Why your hard work isn’t paying off the way it used to
Workers used to reap the rewards when productivity went up. Here’s who’s benefiting from those gains today.
Something’s not right with the US economy — and hasn’t been for years. Since the 1970s, a disproportionate share of economic gains have gone to the wealthiest households, creating a widening income and wealth gap over time. By 2016, the top 1 percent of US households had more wealth than the entire bottom 90 percent.
The United States now has a higher level of income inequality than most other advanced economies. Such lopsided wealth distribution has pernicious effects on society as a whole. For example, had it not been for increases in inequality, the economic growth rate in the United States between 1990 and 2010 would have been more than a fifth higher than what we actually experienced, according to an estimate from the Organisation for Economic Co-operation and Development.
How did we end up here? One big reason is that productivity growth — where workers produce increasing amounts of goods or services per work hour — no longer drives pay. From the late 1940s into the 1970s, US workers’ productivity and pay increased basically in tandem, leading to broadly shared prosperity. But then productivity and pay diverged — with productivity continuing to increase at a steady clip, and average hourly compensation for workers basically stagnating, after accounting for inflation. That means the benefits of productivity gains are going largely to company executives and investors.
The disconnect between productivity and pay has multiple causes. We often see blame cast at technological change and increased global competition, and both have played legitimate roles in the shift during this period. Less discussed is the much-weakened labor movement. Research suggests that between one-fifth and one-third of the increase in income inequality in the United States between 1973 and 2007 had to do with the waning influence of labor unions, which today represent only 10.5 percent of US workers — down from 20.1 percent in 1983.
Starting when then-President Ronald Reagan fired striking air traffic controllers in 1981, the United States has made a number of policy choices that weakened employees’ negotiating power. The federal minimum wage hasn’t been raised since 2009, and that means the floor from which negotiations about pay begin hasn’t kept pace with inflation for a decade. Another big issue has been Congress’s unwillingness to update the overall framework of US labor law, much of which was established in the 1930s for a vastly different economy. By the 1990s, a bipartisan commission of experts judged our labor laws to be in need of modernization. That’s even more the case two decades later, given trends such as the increased use of outsourced labor and greater movement of workers between organizations.
Workers today want more of a voice in the workplace. A recent national survey by MIT Sloan School of Management researchers found that nearly half of nonunionized American workers would like to join a union. That’s a substantial increase from the approximately one-third of nonunionized workers who said that in comparable surveys in 1977 and 1995.
But many of today’s most innovative new labor organizations are not unions; these emerging labor advocacy groups — sometimes dubbed “alt-labor” — seek better conditions for workers in creative ways. For instance, the Coalition of Immokalee Workers in Florida has enlisted consumer support to help convince large purchasers of tomatoes, like Taco Bell, to agree to “Fair Food” agreements that support better pay and working conditions for tomato pickers on farms in their supply chains.
We are also seeing employees take collective action without being part of a union. In 2018, workers at Google staged a walkout, and in 2014 at Market Basket supermarkets here in New England , employees demanded the return of a CEO who had supported generous profit sharing for workers. Separately, employees at numerous companies, including Starbucks, have used the website coworker.org to create online petitions seeking specific improvements to working conditions.
Unions are not stuck in the 1930s, either. In the 2018 Marriott hotel workers strike, union negotiators got Marriott workers in Boston better wages and benefits but also advance notification of and training for new technology implementations, as well as increased protection from sexual harassment by customers.
However, gains like the Marriott contract or the Fair Food campaigns are too uncommon in our economy, and public policy continues to favor business interests and the wealthy at the expense of everyone else. We need systemic change to make the playing field more level for US workers and create labor regulations that work for everyone in a 21st-century economy.
That will take time, but efforts are starting to happen. Here in Massachusetts, Harvard Law School’s Labor and Worklife Program has launched the Clean Slate Project to reimagine US labor law for the 21st century. Some things needed are new forms of collective bargaining, giving workers a voice in corporate decision making — including on issues such as how new technologies will affect jobs — and health insurance and retirement benefits that move with employees when they change employers.
If we are serious about reducing inequality in our country, it’s time to rethink and rework the fundamental framework of US labor law to support the next generation’s labor movement.