Labor’s Lost

What was called “the Labor Question” a century ago has returned to the forefront of public debate, thanks to highly publicized attempts to unionize companies as varied as Amazon and The New York Times, and in spite of the efforts of the flacks of the neoliberal left and libertarian right (and the billionaires and corporations who fund them) to keep public attention focused on the culture war instead of the class war.

According to Gallup, 71% of the public approves of labor unions—the highest percentage since 1965—with 90% support among Democrats, 66% among independents, and 47% among Republicans. But because of partisanship and class interests, these views are not translated by the Democratic and Republican parties into support for organized labor. This is largely a result of the increasingly elitist nature of American politics. Both parties have superrich donors who are more or less libertarian—socially liberal and economically libertarian. The Silicon Valley and Hollywood elites who fund the Democrats are as hostile to organized labor as Republican-leaning agribusiness and logistics industries.

The social base of the Democrats now consists of upscale, mostly white, college-educated voters for whom abortion, subsidized solar and wind power, and the imposition of race and gender quotas in all areas of American society are more urgent priorities than organizing warehouse workers or raising the minimum wage, even if cultural progressives pay lip service to organized labor. Meanwhile, even though most Republican voters of all races are working class, the most influential group within the GOP is the mostly affluent minority of the population—fewer than 10% of Americans—who are self-employed owners of small businesses that hire workers. Portraying themselves as victims squeezed between big business above and the working class below, most small business owners are and always have been ferociously hostile to any reform that increases the ability of their employees to bargain for higher wages, benefits, or better working conditions.

Thanks to the indifference of Democrats and the hostility of Republicans, union membership among private sector workers in the U.S. has collapsed from around a third of the population in the 1950s to around 6% today—lower than it was during the presidency of Herbert Hoover, before Franklin Roosevelt’s pro-labor New Deal.

For more than half a century, American employers have used a variety of methods to annihilate organized labor in the American private sector. One method has been geographic labor arbitrage—transferring production from unionized sites in pro-labor states to nonunion workforces in anti-labor, right-to-work states in the American South or West, or to countries with poor and repressed workers like Mexico and China. The flip side of geographic labor arbitrage is immigration arbitrage, replacing unionized workers with immigrants who are not unionized and, in the case of illegal immigrants and guest workers, are easily bullied and exploited by employers. The outsourcing of jobs formerly done in the firm by unionized workers to nonunion contractors is another tool used by corporate America to crush private sector worker power in the U.S.

Not content with annihilating collective bargaining, lobbyists for American employers and their political allies have weakened the power of individual, nonunionized workers using legal devices like noncompete contracts, by which workers sign away their right to work for rivals of their employer if they quit, no-poaching/no-hiring agreements among firms in the same industry, and other unethical but sometimes legal anti-worker schemes.

Libertarian ideologues believe that all of this is to the good. Unions are labor cartels and all cartels are bad because they might raise consumer prices above their supposed free market rate. The marginal revenue product (MRP) theory of compensation holds that in a free market, workers will be paid on the basis of their exact contribution to the profitable enterprise (which—surprise!—just happens to be what any particular employer prefers to pay). According to this extreme theory, any government interventions in the U.S. labor market, including minimum wages and limits on immigration of workers from other countries, in addition to pro-union laws, can only backfire to the detriment of consumers—the one group that matters.

Most of the champions of the free market who make these arguments in public derive their income not from selling goods or services in the marketplace but from the gifts of donors as professors, think tank fellows, or journalists at money-losing publications subsidized by rich libertarians.

Often they equate their radical libertarianism with “classical liberalism.” But the actual classical liberals of the 18th and 19th centuries had far more nuanced views about labor. Adam Smith noted that in bargaining for wages, employers had a good deal more power than employees. Two of the leading classical liberal economists of 19th-century Britain, J.S. Mill and Alfred Marshall, believed that trade unions were necessary to balance the excessive power of employers in wage negotiations.

Once we recognize that wages are not set automatically by a mystical market equilibrium, but result from the relative bargaining power of the two sides in wage negotiations, the libertarian theory of the labor market collapses. To be sure, there are limits on what firms—and government agencies and nonprofit organizations—can pay their workers, from the janitor to the CEO. But most profitable firms have some discretion in how they divide their profits among shareholders, managers, and workers, after other costs have been paid. Excessive pay for workers can ruin a profitable firm, but so can excessive pay to managers or excessive payouts to shareholders.

A majority of Americans in the private sector work for firms with more than 500 employees, notwithstanding nonsense about small business being the backbone of America. The inconsistent ideologues of the free market right tell us that it is perfectly acceptable for the numerous managers and shareholders running these large companies to combine and act as a single unit in negotiating wages with employees, and yet somehow it is unacceptable for workers to team up and bargain as a unit on the other side of the table. The idea that a janitor can somehow bargain with the pooled, collective force of the managers and owners of a large corporation is so absurd that only libertarians or academic economists could believe it.

