We all know that U.S. workers have suffered stagnant earnings and great inequality for several decades.
Since 1979, median U.S. worker wages have risen only 10-20 percent (depending on how we measure inflation), while profits have grown dramatically. Inequality between workers has also risen, especially between high school and college-educated workers. Pay for corporate execs or financial managers has skyrocketed, and the pandemic has only widened these gulfs.
When trying to explain these outcomes, economists are of two minds. One group stresses competitive market forces — like technical change and globalization — and the fact that college-educated workers are more likely to work with new technology or imports rather than be replaced by them.
Indeed, both technology and international trade are responsible for the disappearance of millions of good-paying jobs, in manufacturing and other sectors, for those with high school or less education. And, as “artificial intelligence” performs a widening range of tasks traditionally done by workers, they will need “lifelong learning” to gain new skills and perform new tasks that the machines still can’t do.
But another group of economists stresses institutional changes, like lower federal minimum wages and reduced power of unions. They also emphasize the growing power of employers in labor markets — as industries become less competitive, firms push noncompete clauses, and employers outsource labor functions to other companies.
In reality, both skills and power play growing roles in the job market, and they interact in important ways. For instance, the ease with which firms can automate and outsource jobs clearly limits the ability of unions to represent workers and improve pay. On the other hand, an absence of unions — or any other form of worker voice — leaves management completely free to replace workers at will with automation, rather than help them adjust with retraining.
So how do we improve both worker skills and their power?
Regarding education, public colleges and universities in America — including community colleges — need better funding (though not necessarily zero tuition or debt) and stronger performance. At-risk students should receive more supports — like tutoring, mentoring and child care — as well as more career guidance. And more students should be trained for high-demand industries and well-compensated careers.
Workers at risk of being displaced by new automation need more reskilling to prevent layoffs, and more assistance if displacement occurs. Employer training might rise if we tax worker “displacement” and subsidize worker retraining. Enabling them to “earn while they learn” from apprenticeship would also help.
At the same time, we must strengthen worker power while limiting that of employers. While the efforts of the Biden administration to raise the federal minimum wage, strengthen antitrust enforcement and support unions are well-founded, more is needed.
First, workers need new forms of “voice” or representation in the workplace. Since traditional collective bargaining has been declining in the U.S. since the mid-1950s, newer modes of worker representation might be needed. The “work councils” that are popular in Europe represent one mode of worker voice, and the presence of workers on corporate boards is another.
Second, opportunities for profit-sharing in U.S. capitalism should grow. While some tax breaks already exist for employee stock ownership plans (or ESOPs), a wider range of profit-sharing options should be supported by the government. Profit-sharing will improve not only worker compensation and equity, especially during periods of rapid automation; it also strengthens worker incentives to help make workplaces as efficient as possible.
Third, employers who adopt “high-road” labor practices need financial support and assistance too. Such practices include higher worker wages and benefits as well as better promotion opportunities. Many economists and labor analysts believe that such practices can raise profits as well as worker compensation; but employers have either too little knowledge of high-road practices or too much regard for “low-road” options. Both tax breaks and technical assistance for high-road companies could raise the rate at which firms adopt such practices.
On Labor Day 2021, let’s stop the fruitless debate about whether U.S. workers need more skills or more power, and consider more effective ways of generating both.
Harry J. Holzer is the LaFarge SJ Professor of Public Policy at Georgetown University and a Senior Fellow at Brookings. He is a Visiting Scholar at the Russell Sage Foundation this fall.