How the Weakening of American Labor Led to the Shrinking of America’s Middle Class

Mar 26, 2014Richard Kirsch

This is the second in a series of posts summarizing a new Roosevelt Institute report by Senior Fellow Richard Kirsch, entitled “The Future of Work in America: Policies to Empower American Workers and Ensure Prosperity for All”. The report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class.  Today’s post describes the corporate effort beginning in the 1970s to grab more of the nation’s wealth, at the expense of workers.

When General Motors President Charles Wilson told a U.S. Senate Committee in 1953 that what was good for General Motors was good for the country, he captured an era in which the good wages and benefits earned by the workers at U.S. manufacturing companies powered the nation’s economy and built the middle class.

But sixty years later, what is good for the GM of our day – Walmart – is clearly not good for America, as a comparison between the biggest private employers of both eras underscores. While the American auto industry operated on the premise of one of its founders, Henry Ford, that workers should get paid enough to buy its costly products, Walmart operates on the premise that its workers should get paid so little that the only place they can afford to shop is at their low-priced employer.

A General Motors plant was the anchor of a community. It became the hub of a supply line for auto parts manufactured by other unionized companies. Its managers and factory workers earned enough to shop at local businesses and pay taxes to support public services. They had the resources and time to participate in the life of the community. They expected to stay with GM for their entire careers and to retire on a pension earned while working at the firm.

How very different from Walmart. When a Walmart opens up, local businesses close. Wages decline throughout the community. Many of the items in a Walmart store are made outside of the country, part of a global supply chain built in search of lower wages in order to meet Walmart’s low pricing demands. Workers often earn so little that they qualify for government benefits. Many Walmart employees are hired part-time or as temps. They lack job security and retirement security, other than the small Social Security checks their wages will accrue.

There are stark differences between prospects for organizing workers into a union between the auto factories of the 20th century and the Walmarts of today. The GM plant in which workers staged the famous sit-down strike in Flint, Michigan in 1937 employed 47,000 workers. The average Walmart store employs 300 workers. It would be too expensive for an auto manufacturer to shutter a factory threatened by a strike. But when workers voted to unionize a store in Canada, Walmart closed down that location, a small loss for a company with 4,200 stores.

How did the transition from the manufacturing economy to the Walmart economy occur? The breakdown of the union and government enforced New Deal social compact, in which major corporations shared their profits with their workers, began in the mid-1970s. The resurgence of economies around the globe and the shocks of oil price increases threatened the dominance and profitability of American business. The U.S. began bleeding manufacturing jobs, a loss of 2.4 million jobs between 1979 and 1983.

U.S. corporations responded in a number of ways. One was to insist that, in the words of a 1974 Business Week editorial, “Some people will have to do with less…so that big business can have more.”

Corporations increased their focus on rewarding shareholders with short-term profits, rather than investing in their workers or in long-run growth. General Electric, for example, slashed its workforce and cut investment in research, and its stock price soared.

When Chrysler faced bankruptcy in 1979, the United Auto Workers agreed to an end to annual wage increases tied to productivity. These concessions were then extended to unionized workers at Ford and General Motors. As Harold Meyerson writes, “Henceforth, as the productivity of the American economy increased, the wages of the American economy would not increase with it.”

Corporations also began exploiting weaknesses in U.S. labor law, which allowed corporations to hire replacements for striking workers. In 1981, a period of high unemployment, President Ronald Reagan fired the nation’s air-traffic controllers for going out on strike. Major firms in a host of industries followed Reagan’s precedent: they demanded that their workers accept lower wages, which precipitated strikes, and then hired replacement workers at lower wages. The strike - the central tool that workers had used to win their fair share of economic growth - virtually evaporated over the next few decades. In the 1960s and 1970s, workers staged an average of 286 strikes a year. That declined to 83 strikes a year in the 1980s and finally to 20 a year since 2000.

In the early 1970s, after major consumer and environmental legislation was enacted by Congress over the objections of big business, Corporate trade associations moved their offices to the nation’s capital and made big investments in lobbying and campaign contributions. The policies they pushed included gutting trade protections for American manufactured goods. This eased the way for the loss of 900,000 textile and apparel jobs in the 1990s and 760,000 electronics manufacturing jobs in the past two decades.

Corporations pressed for the appointment of national labor law regulators who were antagonistic to unions. The combination of weak labor laws and hostile regulators enabled businesses to resist union organizing more aggressively. Unions lost members, and their political clout declined relative to surging corporate political power. Their efforts to win labor law reform fizzled, even in Democratic administrations from Carter to Clinton to Obama.

As major banks and Wall Street firms went public, they too became focused on short-term profits. They drove the businesses to which they loaned money or invested in to maximize their short-term profits by cutting pay and benefits and by firing workers. A hot private equity industry saddled businesses with huge debts and drove firms to slash labor costs.

While the labor movement as a whole was slow to respond, there were some major unions that refocused resources on organizing new members. These unions won some victories in a few sectors, notably health care and in the public sector. But the gains were not enough to reverse the decline of union membership in traditional strongholds like manufacturing and construction. Today, unionized workers make up 11% of the workforce, the lowest level in 97 years. With only 7% of private sector workers in unions, the labor movement can no longer play an effective role in raising workers’ wages throughout the economy.

American workers remain among the most productive in the world; productivity in major sectors like manufacturing continues to rise. But in industry after industry, the share of revenues going to wages has dropped, while the share going to profits has soared. Labor’s share of national income has plummeted, while the share taken by capital is at a record high. If median annual income had kept up with productivity, it would now be $86,426. But the current median income is actually $50,054, the lowest it has been since 1996 when adjusted for inflation.

Today, unemployment is stuck at high levels. Millions of workers are trapped in part-time jobs or jobs for which they are over-qualified. Most of the new jobs that have slowly emerged after the recession are low-wage jobs, but the proportion of high-wage jobs is also on the rise. It is the share of middle-wage jobs that is shrinking.

Economies will always face challenges. But the crushing of America’s middle-class over the past forty years was not inevitable. It was the result of decisions made directly by corporate America to advance public policies that enabled them to take more of America’s wealth and to share less with American workers. One of the most significant of these corporate strategies was to weaken the ability of unionized workers to demand a fair share of the nation’s growing wealth, whether they demanded their fair share at the bargaining table or in the halls of Congress.

Rebuilding the engine of our economy - the middle class - requires us to re-imagine how organized workers can once again exercise power to recreate an America in which prosperity is broadly shared.

Share This