[Congressional Record Volume 140, Number 14 (Friday, February 11, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 11, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                      WHY YOUR WAGES KEEP FALLING

                                 ______


                          HON. BERNARD SANDERS

                               of vermont

                    in the house of representatives

                       Friday, February 11, 1994

  Mr. SANDERS. Mr. Speaker, recently John B. Judis published an 
excellent analysis of the fall in American wages, in the New Republic. 
I'm pleased to insert this article in the Congressional Record.
  The article follows:

                 [From the New Republic, Feb. 14, 1994]

                      Why Your Wages Keep Falling

                           (By John B. Judis)

       ``For twenty years the wages of working people have been 
     stagnant or declining. * * * For too many families, even when 
     both parents were working, the American dream has been 
     slipping away. In 1992 the American people demanded that we 
     change,'' Bill Clinton declared in his State of the Union 
     address. But in the year he has been in office, Clinton has 
     not succeeded any better than his predecessors in meeting 
     that demand. Last year, Americans' hourly wages didn't grow 
     at all. And the wages of workers in mining, construction, 
     transportation, public utilities, retail, business and health 
     services fell as much as 2 percent. Even college-educated 
     workers--thought to be immune from economic distress--saw 
     their wages drop almost 1 percent. And these are the lucky 
     ones. The rest have had to make do with temporary jobs or 
     have simply been laid off.
       As Clinton acknowledged, these figures are about more than 
     just dollars and cents. They are about the sustaining myth of 
     American life. In the twentieth century, the promise of 
     America--once religious salvation--became an ever rising 
     standard of living. Until the 1970s that promise was 
     fulfilled. But since then, Americans' real wages have been 
     falling at an increasing rate--1.6 percent from 1973 to 1978 
     and 9.6 percent from 1979 to 1993. So far the reaction has 
     been a low rumble, muted by two-earner families and overtime 
     hours. But if wages continue to decline, that rumble could 
     turn into a deafening roar.
       There are plenty of causes: government policies, new 
     technologies and automation, more women in the work force. 
     But the most important, and an often overlooked one, is the 
     change that occurred in the relationship between business and 
     labor after the loss of American industrial supremacy. The 
     unfashionable truth is that the decline of American wages has 
     been largely a result of the decline of American labor 
     unions.
       From World War II through the early '70s, American business 
     and labor leaders enjoyed an amicable relationship. They 
     worked together against Soviet communism and for free trade, 
     civil rights and increases in Social Security and the minimum 
     wage. While they sometimes exchanged harsh words at the 
     bargaining table, they reached agreements that, between 1948 
     and 1973, doubled the real wages and benefits of American 
     workers. The relationship was sustained by U.S. firms' 
     domination of the world market. American steel and auto 
     companies could always offset wage increases with price 
     increases without undermining their profits or market 
     share.
       During these years, American workers in the private sector 
     occupied three tiers. On the first tier were workers from 
     largely unionized industries in manufacturing, 
     transportation, mining and construction. These workers 
     enjoyed a 10 percent to 30 percent wage and benefit premium 
     over their nonunion counterparts, who comprised the second 
     tier. The third tier was made up of primarily nonunion 
     service and small-business workers. Wages in this tier, 
     subject to supply and demand and the minimum wage, ran as 
     little as one-third of those in the first tier. Despite the 
     hierarchy, however, workers in the second and third tiers 
     benefited from the wage gains and clout of first-tier 
     unionized workers. Employers of nonunionized workers in 
     industries dominated by unions often paid comparable salaries 
     in order to discourage unionization. And third-tier workers 
     benefited not only from increases in the minimum wage won by 
     unions, but also from the looming threat of unionization.
       By the early '70s, American business lost the industrial 
     superiority that had supported this edifice. In 1971 the 
     United States, competing with revived European and Japanese 
     manufacturers, ran its first trade deficit since 1893. And as 
     more countries modernized, American firms in key industries 
     such as steel, automobiles, shipbuilding and textiles faced a 
     global glut of production. Business became a tougher game in 
     which even minor price increases could lead to huge losses 
     in-market share and profits. It was under this pressure that 
