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Reviving labour without relying on unions

Middle-class workforce: Democratic presidential candidate Hillary Clinton points to members in the audience after speaking at the 2016 Legislative Conference of North America’s Building Trades Unions in Washington in April. (Photograph by AP Photo/Pablo Martinez Monsivais)

National anxiety over the decline in middle-class living standards is driving this year’s presidential contest like no other issue.

Donald Trump promises a return of manufacturing jobs as the solution, but he misleads voters into thinking those jobs are coming back, when they are not; his trade-deal bombast will only make things worse. Polls show his message resonates well with blue-collar voters who believe unions had a lot to do with creating the America he promises to make great again.

Both Democratic candidates, meanwhile, say they would take steps to bolster unions without acknowledging their negative effects and weaknesses. “When unions are strong, America is strong,” Hillary Clinton told the Service Employees International Union convention on Monday, adding that “unions helped build the strongest middle class right here” in the US.

All three contenders, in different ways, are swimming against the tide: the number of union members, about 11 per cent of the workforce last year, is half what it was in 1983. And with the decline of manufacturing, labour’s traditional stronghold, most union workers today are in low-wage sectors, such as the hospitality industry. While these unions have improved working conditions and wages, and exercise political clout, they hardly offer their members the middle-class lifestyles of yore.

Last week when President Barack Obama required companies to give overtime pay to about 4.2 million more workers, it was a reminder that the Government now orders by regulation what unions used to get in bargaining with employers.

Although free-marketeers say rules such as this result in layoffs and hurt the very workers they are meant to help, the new overtime pay standard is just a long-overdue update of a 1975 rule. And government actions such as this will be needed increasingly to replace organised labour’s role as a countervailing force. Harvard’s Bruce Western and University of Washington’s Jake Rosenfeld found that the decline of organised labour from 1973 to 2007 explains one-third of the growth in inequality among men. They argue that the decline of unions is as much of a drag on wages as is the lack of a college degree.

Other studies show a strong link between unions and intergenerational mobility. Harvard’s Richard Freeman, for example, found recently that the offspring of union parents had higher incomes than those in non-union households. Unions also lifted the wages of non-union workplaces as employers sought to keep organised labour at bay.

Problem is, some unions have also pursued their interests to the detriment of others, such as negotiating for public-sector pensions that future taxpayers cannot afford, or for benefits that raised the cost of cars so much that automakers could not compete. Unions have also tended to overemphasise seniority, shielding legacy benefits at the expense of opportunities for younger workers, and to protect underperformers, sapping productivity. And teachers’ unions sometimes blocked much needed education reforms.

Of the candidates, Clinton seems the least fulsome in promising a return to the lost workers’ paradise, which may be the reason many rank-and-file union members do not support her. But with her standing among white men already at rock-bottom, Clinton would be loath to say that the US does not need stronger unions so much as a more modern version of unionism that benefits everyone — not only those willing to pay union dues — to lift the economy.

As Lawrence Summers, the former US Treasury Secretary, and others have explained, middle-income wage earners drive economic growth because they have a greater propensity to spend than upper-income households do. But with unions sidelined and wages flatlined, the middle class is not building the demand for goods and services that persuades employers to open new stores, expand product lines, invest in new technology and hire more people. Put another way, stagnant wages are the root of America’s slow growth. One proposal Clinton has to address this would be to provide a tax credit to companies that offer profit-sharing. The idea is to reward companies that compensate many more workers, not just a small circle of senior executives, on the basis of group rather than individual performance.

Clinton also seeks to make work more attractive, especially for women who have left the labour market, with paid family leave, federal funding of preschool programmes and more flexible work schedules. Cornell University economists found that, if the US had family-friendly policies similar to those in Europe, women’s labour-force participation would be seven percentage points higher.

More could be done, such as offering tax credits that help to pay for childcare, or that help employees to upgrade their knowledge and skills. A report by Summers and Britain’s Ed Balls, one of the Labour Party’s leading economic thinkers, has more good ideas along these lines. They propose, for example, that companies form German-style works councils, which give employees certain rights to information and consultation over work conditions, schedules and wages. Studies show that these councils can increase productivity, leaving both labour and management better off.

Another good idea: require companies that receive government contracts to offer paid apprenticeships that help young workers who are not college-bound to learn the numeracy and literacy skills that most jobs require today. In a sign that wages may finally be picking up, the US Labour Department reported on May 6 that hourly wages were 2.5 per cent higher in April than a year earlier. That’s good news, but not nearly enough to reverse the decade-long slippage. More activist government policies are needed, too.

• Paula Dwyer, a Bloomberg View columnist, writes editorials on economics, finance and politics