It's Labor Day so let's talk about work and workers. And who's fighting for them and who isn't.
An economy like ours is an amalgam of markets, all of which aggregate into "the market." That is, there's a housing market, a stock market, a market for pork belly futures, the auto market, etc. And then there's one of my personal favorites, the one we're celebrating today: the labor market.
It's ideally the place in the economy where working-age people, having received the education and training needed to maximize their inherent skills and intelligence, produce the goods and services that the members of the society need and want. The output they create adds to the nation's wealth, and they are -- theoretically -- remunerated commensurately. That is, they receive their share of what they added to our economic firmament.
That's what I was taught. But it is not what happens.
Too often, the problems start with inadequate access to the education kids need, and I'm starting with pre-school here, to realize their potential. And, of course, this is a problem that's strongly correlated with income.
Then there's the demand problem. The basic labor economics I described above reduces to a key precept: demand for labor is derived demand. It is derived from the demand for goods and services. If that demand lags, then the beneficent chain of events I described breaks down.
Obviously -- well, it's obvious to all but the austerians -- demand was slammed in the Great Recession and is still, slowly creeping back. And since labor demand is derived from the economy-wide demand for goods and services, this remains the central problem of the job market.
[For the record, and because we're in that terribly silly season where political operatives cruise the web for ways to ding the President, let me assert that he and his administration have done much to offset this weak demand and have tried to do a lot more but have been consistently blocked by Congress. Not saying anyone's perfect here, but let's just get that caveat out of the way.]
But for many middle and low-wage workers, especially those displaced from the manufacturing sector, this demand problem is not isolated to the recession. It's been a problem in expansions as well, which is a main reason their real wage trends have been stagnant or worse for decades, especially for men. One way I know this to be the case is because when we actually hit a full employment economy for a New-York-minute there in the latter 1990s, both employment and real wages rose quite sharply, even for the lowest wage workers (a minimum wage increase helped too).
Next, and relatedly, there the productivity/wage split, another way the chain breaks down. The assumption of the pristine model is that workers are paid their contribution to productivity at the margin, but as folks at EPI have shown, that's clearly not what we've seen over most of the last 30 years.
The figure below, forthcoming from EPI's brand-spankin' new State of Working America, makes the case quite forcefully. The divergence between compensation and productivity isn't just a problem for middle-wage workers or those with no further educational attainment beyond high-school. Even the pay of those who've completed four years of college has stagnated in recent years, while productivity continues to climb.
So the chain of events that's supposed to generate a healthy labor market has broken down in three key places: inadequate access to education, especially for the least advantaged; not enough labor demand; and the benefits of productivity growth are not being fairly shared.
How can this be fixed? Which policy initiatives can put the links of the chain back together?
That's a lot of what I write about at OTE and I won't go into the details right now, other than to say it's not at all rocket science. The solutions are well-known and flow from the diagnoses: better access and improved quality at all levels of education/training; demand side policies (full employment!); stronger bargaining power.
But today I'd like to ask a more fundamental question, one that strikes me as at the heart of this deep problem of the broken labor market and why it hasn't been fixed: who's fighting for workers?
I know who's fighting for wealthy people, for the finance industry, for the oil companies. I can see who's fighting for the troops and even for the poor, though the latter are surely harder to find than the rest.
But who's fighting for working people? For teachers, for retail clerks, for construction workers, for cab drivers, for waitpersons, for home-health aides, for social workers, for maintenance workers, for computer programmers, for drill press operators, for truckers, for nurses, and so on.
And in the political realm, there are many stalwarts who deserve to be recognized, including Sec'y Solis, Sherrod Brown, George Miller, Rosa DeLauro, Tom Harkin, Macy Kaptur, John Conyers, Linda Sanchez, and many others (I'll add more names here as I think of them -- I want to be sure to thank them today).
But they are outnumbered and outgunned in terms of resources. Think of it this way. Why does the national echo chamber resound far more with policies that allegedly help job creators, like a cut in the capital gains tax rate (which, for the record, is not at all associated with stronger job growth), than policies that help workers, like a minimum wage increase or strengthening the right to collectively bargain?
The labor market needs serious repair, but until enough powerful and well-resourced people can stand up and say we need to fix it, and until their message has the same resonance as those calling for supply-side tax cuts for "job creators," it will remain broken.
So if you're in the policy business, or in the business of supporting people in that business, or just in the business of desiring an economy that works better for working people, ask yourself today "who's fighting for labor?"
Then give the answer: I am!
This post originally appeared at Jared Bernstein's On The Economy blog.