     American firms began to re-examine their relationship with 
     labor and their commitment to the prevailing wage structure.
       During the 1970s corporations started to resist wage 
     increases and fight labor unions in the political arena. In 
     1972 corporate CEOs formed their own lobbying organization, 
     the Business Roundtable. During the Carter years, the 
     Roundtable's lobbyists succeeded in watering down the 
     Humphrey-Hawkins Full Employment Bill and in blocking labor 
     law reform that would have amended the National Labor 
     Relations Act to increase the penalties on employers that 
     used intimidation to discourage workers from joining a union. 
     In the 1980s, under Ronald Reagan, business went even 
     further, defeating attempts to adjust the minimum wage to 
     inflation and securing the nomination of anti-labor 
     candidates to the National Labor Relations Board and other 
     government panels.
       During the Reagan years, businesses also began to demand 
     and get ``givebacks'' from unions. Corporations won 
     unprecedented concessions in meat-packing, tires, steel, 
     motor vehicles, trucking and air transportation. Companies 
     that didn't have unions used long neglected loopholes in 
     labor law to thwart unionization; other unionized companies 
     such as Phelps Dodge and Eastern Airlines, inspired by 
     Reagan's ouster of the PATCO strikers, sought to remove their 
     unions.
       Under relentless attack from business and facing a hostile 
     administration in Washington, unions lost ground, declining 
     from 31 percent of the nonagricultural work force in 1970 to 
     26 percent in 1979 to 13 percent today. The effect of this on 
     wages can be calculated by multiplying the loss in the wage 
     premium by the number of workers who might otherwise have 
     been represented by unions. On this basis, Lawrence Mishel 
     and Jared Bernstein of the Economic Policy Institute, the 
     authors of ``The State of Working America,'' estimate that 
     the collapse of unionism cost blue-collar workers 3.6 percent 
     in real wages from 1978 to 1988.
       At a deeper level, business' successful offensive against 
     unions changed the wage structure of the American economy. 
     Instead of unionized workers setting the pace in wages, they 
     became a lagging indicator of the real state of the wage 
     economy. The first tier began to shrink and collapse into the 
     second tier. Workers in the heavily unionized steel industry, 
     for example, saw their wages fall from $20.37 per hour in 
     1981 to $17.91 per hour in 1987 to $16.87 per hour in 1992 
     (all these figures are in 1992 dollars). Workers in the 
     second tier began to see their wages driven down to the level 
     of nonunionized laborers and service workers. The wages of 
     partially unionized meat-packing workers went from $13.98 per 
     hour in 1981 to $10.39 per hour in 1987 to $9.15 per hour in 
     1992. Meanwhile, workers in the third tier, deprived of even 
     the modest protections of the minimum wage, found themselves 
     edging toward subsistence levels. Workers in restaurants and 
     bars--one of the fastest-growing groups in the 1980s--saw 
     their wages fall from $6.14 per hour in 1981 to $5.46 per 
     hour in 1987 to $5.29 per hour in 1992.
       This collapse of the partnership between business and labor 
     and the resulting decline of unionism helps explain why real 
     wages fell so sharply in the United States but were resilient 
     in Western Europe and Japan. European and Japanese firms also 
     faced stiff competition and global overcapacity in the 1970s 
     and 1980s. But in Western Europe, because of the strength of 
     their unions and their countries' social democratic parties, 
     and in Japan, because of the commitment to a harmonious 
     relationship between labor and business, firms sought other 
     means to protect their profits, from trade protection to 
     limits on immigrant workers to on-the-job productivity. When 
     these measures failed, they even accepted lower profit rates. 
     In the United States, however, business sought to defend its 
     profits primarily by holding down wages: often by eliminating 
     unions or preventing them from organizing.
       In this climate, other shifts took place to weaken wages 
     still further. To cut costs, businesses began to move 
     manufacturing facilities overseas. In 1987 automakers spent 
     $28 billion on parts manufactured overseas, up from $8 
     billion ten years before. The Big Three went from importing 
     500,000 engines in 1983 to 1.92 million in 1987. Companies 
     also replaced workers with technology. From 1979 to 1992, 
     thanks to automation, manufacturing output rose 13.1 percent, 
     while the work force declined by 15 percent. Both trends 
     eliminated many of the higher-wage first-tier jobs and 
     plunged these workers into competition for lower-wage second-
     tier and third-tier jobs. In 1979, 38 percent of 25- to 34-
     year-old male high school graduates were employed in better-
     paying manufacturing jobs; by 1987 only 29 percent were, 
     while those employed in the low-paying wholesale and retail 
