Real Cost of Cheap Labor

The three decades following the Second World War saw a period of economic growth that was shared across the income distribution, but inequality in taxable income has increased substantially over the last four decades.

We document the cumulative effect of four decades of income growth below the growth of per capita gross national income and estimate that aggregate income for the population below the 90th percentile over this time period would have been $2.5 trillion (67 percent) higher in 2018 had income growth since 1975 remained as equitable as it was in the first two post-War decades. From 1975 to 2018, the difference between the aggregate taxable income for those below the 90th percentile and the equitable growth counterfactual totals $47 trillion.

Real wages in the United States have been stagnant for five decades. Since 2021, inflation has been outstripping real wage growth, driving down living standards for many American workers. But mainstream economists and political commentators on both the libertarian Right and much of the liberal Left treat low wages as an unfortunate but unassailable facet of the modern globalized economy. Low wages are the price we pay for free trade, efficient markets, and low prices. If liberals and libertarians diverge at all from this point of the neoliberal consensus, it is only in how to best respond to low wages. Liberals may support government welfare to supplement low wages while libertarians contend that redistribution disincentivizes workers from upskilling or moving laterally into industries and occupations in higher demand, but both accept low wages as the natural byproduct of technological progress (i.e., automation) and the global free markets of goods and labor that lower prices for everyone.

In his new book, Hell to Pay: How the Suppression of Wages Is Destroying America, Michael Lind rejects this status quo. Enabling employers to pay low wages, he contends, is a political choice. Far from being natural or inevitable, low wages are the spoils of a successful war being prosecuted by employers against worker bargaining power.

Lind concedes that low wages translate into lower consumer prices—but, as the title of the book suggests, the price Americans pay for low prices is far too high.

The argument goes like this: employers suppress wages by reducing worker bargaining power through union-busting, offshoring, bringing in low-wage foreign workers, and various employment practices such as “salary bands, no-poach agreements, non-compete clauses, forced arbitration, and the outsourcing of jobs to contractors.” These practices have been so successful at retarding wages that many workers are no longer able to survive without public assistance, which Lind reframes as “employer welfare.” Employers need only pay sub-living wages because the government offers food stamps, subsidized housing, the Earned Income Tax credit, and other means-tested benefits. (Lind excludes both universal benefits, such as public healthcare and childcare benefits, and “social insurance” that workers contribute to, such as Social Security, from his definition of welfare.) The taxpayer is left picking up the bill to keep low-wage workers alive. In Lind’s words, “The business model of 21st century American neoliberal capitalism is privatizing the benefits and socializing the costs of cheap labor."

With brutal clarity, he tells the story of how bipartisan political and business interests united to smash the bargaining power of American workers and reduce wages. And with devastating insight he demonstrates that their success has indirectly caused or worsened nearly every symptom of American decline, from the increase in political polarization to the declining birth rate.

A political problem. But what if you have a nation less educated in history & civics?

It’s that least wonderful time of the year: every other spring, as flowers bloom, the National Center for Education Statistics releases the results of the National Assessment of Educational Progress (NAEP). This series of standardized tests is administered biannually to a representative sampling of American students at three benchmark grade levels—fourth, eighth, and twelfth—to determine their performance in several subject areas.

The results for 2022, which were released in early May, registered a steep decline in eighth-graders’ knowledge and comprehension of history and civics. Only an abysmal 13 percent of students rated as “proficient” in history, while just 22 percent reached proficiency in civics.

Secretary of Education Miguel Cardona tried to blame the poor showing on the pandemic, a lack of funding for schools, and “censorship,” but the plain fact is that classes in history and civics are disappearing.

We don’t need no stinking civics! We’ll tell the unwashed what they need to know.

Only 53 percent of social studies teachers in 2019 believed it essential to understand such bedrock constitutional principles as federalism, separation of powers, and checks and balances, compared with 64 percent who thought so in 2010. Some 65 percent of social studies teachers still believed it important to teach their students about the protections guaranteed by the Constitution (down from 83 percent nine years earlier). While still relatively high, that number yields a depressing 35 percent who would exclude our most basic and foundational civil rights from essential classroom learning.

I find the paragraph above more than a bit depressing.

Turning out crops of students lacking in civics knowledge or likely interest in politics. Money taking a larger portion of control of government by corporate interests.

So cause and effect? Or just coincidence?

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So…prosperity trickled downward and “raised all boats”, until the US officially embraced trickle down economics, then the flow stopped as the loot stayed at the top?

Steve

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The fact that taxpayers pay for the programs in question puts the lie to the notion that the working poor are the “natural” result of market forces magically finding the right wage-price for each worker according to his marginal productivity. No, wages, as Lind shows, are an index of relative bargaining power, which in turn is deeply contoured by public policy. On the lower rungs of the labor market, current public policy subsidizes the low-wage, high-welfare economy. Or as Lind writes with righteous fury:

Lacking representation by organized labor, the poorest workers cannot live on their below-poverty wages. They must rely on means-tested public assistance or welfare, as a condition of which they must take any job available — including jobs that pay poverty wages. Thus the low-wage job creates welfare dependency, and the welfare state encourages more low-wage work… Some workers can be trapped for their entire lives under the joint control of exploitative employers and punitive welfare bureaucrats, and their serf-like status — incompatible with the pride and self-reliance of the citizen of a republic, even a wage earner’s republic — can be passed along to their descendants.

Nor was the evisceration of private-economy unions the inevitable endpoint of globalization and automation. As Lind has documented in his previous book, The New Class War , and reiterates here, there was nothing inevitable about a free-trade and immigration regime that allows corporations to squeeze arbitrage out of differences in wage, tax, and regulatory regimes between states and countries. American elites chose this nightmarish order, often over and against the preferences of voters of both parties.

Shareholder Value uber alles!

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As I have been saying, “forced labor”.

Steve

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Overlay that with a bit of systemic racism, and you have a great many of the inner cities around the country.

That begs the question, what to do about the situation? Probably too political to discuss here.

—Peter

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I’m not sure I understand. Is the theory that because they get assistance they are “trapped”? Why don’t they “not get assistance” and make do that way? Oh, because they would starve to death, or likely become criminals (Jean Valjean), and that would be a better solution?

I get the complaint, what I don’t find in the screed is “an answer”, one that is both politically palatable and likely to be effective.

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I do not believe there is an answer as the US is a corporacracy.
Money as free speech has negated anyone of value from the US congressional fold.
In the present system no one with any sense would want the job. And if you want it, you’re probably not fit to have it.

And another obstacle from the OP on educating future citizenry: Only 53 percent of social studies teachers in 2019 believed it essential to understand such bedrock constitutional principles as federalism, separation of powers, and checks and balances, compared with 64 percent who thought so in 2010.

Lind: American elites chose this nightmarish order, often over and against the preferences of voters of both parties.

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