanent workers as temps or contract hires and guarantee the right to organize or join a union and to be paid a minimum wage. None of these statutes is adequate, but under George W. Bush, the executive branch did its best not to enforce them.

Under President Barack Obama, prodded by the Task Force on Middle Class Working Families chaired by Vice President Joe Biden, the government has made some tentative steps toward better enforcement of labor laws. The Labor Department received an additional $25 million in its 2011 appropriation for enforcement of wage and hour standards, and plans are moving forward to revive other areas of enforcement that were deliberately sabotaged for nearly a decade.

As Deputy Labor Secretary Seth Harris recently testified, "Workers are not the only ones harmed by misclassification -- honest employers are as well."

The other source of leverage, potentially much more effective, is government's power as a contractor. The U.S. government spends half a trillion dollars a year to buy goods and services from the private sector. Federal procurement, directly or indirectly, influences about one job in four in the entire economy. And most large national companies do business with the government. That goes for service companies such as FedEx; big corporations providing security guards; manufacturing companies that make everything from airplane parts to uniforms; and food-processing companies that provide school lunches. A whole other set of corporations, such as nursing-home chains, are indirect recipients of federal grants under Medicaid.

In the past, government has taken seriously its power as purchaser to improve labor conditions. In the Kennedy and Johnson eras, before Congress passed the landmark civil-rights laws, executive orders beginning in 1961 required companies bidding on government contracts to take "affirmative action" to overturn legacies of racial discrimination and exclusion in hiring and promotion. Affirmative-action plans were required not just on the contract in question but company-wide. Companies that refused to cooperate were barred from doing business with the government. During World War II, the Roosevelt administration required companies engaged in war production to pay prevailing wages and not to interfere with the right of their workers to organize unions.

The Change to Win Federation, the Center for American Progress, and the National Employment Law Project have all proposed variants on the idea that government should reward contractors with good labor practices and avoid doing business with corporations that are labor scofflaws. In March 2009, the Obama administration embraced this idea in principle. The president issued three executive orders making it a little more difficult for government contactors to mistreat their employees, but with no meaningful enforcement mechanisms.

A new proposed presidential order setting up an embryonic system for giving modest preference to "high road" companies, after more than a year of internal debate, is still working its way through the bureaucracy of the Office of Management and Budget. Reportedly, the president has signed off on the concept, but the practical details are being challenged at each stage of review.

Even so, this initiative represents progress in principle. The challenge is to get on with it -- and make it more than a token gesture.

As a matter of internal politics and external enforcement, the vice president's task force, with just a skeleton senior staff, is far too weak to be more than a source of symbolic support. What has not yet happened is a concerted, government-wide effort to target systematic violators of labor law and decent standards, or a personal commitment by the president of the United States to make higher wages a national priority. Bureaucratically, the Labor Department and the vice president's task force have too few troops and too little interagency clout to influence what other Cabinet departments do. Among the senior economic advisers, Labor Secretary Hilda Solis is regarded as a good friend to labor but not a power player.


With the personal support of the president and a higher -- profile, government-wide initiative, the Labor Department could target major national employers and notorious industries with well-documented patterns of abuse. These industries, such as trucking, warehousing, and food -- processing, are ones where the needless spread of contingent (part-time, temp, and independent contracting) workers is pervasive -- not because they are economically required but as a strategy of battering down wages.

Elsewhere in the government, we need a consistent strategy of using the power of procurement to complement enforcement initiatives so that companies with abusive labor practices do not get the taxpayer subsidy of federal contracts until they clean up their acts. There are still high-road companies in these industries. They should be rewarded and their low-road competitors shunned, before the low road becomes the norm.

The proposed Employee Free Choice Act, which would restore rights to organize or join unions that have existed on paper since the 1935 Wagner Act, has been blocked by the threat of a Republican -- led filibuster. But a lot is possible without EFCA. The enforcement and contracting initiatives described in this collection of articles would help energize collective bargaining by rewarding companies that have good labor relations. Unless this is done, low-road companies will have an unfair cost advantage, and companies that pay decently and that don't bust unions will either lose market share, go out of business, or join the low road.

Reversing that trend could increase labor's influence to fight for decent wages and working conditions, and not incidentally, reverse the decline in a core progressive institution.

This special report by The American Prospect is a tour of several sectors of the economy and their labor practices, coupled with concrete policy ideas that could be implemented -- this year -- without congressional action. This broad strategy would be sensible policy -- and smart politics for President Obama because it would identify his administration with the frustrations and aspirations of working Americans who have seen their dreams and livelihoods go up in smoke.

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