The workers of the world need a better deal today

In developing countries, where normative economic theory predicted that workers would be the main beneficiaries of the growing global division of labour, corporations and capital again reaped the greatest gains. A forthcoming book by Adam Dean of George Washington University shows that wherever there were democratic governments, trade liberalization went along with the suppression of labor rights.

Labor-market diseases create widespread social and political tensions. Sociologist William Julius Wilson, in his groundbreaking 1996 book When Work Disappears, describes how the decline in blue-collar jobs has fueled family breakdown, drug abuse, and an increase in crime. More recently, economists Anne Case and Angus Deaton have documented a rise in “deaths of despair” among less educated American men. And a growing empirical literature has linked the disappearance of the rise of authoritarian, right-wing populism in advanced economies. Good job for normal workers.

As a result of the COVID pandemic, labor problems are getting renewed attention, and rightly so. But how can workers not only get their fair share but also get access to good jobs that enable meaningful living?

One approach is to rely on the enlightened self-interest of large corporations. Happy, fulfilled workers are more productive, less likely to quit, and more likely to provide good customer service. MIT’s Zeynep Ton has shown that retail establishments can cut costs and increase profits by paying decent salaries, investing in their employees, and responding to employee needs. But many firms that claim to take the high road in labor standards are also anti-union; Taking the low road and saying undercut workers’ wages is often a profitable corporate strategy. Historically, it is labor’s repulsive force – through collective action and union organization – that has brought the most significant benefits to workers.

Therefore, the second strategy of helping the workers involves increasing the organizational strength of the labor as compared to the employers. US President Joe Biden has explicitly supported this view, arguing that the shrinking American middle class is a result of a decline in union power, and has vowed to strengthen organized labor and collective bargaining.

In countries such as the US, where unions have become significantly weaker, this strategy is indispensable to address imbalances in bargaining power. But experience in many European countries, where labor organization and collective bargaining remain strong, suggests it may not be a complete remedy. The trouble is that strong labor rights can also create dualistic labor markets, where benefits go to ‘insiders’ while many less experienced workers struggle to find jobs. Widespread collective bargaining and strong labor regulations have generally served French workers well. But France has one of the highest youth unemployment rates among advanced economies.

The third strategy, which aims to reduce unemployment, is to ensure adequate labor demand through expansionary macroeconomic policies. When fiscal policy keeps aggregate demand high, employers pursue workers instead of the other way around—and unemployment can remain low. Research by Larry Mitchell and Josh Bivens of the Economic Policy Institute shows that macro-economic austerity is a major reason why US wages have lagged productivity since the 1980s. In contrast, the Biden administration’s aggressive fiscal response to the COVID crisis has ensured that US wages rise amid a sharp drop in unemployment. But although tight labor markets can help workers, they can also pose inflationary risks. Furthermore, macroeconomic policy cannot target the least-skilled workers or the sectors where jobs are most needed.

Then the fourth strategy is to change the demand structure in the economy so as to especially benefit the less educated workers and depressed sectors. The lack of secure, middle-class jobs is closely linked to the disappearance of blue-collar construction work and service-sector sales and clerical jobs – as a result of globalization and technological change. Policy makers should focus on expanding the supply of jobs in the midst of skill delivery to reverse these polarizing effects.

This includes modifying existing industrial and business-development programs so that incentives are available to firms with the potential to create good jobs in the right places, and are designed with these firms in mind. Traditional industrial policies that target skill- and capital-intensive manufacturing, and rely heavily on tax breaks, won’t do much to promote the expansion of good jobs for those who need them most.

At the same time, we must consider how new technologies help or hurt workers, and rethink national innovation policies. The current narrative focuses almost exclusively on how workers must retrain to adapt to new technologies, and has little to do with how innovation must adapt to the skills of the workforce.

As noted by economists such as Daron Acemoglu, Joseph Stiglitz and Anton Korinec, the direction of technological change is flexible and depends on price incentives, taxes, and norms prevailing among innovators. Government policies can help guide automation and artificial-intelligence technologies along a more labor-friendly path that complements workers’ skills rather than replace them.

Ultimately, raising labor income and enhancing the dignity of work requires strengthening the bargaining power of workers and increasing the supply of good jobs. This would give workers a better deal and their fair share of future prosperity. ©2021/Project Syndicate

Dani Roderick is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government and President of the International Economic Association.