I’m slowly catching up on internetish things I’ve missed while moving and flat-hunting and existing sans web. Today, for the first time in ages, I visited Tapped, to find two very intriguing lines of argument unfolding. The first, on the potential political shifts related to increasing or decreasing amounts of southerness in certain mid-Atlantic states is one that’s near and dear to my heart, but I’ll save that for later.
For now, I’m sucked into thinking about Ezra Klein’s series of recent posts on Wal-Mart, and on the recent New York Times story on wage stagnation that he mentions. The Times piece notes that median wages and salaries are in bad shape (while corporate profits are booming). Klein draws on this and other sources in forming the conclusion that the service sector has taken manufacturing’s place in the economy, and that Wal-Mart is, in a way, setting the bar for the service industry, which means that the private welfare system is eroding, leaving American workers in dire straits.
I’m sympathetic to many of Klein’s points, but I think he’s far too quick to connect some of the dots in the picture. So let’s talk about a few of these points at a time.
First, the service industries in the US have come to dominate our economic output, though manufacturing remains a not insignificant part of American enterprise. That’s true, and there’s nothing wrong with that fact. Folks who think we need to be riveting metal together to be producing don’t have a very clear idea of what an economy is all about. What Klein surely knows but often fails to mention is that those service industries are an incredibly diverse collection of productive (and non-productive–or what we might call redistributive) activities. Generally speaking, we can divide these service industry occupations into skilled and unskilled (there’s a pretty rich stream of recent data on who’s doing what for how much here).
While wages for skilled service workers have not kept pace with ballooning executive compensation and the general increasing premium to existing wealth, they are in a completely different category from the wages of unskilled workers; in other words, the premium paid to education (and not just four-year degrees and above, but any qualification) is increasing. Now the pressures of housing costs and transportation costs and health care costs mean that many in this better compensated middle group don’t feel as comfortable as they probably should, but the general state of that large collection of service workers is completely different from that of theÂ larger group (about twiceÂ the size, sadly)Â of unskilled workers.
This is worth pointing out, because it casts two of Klein’s points in a very different light. On the one hand, Klein bemoans the end of the private welfare state and on the other he regrets the loss of employee bargaining power, but these two issues are intimately connected. By running so much of the welfare apparatus through corporations, the US increases the amount a worker has to lose by switching jobs (or, heaven forbid, working for himself), so employee bargaining power is reduced. Granted I imagine Klein would much rather have universal health insurance provided by the government (as would I), but by arguing that, absent that, we should defend insurance through employers cuts away at his second position.
So basically, skilled workers do have bargaining power vis-a-vis their employers, but that power is reduced by worker dependance on firm benefits. Those benefits act as a distortion in the labor market, impeding worker movement, and holding down wages.
Too often, other distortions also arise due to the activities of labor organizations, which have accomplished magnificent things for workers in the past, as well as rather unfortunate things. A number of words of caution about unions, relating to Klein’s points:
1) Union activity did bridle Detroit in many ways, leading to much of the distress we now see at those companies. It is not for no reason that plants have abandoned the rust belt for the right-to-work south and abroad.
2) Union victories are often exclusionary. That is, if you are a worker and/or union member, then you benefit from a union victory. If you are not, then you do not. If economics is to be believed, and I feel quite certain that is it, then union victories will result in making unskilled workers more expensive while simultaneously making it more difficult to hire or fire union workers (in any number of ways–if all a union manages to accomplish is a doubling of benefits, then employers will wish to create fewer of those jobs, while more people will want the now more desirable openings). Given that most wages, and particularly the wages of unskilled workers, are set on the open market, this will result in increased immigration and increased outsourcing, leaving many more unskilled workers fighting for many fewer jobs. This is not the situation we’d like to create, I think.
In other words, you need to improve the lot of the unskilled without creating a further incentive for employers to reduce unskilled jobs. This means, I think, universal health insurance and better housing and transportation policies. In other words, make it easier to survive as an unskilled worker.
But recognize that, without closing off the economy from the rest of the world, the returns to unskilled work will be subject to global supply and demand, and the means to achieving a strong middle class is to make education more accessible and the knowledge economy job market more flexible. This means, once more, universal health insurance and so on, but also better public education, better access to higher education (especially for working people), and better incentives for small entrepreneurs.
I basically think it’s fruitless to vilify Wal-Mart, and I think its harmful to the American worker (and to the American company) to continue to push for better employer-provided benefits. Wishing the market didn’t apply doesn’t mean it won’t apply.