How The American Economy Conspires To Keep Wages Down (Demo)

When unemployment goes down, wages are supposed to go up. That’s just supply and demand. Quite puzzlingly, though, this mechanism seems not to be working today. Unemployment stands at a modest 4%, but paychecks aren’t growing. Although today’s is the best-educated workforce in history, employers just insist that workers need more training.

In other words, they’re gaslighting us. Meanwhile, over decades, employers have built and maintained a massive collective political apparatus to hold down wages. To call it a conspiracy would be only slight embellishment.

The symptoms of the problem are not hard to miss. In February, for example, the American economy posted its biggest one-month jobs gain in a couple years, but wage growth stayed stalled out. For months, economists and financial journalists have been puzzling over the question, as Bloomberg put it, of “why the economy grows but your paycheck doesn’t.”

Economists will tell you that wages generally increase with productivity – that you’re paid in line with the value of what you do. This was credible from the end of the second world war to the 1970s, when productivity and hourly wages rose almost perfectly in sync. But according to research by the Economic Policy Institute, from the early 1970s to 2016 productivity went up 73.7%, and wages only 12.3%.

Similarly, there used to be a positive relationship between stock prices and wage increases. But some initial signs of wage growth in February sent the market spiraling over inflation fears – until it became clear that the reported wage gains were all concentrated among top earners. Then everyone calmed down and stopped selling.

Meanwhile, the Federal Reserve just announced that it’s taking the next step in its plan to raise interest rates. This will suppress wages to prevent inflation, although inflation is minuscule and wages aren’t showing signs of life.

Another apparent culprit is what’s called “monopsony”. Monopoly occurs when sellers are so concentrated that they don’t really have to compete. Monopsony is when the buyers – in this case, employers – are concentrated.

A recent paper from the Roosevelt Institute found that the average level of concentration in labor markets is 45% higher than the threshold for “highly concentrated” markets used by antitrust regulators. If the government went after employer monopsony the way it does other kinds of markets, regulators might have their hands quite full.

What’s worse, as Alan Krueger and Eric Posner pointed out in the New York Times recently, one in five workers with a high school degree or less is subject to a non-compete clause – a tool for employers to push wages down by forbidding workers from getting jobs with their competitors.

Many major franchises also forbid their franchisees from hiring workers away from each other. So a McDonald’s on this corner isn’t allowed to hire away workers from the McDonald’s on the other corner by offering 25 cents more. (Such rules were a classic tool of white landlords in the Jim Crow South to keep down the pay of black sharecroppers.)

And even employers that don’t have such a commanding position can still hire workers through contractors who do. Temp agencies, for example, can function like bottlenecks, forcing workers into monopsonistic labor market conditions on behalf of smaller, less powerful employers.

We tend to think of employment as a market interaction: supply and demand meet to set a price, and that’s the wage you get paid. But work is much more than this. When you buy bread, there’s no other connection between you and the baker. You take your loaf and go home. But when you sell labor in the labor market, you’re entering into an ongoing power relationship. In return for your wages, you’re supposed to submit – not once but every day. It’s not just economic. Work is intrinsically political.

Typically, we enter into economic relationships by ourselves. But political relationships quickly become collective. As we’ve seen, employers have a vast collective apparatus at their disposal: the stock market, the Fed, antitrust and employment law, just to name a few.

But, defiance can travel and become collective too. For some years, for example, unions have had success winning raises for low-wage workers politically, rather than at the bargaining table – through direct ballot initiatives, by putting pressure on Democratic politicians, and by getting new laws passed. (If the federal minimum wage had kept pace with overall income growth, it would be three times higher.)

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Workers have taken heroic risks to make a point – in the fast-food industry in particular, where employer retaliation is a given. And cities and states across the country have responded by passing minimum wage hikes.

Today, the supreme court is weighing the question of the collective political power of workers. In the Janus v AFSCME case, an anti-union corporate group is seeking to take away the power of public sector unions to collect money from all workers whom they represent.

The anti-union side argues that such fees violate workers’ free speech rights by compelling them to pay for representation that’s of an essentially political nature. As Justice Anthony Kennedy argued, public sector unions will always advocate “for massive government, for increasing bonded indebtedness, for increasing taxes”. Kennedy’s point is that these aren’t just economic goals; such workplace bargaining affects public policy.

Somewhat wanly, the state of Illinois (defending the fees) argued that if unions don’t have the right to collect this money, the workplace will become unstable and conflictual. It didn’t seem like a credible threat. Then along came the West Virginia teachers’ strike and the chain reaction it ignited. The improbable outbreak, endurance, and triumph of the teachers’ strike in that state has inspired underpaid educators in Kentucky, Arizona and Oklahoma to take action for themselves.

All these are states where teachers and underpaid and fed up, and where the formal power of their unions is quite limited. But in West Virginia, the teachers figured out how to win a long-delayed raise anyway: realizing they were irreplaceable, they shut down the schools for almost two weeks, and secured a 5% pay bump – not just for themselves, but for the state’s whole public sector.

In West Virginia, the legislature had to pass a law, and the governor had to sign it, to give the teachers their raise. Oklahoma has now done the same, and passed its first tax increase in decades to fund the raise. These workers, in other words, are not just engaging in bargaining: their strikes are political in nature, and they are shaping public policy.

The political power typically enjoyed by employers is generally experienced by workers as fear: fear of harassment, favoritism and wage theft, fear of joining a union or speaking out, fear of the consequences of injury or sickness, fear of the risks of asking for a raise, and beneath these, the fundamental workplace fear – of losing your job.

The current of fear running through the workplace is one of the best ways to tell there’s something more than a market transaction happening there. But fear can go both ways. In West Virginia and Oklahoma, the irreplaceable teachers terrified Republican officials. With unemployment down, more of us are becoming irreplaceable every day. There’s leverage for workers there, but you have to be willing to scare your boss to use it.