Why US Workers Have Lost Leverage

A 1970 contract negotiation between GE and its unionized workforce is unimaginable today.

A strike then slowed production for months at 135 factories around the country. With inflation running at 6 percent annually, the company offered pay raises of 3 percent to 5 percent a year for three years. The union rejected the offer, and a federal mediator was brought in. GE eventually agreed to a minimum 25 percent pay raise over 40 months.

“They said we couldn’t, but we damn sure did it,” one staffer said about his union’s victory.

Former Wall Street Journal editor Rick Wartzman tells this story in his book about the rise and fall of American workers through the labor relations that have played out at corporate stalwarts like GE, General Motors, and Walmart.

Critics use examples like GE to argue that unions had it too good – and they have a point. But that’s old news. What’s relevant today is that the pendulum has swung in the opposite direction, and blue-collar and middle-class Americans seem barely able to keep their heads above water even in a long-running economic boom.

New York University economist Edward Wolff in a January report estimated that workers lost much ground in the 2008 recession and never recovered. The typical family’s net worth, adjusted for inflation, is no higher than it was in 1983 and far below the pre-recession peak. Granted, workers’ wages have gone up recently, though barely faster than inflation, but they had been flat for 15 years. Workers are also funding more of their retirement and health insurance.

Wartzman’s theme in “The End of Loyalty: the Rise and Fall of Good Jobs in America” is that the system no longer works for regular people, because companies have weakened or broken the social contract they once had with their workers.

The loss of employer loyalty is one way to look at the state of labor today. The loss of workers’ leverage against global corporations is another.

The decline of unions to only 6.5 percent of private-sector workers today is an important reason for this loss of leverage, according to a 2017 analysis published by Northwestern University’s Kellogg School of Business. The researchers found that wages are lower in the industries that are dominated by a few major players, because workers have less bargaining power against these large employers.  But when there is union representation in a concentrated industry, the unions have had more success in protecting wages.

Unions have been undermined by powerful economic forces.  Technology has replaced manpower, and globalization has made it possible for companies to move factories to low-wage countries. Of course, these trends have increased workers’ living standards by giving them smart phones and an endless supply of inexpensive consumer goods from China. But the movement of factories overseas has indirectly dealt another major blow to workers: the economy has tilted increasingly toward the service sector in recent decades. Services industries typically don’t have unions and offer lower pay and skimpier benefits, various federal data show, and rank-and-file retail workers often have unreliable or unpredictable work schedules.

When Walmart employees attempted to organize stores and meat-packing plants in the 1990s and early 2000s, Wartzman writes, the nation’s largest employer threatened to close these operations. Meanwhile, full-time workers have shrunk to half of the retailer’s workforce. One recent development returned a bit of leverage to workers: the current tight job market and a very low unemployment rate. In February, Walmart raised its hourly wage across the board from $10 to $11 per hour, putting it in the range of the highest state minimum wages.

Consider another recent trend that has weakened workers: the rise of the gig economy. This labor force of contingent workers – freelancers, temp-agency and seasonal help, and the carpenters and dog walkers finding jobs on TaskRabbit – now make up 15 percent of the U.S. labor force, which is more than double the union rate in the private sector. A federal study found that contingent workers often lack benefits. This isn’t a necessarily a problem for people who get health insurance through a spouse, or for consultants and former executives who can charge a premium for their work.

But most gig workers, by virtue of being lone actors, lack the leverage to negotiate a better deal with an employer. Uber recently angered its Miami drivers, for example, by passing on to them just 1 penny per mile of a 10 percent hike in customer fares.

Stagnant wages are a symptom of “a long power struggle that workers are losing,” said Jared Bernstein, former chief economic adviser to Vice President Joe Biden.

Workers are increasingly on their own, and it’s not going well. It’s an extremely difficult problem to fix.

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