If organized labor in the private sector is so weak, why are there any well-paid workers in the U.S. at all? The answer is that unions are not the only kinds of labor cartels that boost the incomes of their members. Professional associations and trade associations seek to limit the number of practitioners in their occupations, thus increasing the prices of goods and services—preferably by means of government licensing laws, with safety invoked as a rationale. This dynamic explains why, as union membership has declined, there has been an explosion of licensing requirements in occupations like florists. The public must be protected from accidentally lethal bouquets! The American Medical Association (AMA) has been more successful in limiting the number of practitioners in the U.S. than their equivalents in the law and the academy, where surplus J.D.s and Ph.D.s have driven down incomes and reduced employment prospects for lawyers and professors.

Many affluent Americans in the private sector benefit from working for large corporations. The more successful firms possess the market power to set prices higher than they would be able to in conditions of hypothetical pure competition thanks to their status as natural monopolies or oligopolies. These surplus profits or “rents” can be used not only to enrich CEOs but to shower money on middle managers and other well-paid if often unproductive employees of the “email caste.”

In most large organizations of the private, public, and nonprofit sectors, compensation is determined by “salary bands.” The highest wage permitted in the salary band for a receptionist will be lower than the lowest wage in the salary band for a vice president, even if the company depends on the receptionist and the vice president is a bumbling incompetent. Under antitrust law, firms cannot collude with one another to fix the wages they pay, but in practice this is precisely what most large-scale employers in the U.S. do. Although salary bands reflect the logic of an anti-worker cartel among similar firms, agencies, or nonprofits, those in the well-paid salary bands naturally do not protest their comfortable oppression.

The myth of meritocracy—the global market rewards educated workers with high skills—usefully camouflages the quasi-feudal reality of salary bands, in which compensation is based on status and job definition, rather than an employee’s contribution to the organization. The better-paid, higher-status jobs tend to require employees with more expensive and time-consuming college credentials, whether skills learned in college are used on the job or not. In the real world, your pay is largely determined by your place in the organized hierarchy—by your “band”—and not by your personal talents or education. The same person with the same skills might make vastly more money as a corporate vice president in a large, oligopolistic firm, than as an outsourced consultant, just as a unionized janitor working as an employee of a unionized firm could make much more than a nonunion employee of an outsourced janitorial services contractor.

In short, most wages in the U.S. and similar countries are rigged, directly or indirectly, by law and custom. In some occupations they are rigged in favor of workers, in others they are rigged against workers. What has happened in the last half century is not the emergence of a free labor market as a result of the decline of labor unions. While one kind of labor cartel, the trade union, has declined, other labor cartels flourish—the licensing cartels that inflate the pay of doctors, lawyers, and professors, and the pro-employer, price-fixing, salary band cartels formed by oligopolistic firms that share their high profits with the CEOs and their well-paid subordinates. In America today, we have informal labor cartels for fortunate members of the college-educated managerial and professional elite, while labor cartels in the form of trade unions for members of the private sector working class have been all but annihilated.

It gets worse. Millions of Americans—particularly in low-wage service sectors like fast food and house-cleaning—are paid too little to live on as individuals, much less to provide for their families. Because most Americans are not libertarian sociopaths, our society will not allow great numbers of American workers to starve to death or go without medical care. To make up the gap between the poverty wage paid by employers and a minimally decent income and access to benefits, American taxpayers—generous to a fault—subsidize a variety of welfare programs, from the Earned Income Tax Credit (a cash subsidy for underpaid workers) to food stamps, housing vouchers, and Medicaid. These are benefits not just for those who are unemployed for various reasons but for millions of Americans who work full time but are still poor because their employers pay so little. This low-wage/high-welfare system succeeds in eliminating extreme poverty—but at the price of shifting the burden of paying the costs of survival for low-wage workers from their employers, and the consumers of the goods and services they produce, to taxpayers. Much of the American welfare state functions as an indirect subsidy to cheap-labor employees in fast-food restaurants, warehouses, and agricultural plants.

Suppose that the U.S., like Switzerland, had federal referendums. Suppose that a referendum asked, “Should every employer be required to pay a wage sufficient to keep workers and their families out of poverty, with no need for them to rely on welfare programs?” The hypothetical referendum would probably pass by an overwhelming majority.

