Saving the Middle Class

The same diligent workers who earned decent wages a couple of generations ago are now working just as hard for a lot less. The fact is, American productivity has nearly doubled in a generation. The problem is that the fruits of that productivity have gone to the wrong people.
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Last week, the New York City hotel workers union announced a stunning 7-year contract with the Big Apple's hotel industry providing for wage increases averaging 27 percent. The contract is due to be ratified by the membership Monday. The City's hotel trades council, whose master contract covers nearly every large hotel in Manhattan, already has the industry's best wages and health benefits. Room-attendants earn over $50,000 a year, and their earnings will go to $60,000. Everyone in the local makes a middle class income.

How on earth did the union achieve that? Through relentless organizing, professionalism, and development of the rank and file into a vigilant force that protects worker rights.

The higher wages will not increase room costs, because hotels are already charging whatever the market will bear. A higher share of these earnings will go to wages rather than profits.

After the Strauss-Kahn affair, where the union successfully demanded panic buttons for workers, I wrote a long profile of what has to be America's most effective union local for The American Prospect.

In it, I asked two questions: Are New York hotel workers unique? And what will it take for other workers in the service sector to do as well?

The issue of stagnant worker wages is, after all, the great economic question of our time. The conventional wisdom holds that there is not much our nation can do about it. Foreign competition from lower-wage economies has battered down wages in manufacturing. Many service sector jobs require only modest skills, and offer modest earnings to match.

The best that much of the economics profession can offer is to commend more education -- at a time when millions of young people with college degrees are having to settle for jobs that only require a high school diploma. The trend is for an over-educated, under-compensated workforce.

The hard rightwing explicitly places the blame on workers. Charles Murray, the conservative pamphleteer whose 1984 book, Losing Ground, blamed deteriorating economic conditions for blacks on the welfare state, has now shifted ground in a new, much-remarked book, Coming Apart. For Murray, the further decline in working class earnings is now all about deteriorating values.

Rightwing commentators are euphoric. They now have a handy scapegoat for the worsening economic conditions of American workers -- the workers themselves.

You could have fooled me. The same diligent workers who earned decent wages a couple of generations ago are now working just as hard for a lot less. Workers are better educated than ever. Something has sure changed, but it isn't the work ethic.

Note also the sleight of hand. In his 1984 book, Murray contended that the killer was incentives that rewarded idleness over work. Congress and President Clinton duly took note. AFDC was repealed, incentives were shifted to reward work -- and the decline in wages just continued. Apparently, incentives were not the problem. Murray, despite the attention, is Losing Ground. The main thing that's Coming Apart is his logic.

The fact is, American productivity has nearly doubled in a generation. The problem is that the fruits of that productivity have gone to the wrong people. Money that might have gone to wage-earners has gone to the top one percent, and to the top one-hundredth of one percent.

It is hard to swallow the idea that today's one percent has higher skills and somehow earned these astronomical rewards. After all, this is the gang whose speculations just crashed the economy. How skilled is that?

The middle of the economy -- factory workers, nurses, technicians, even retail clerks -- work with much more advanced technology than a generation ago. But their wages have lagged. Take a good look at the clerk at the photo counter of your local drugstore, and the technological marvel that she's learned to operate. She's lucky to make nine bucks an hour.

So the question -- the most important economic question of our era -- is how do we make sure that more of society's total product goes to ordinary workers and not so much of it to the one percent?

Better education helps, but it is no silver bullet. In the 1950s, most of the blue collar middle class hadn't even graduated high school, but working people got a much larger share of the total national product.

There are only four ways to do it. We can allocate more of the total product socially, by taxing the best off and using the proceeds to finance expenditures that provide a higher living standard for all. Places like Germany and Canada do that. It doesn't seem to hurt their productivity at all. On the contrary, a more secure population makes for a more reliable workforce.

We can use regulations to make it a little harder for the super-rich to rig the economy in their favor -- for instance banking regulations that prohibit getting filthy rich via ruinous speculation.

We can condition foreign trade on decent social standards, so that we don't import the wretched wages and working conditions along with the produces.

Or we can raise wages directly, through institutions like strong unions.

In this regard, Sunday's New York Times has a remarkably misleading, if encyclopedic, piece on America's safety net. In it, the authors find it surprising and alarming that more of our social outlay is going to the middle class, as opposed to the poor.

Authors Binyamin Applebaum and Robert Gebeloff write, "The government safety net was created to keep Americans from abject poverty, but the poorest Americans no longer receive a majority of government benefits." And they use the case of a Tea Party member, Ki Gulbranson, who makes about $39,000 who benefits from the Earned Income Tax Credit and whose mother gets surgery courtesy of Medicare to show the inconsistency of critics of government.

Nice touch -- but the safety net was never just for the poor. Programs like Social Security, Medicare, not to mention free public education, were intended for the whole population. The whole point of the Earned Income Tax Credit is to keep people out of poverty. The fact that a great many of its recipients manage to stay (barely) middle class, like the Tea Party member, is an emblem of its success.

The piece is also unhelpful because it contributes to the mythology of an "entitlement crisis."

The fact is that nations like Canada and Germany spend more of their entire product socially. They have less poverty and a more secure middle class. They also have higher prevailing wages. We can afford more generous social outlays without deficits if we just resolve to pay for them.

Which brings me to the punch line. Programs of social outlay can help build a more just and secure society, but most income is still wage and salary income. And if wages keep declining, social transfer programs will keep swimming upstream.

That in turn brings us back to the New York hotel workers union. It may be a bit easier to organize a strong union in the New York hotel industry because New York is a tourist destination and the New York Hilton is unlikely to move to Bangladesh in search of lower wages.

That said, there are lots of cities in the U.S. that are also tourist destinations that have weak hotel locals and lousy wages. If workers can build a strong union in the New York hospitality industry, they can do it in the rest of the service sector -- if the government just enforces the law that empowers workers to choose a union. The war against unions by Republican governors is a war on behalf of the one percent.

So don't let anyone tell you that some fateful structural change has made it impossible for working people to get decent earnings. America, on average, is richer than ever. The trouble is that too much of the total pie is going to the wrong people.

This is an enduring struggle, which will require us to use every bit of available leverage.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is "A Presidency in Peril".

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