Jobs, Wages and Cars in America

How is the Auto Industry a reflection of the entire economy? Click here to find out. Below are some excerpts of the article:

Not Your Father’s Detroit
The Motor City virtually created the old era of shared prosperity.

Today, the middle has fallen out of the economy. What can we do to get it back?

Modern American manufacturing -- in some sense, modern America -- had begun in Highland Park. In 1913, Henry Ford opened his first real factory there, featuring the world’s first large-scale assembly line. The following year, he announced that he’d pay his employees an unheard-of $5 a day, based on the theory that if they made Model-T’s, they should be able to buy them. In fact, the purchasing power of Ford workers didn’t become truly substantial until the United Auto Workers (UAW) unionized the company in 1941; thereafter, the discontents of factory work notwithstanding, the economic life of Ford workers became, in a sense, a marvel of the world. As members of the predominant union in the predominant industry in the predominant economy on the planet, the auto workers at the Big Three enjoyed not only good pay but the nation’s first comprehensive health insurance, supplemental unemployment insurance, generous pensions with retiree health coverage -- all paid for by the companies, which had no trouble covering these costs.

The problem -- America’s problem -- is that the abrupt end of the living standards that Wixom workers enjoyed isn’t exceptional; it’s emblematic. Across the economy, the wages and benefits of ordinary Americans are under assault. The new model American manufacturer, which once may have offered wages and benefits comparable to the Big Three, has typically cut its wages to somewhere between a half and two-thirds of what Ford and GM have been paying. Highly profitable Caterpillar Tractor, for instance, now offers its new hires just $22 an hour in wages and benefits, half what it pays its more senior employees. “There is a balance that must be struck,” Caterpillar group president Douglas Oberhelman told The New York Times, “between being competitive and being middle class.”

The decline in income is hardly limited to manufacturing. A new survey of the nation’s 361 metropolitan areas, which account for 86.3 percent of the nation’s GDP, has found that the average wage of jobs lost in the recession of 2001-2003 was $43,629, while the average wage of jobs created in 2004-2005 was $34,378 -- a tidy 21 percent decline. While productivity increased by 11.7 percent between 2001 and 2004, median household income rose by a scant 1.6 percent.

The problem is that in the current recovery, unlike any recovery since the advent of the New Deal, almost all new revenue to corporations is going to profits, and virtually nothing to wages. (In the five recoveries before the current one, 25 percent of new corporate revenues went to profits and 75 percent to employee compensation; in the current recovery, 59 percent has gone to profits and just 41 percent to compensation.)

The middle is falling out of the American economy. At first glance, from a sufficient distance, we may appear to be doing just fine. The GDP, after all, grew by 3.6 percent last year; unemployment has fallen to 4.8 percent. But what once distinguished the United States among the nations of the world was not simply the volume of our wealth, but our distribution of that wealth. In the decades following World War II, we were something new under the sun: the nation with the first middle-class majority. Between 1947 and 1973, productivity in the United States rose by 104 percent. Median family income in the United States also rose by 104 percent. Since then, however, productivity gains have outpaced median family income by a margin of three to one, and in recent years, by eight to one. Indeed, as Northwestern University economists Ian Dew-Becker and Robert Gordon have demonstrated in a recent study, over the past couple of decades, all the income from productivity gains have gone to the wealthiest 10 percent of our countrymen.

To any dispassionate economic historian, it’s no mystery how America managed once to attain broadly shared prosperity. Between 1875 and 1975, the level of schooling for the average American increased by seven years, with a sharp increase in the number of college-educated Americans in the decades following World War II. Our technological innovation, often spurred by the investment of federal defense dollars, was second to none, and those innovations were turned into products at factories here in the United States. Unionization was at an all-time high in the years that median income tracked productivity, so high that the wage-and-benefit packets at unionized firms set the standard for non-union firms, too. Immigration was at an all-time low. We encountered little competition from other nations’ economies.

None of these conditions pertain any more. Americans’ level of schooling has stopped rising after a century of steady increase, and even if it were continuing, a raft of new studies suggests that many of these good jobs of the future will be offshored to cheaper climes. We shun industrial policy, while our competitor nations entice our corporations abroad. Unions, which once represented 35 percent of the workforce, now represent 12.5 percent, and just 7.9 percent in the private sector, ushering in an age of wage and benefit reductions. Globalization of production has enabled the majority of leading American corporations to get cheaper labor abroad and reduce labor costs at home.

This is a crisis for the nation; it is a crisis for all advanced economies to the extent that our brand of capitalism comes to dominate theirs. But it is particularly a crisis, and challenge, for liberals and Democrats in the United States and for Social Democrats (and even social Christians) in Europe and other advanced economies. For, at heart, the parties of the left and center left are the parties of broadly shared prosperity. That is their -- our -- raison d’être. In any given election, the inability to lay out a plausible scenario for renewing mass prosperity is not likely to leap out as the Democrats’ most glaring deficiency. But it creates a terrain on which bad stuff can happen. The alternative to a politics of economic advancement is often a politics of social resentment. The steadily declining income of white working-class males over the past quarter-century correlates to their increasingly rightward voting habits. We can’t prove the correlation is causal, but does anyone believe it’s coincidental?

In raw numbers, the fastest growing occupations between 2004 and 2014, says the bureau, will be retail salespersons, nurses, post-secondary teachers, customer service representatives, janitors, waiters, food-preparation workers, and home-health aides. Five of the 10 fastest-growing occupations fall under the BLS’s designation of very-low income -- which the BLS defines as an annual income under $20,184. In such an economy, sending more people to college is not really a panacea. In 2002, says the bureau, 26.9 percent of all jobs in the United States required college degrees; in 2012, that will rise to just 27.9 percent -- one measly point.

Casual observers of unions could have been forgiven last summer if they failed to fathom what the unions that left the AFL-CIO to form the Change to Win Federation had in common. Politically, the unions ranged across the spectrum. hat united them was that they represented workers whose jobs could not be exported: nurses, truckers, supermarket clerks, carpenters, laborers, hotel workers, and janitors. Together, they represented 6 million workers -- which left, by their count, 44 million workers in those sectors unorganized.

We may not think of these jobs as commanding decent wages, but in fact, union density is determinative here. Hotel room maids in cities where hotels are almost entirely unionized make $20 an hour; in cities that are half-unionized, $12 an hour; in non-union cities, $7 an hour. In heavily unionized Las Vegas, hotel workers can avail themselves of employer-funded training programs to advance to more highly skilled jobs, and make enough to buy homes that would be far beyond the reach of hotel workers in non-union towns. In the largest unionization drive currently underway in the nation, UNITE HERE (the hotel workers union) is using the threat of a strike this summer against hotels in most unionized cities to compel some national chains to agree not to oppose the organization of their workers in non-union cities.

A 2005 study of 20,000 firms by economists Lucian Bebchuk and Yaniv Grinstein finds that the percentage of the typical firm’s total earnings paid out in compensation to the company’s top five executives grew from 5 percent in 1993-1995 to 10 percent in 2001-2003. Bebchuk and Grinstein conclude that out of the $83 billion that the 99.99th percentile of wealthiest Americas reported on their taxes in 2001, $48 billion was the income of companies’ top five executives, which averaged $6.4 million (CEO salaries averaged $14.3 million). With their salary and benefit levels set by corporate boards and compensation committees on which their fellow CEOs sit, the men who run American business are paid a fortune to retain a fortune. Nice work if you can get it.