But as we have seen, both national parties in the U.S. are controlled by different factions of the overclass. The progressive professionals of the left-overclass benefit from low wages for household servants and urban service workers, with the taxpayers picking up the rest of the tab. At the same time, many small business owners on the Republican right can pay poverty wages to their workers, knowing that the workers and their children won’t starve thanks to the generosity of government safety nets. The professionals of the left and the small business owners of the right furthermore agree with each other, and disagree with most Americans of all races, that immigration is too low in the U.S. The overclass left wants an immigration-fed buyer’s market in low-wage, nonunion maids and nannies and gardeners and the overclass right wants an immigration-fed buyer’s market of low-wage, nonunion factory and field workers.

Both the elite left and the elite right prefer the hysterics of the culture war to the politics of class war. Identity politics allows progressives to feel good about demanding more nonwhite and female and nonbinary representation on corporate boards, even as they quietly pay their illegal immigrant maids and nannies off the books. Culture war politics allows conservatives to pose as champions of the working class by defending working-class social values, even as conservative politicians oppose any attempt to improve the wages or benefits or workplace bargaining power of working-class voters.

The bad news is that the power of the American working class in the private sector is lower than it has been since before the New Deal. The good news is that, having hit bottom, worker power in the U.S. has nowhere to go but up.

What would an agenda for rebuilding worker power in America after half a century of employer assaults and bipartisan neglect look like? To begin with, a successful coalition in favor of restoring power to American workers would have to be nonpartisan. The near-total identification of America’s moribund legacy unions with the Democratic Party machine is incompatible with that goal. In the private and public sectors alike, organized labor in whatever form it may take should focus solely on wages, working conditions, and benefits, should welcome workers of all parties or no party, and should leave other subjects to other organizations.

Rebuilding worker power in America requires rebuilding collective bargaining in some form. Even if anti-worker legal devices like noncompete clauses or at-will employment were outlawed, most Americans in the private sector cannot realistically bargain over wages and benefits on an individual basis with the large firms they work for.

But collective bargaining need not follow the site-by-site, enterprise-based unionization system that is the legacy of the 1935 National Labor Relations Act (the Wagner Act). One reason that employers have been more successful in destroying private sector unions in the U.S. than in similar industrial democracies is the difficulty of enterprise-based collective bargaining, which sees labor organizers struggling to unionize one Amazon warehouse at a time. Sectoral bargaining, in contrast, which compels all of the firms in a given industry or occupation to negotiate wages and benefits with all of the relevant unions in that sector, is common in other democracies, but less so in the United States, with the notable exception of railway and transit workers and airline employees under the Railway Labor Act of 1926.

It is possible to have sectorwide collective bargaining coverage, even with low levels of union membership. In France, few workers belong to trade unions, but most workers are covered by industrywide agreements negotiated between unions and employers. Given the near-extinction of unions among private sector workers in the U.S., the priority of pro-worker reform should be to expand collective bargaining coverage rather than union membership.

In occupations with many dispersed and hard-to-unionize workers, wage boards or worker standards boards provide an alternative to traditional collective bargaining between employers. These are commissions with representatives of labor, business, government, and sometimes consumers, which are empowered by law to set or recommend wages, working hours, and benefits in a particular low-wage field. The state of New York has used the wage board system to raise wages for fast-food workers.

Some progressives might argue that it would be easier simply to legislate high wages and universal benefits and good working conditions, rather than try to rebuild worker power in the United States. But if such pro-worker reforms were politically possible in the absence of institutions representing labor in the private sector, they would have happened already.

Won’t Republicans oppose any effort to restore worker power in America? As we have seen, the rich libertarian donors and anti-labor small business owners who control the machinery of the Republican Party do not represent either the values or interests of the majority of Republican voters, who are increasingly members of the working class of all races. The faction of the GOP that is not hostile in principle to organized labor is limited for now to a small number of intellectuals and journalists and a few elected Republicans like Josh Hawley and Marco Rubio. But that faction may grow, thanks to the out-migration of country-club Republicans to the increasingly upscale Democrats and the influx of former working-class Democrats into the GOP.

As a philosophical matter, conservatism and libertarianism have distinct views of the Labor Question. British One-Nation Tories, French Gaullists and German Christian Democrats have not automatically sided with businesses against trade unions or rejected government intervention on behalf of national working classes. It is difficult to be a nationalist—even an inclusive “civic” nationalist—while opposing reforms that benefit the vast majority of the adults of a modern nation, who are workers compelled by necessity to sell their labor to employers in order to avoid either poverty or humiliating reliance on public welfare. Nor is it a coincidence that the Christian and Jewish traditions have often criticized bad employers and championed the interests of workers and the poor, while the leading intellectuals of the libertarian right have been atheists like Ayn Rand.

It took half a century for organized business to destroy organized labor in the American private sector. It will take at least that long to rebuild worker power in America. The sooner we begin, the sooner we can replace class war in the United States with class peace.