     trade sector rose from 18 percent to 23 percent. And union 
     attempts to organize these service workers proved largely 
     unsuccessful.
       The trade deficit and immigration didn't help. In 1982 the 
     United States began running massive trade deficits in 
     industrial goods, particularly cars, auto parts and consumer 
     electronics, creating a net loss of American manufacturing 
     jobs. And the influx of unskilled immigrants during the '80s 
     drove down the wages of third-tier workers, particularly in 
     the West. In a 1991 study for the National Bureau of Economic 
     Research, economists George J. Borjas, Richard Freeman and 
     Lawrence Katz (who is now the Labor Department's chief 
     economist) estimated that from 1980 to 1988, up to half of 
     the 10 percent decline in the wages of high school dropouts 
     was attributable to the trade deficit and the immigration of 
     unskilled labor.
       The entry of women into the work force may also have 
     depressed real wages. From 1970 to 1988 the percentage of 
     working women rose from 43.3 to 56.6. These new workers 
     probably helped hold down wages in third-tier service work, 
     but more important, they allowed the impact of the sharp 
     contraction of male income to be softened. By contributing to 
     family income, women made it possible for families to 
     increase their income even though individual wages were 
     declining. According to Mishel and Bernstein, family income 
     grew 0.6 percent per year from 1973 to 1979 and 0.4 percent 
     from 1979 to 1989. If family income had declined at the same 
     precipitous rate as male income, then workers would have 
     fiercely resisted wage cuts, and the 1980s might have been a 
     period of labor militancy similar to the 1870s or 1930s.
       Of course, not all workers have suffered declining wages in 
     the past two decades. During the 1970s college-educated 
     workers and upper-level white-collar workers found their 
     wages stagnating, but in the early '80s, they gained ground, 
     creating a widening gulf between lower- and upper-income 
     workers and between high school and college-educated workers. 
     But this gap may prove transitory. From 1989 to 1993 the 
     wages of white-collar executives and managers dropped 0.8 
     percent, the wages of technical workers fell 2.9 percent and 
     the wages of college-educated workers declined by 2.5 
     percent.
       The rise and then fall in white-collar wages was caused 
     partly by a shift in supply and demand. According to 
     economists Frank Levy and Richard Murnane, the number of 
     college-educated workers rose 85 percent between 1971 and 
     1980; then, between 1979 and 1987, a time when new technology 
     was creating demand for specially trained workers, the number 
     rose by only 32 percent, bidding up wages. Now supply is once 
     more outrunning demand. In The Monthly Labor Review, Kristina 
     Shelley, an economist at the Bureau of Labor Statistics, 
     predicts that from 1990 to 2005 job openings for college 
     graduates will slump compared with the previous five years, 
     while the number of bachelor's degrees will increase. The 
     temporary reprieve for college-educated earnings may already 
     be over.
       White-collar and college-educated workers are also going 
     through a process called ``proletarianization.'' Initially 
     seen as professionals or as part of management, these workers 
     are now finding their work regulated in the same manner as 
     wage workers in factories and offices. Doctors and nurses 
     have become employees of HMOs; computer programmers have 
     become piece workers for giant software firms. As they have 
     lost the prerogatives of management or the protections of a 
     craft guild, their wages have begun to fall like everyone 
     else's.
       So what's to be done? Plenty of solutions have been 
     proposed to counter the decline of wages, but most of them 
     address secondary rather than primary causes. Economists 
     typically blame lower wages on lagging productivity and hope 
     higher productivity is the answer. They're half-right. Higher 
     productivity is necessary for higher real wages, but it 
     hasn't turned out to be sufficient. During the 1980s 
     manufacturing productivity grew a robust 3.6 percent 
     annually, but manufacturing wages fell by 0.6 percent per 
     year. What might have been labor's share went into dividends 
     and profits.
       Clinton's solution, derived from Secretary of Labor Robert 
     Reich, is to finance worker retraining. Reich argues that the 
     cause of wage decline is a mismatch between workers' skills 
     and the demands of a high-tech economy, resulting in too many 
     unskilled or semi-skilled workers chasing too few jobs and 
     too few college graduates chasing the new high-wage, high-
     skill jobs. Reich has proposed spending $3.5 billion on 
     worker retraining over the next four years. ``All of the 
     studies show that if you get long-term training [for] a year 
     or more,'' Reich explains, ``you're going to affect your 
     future incomes by increasing that future income by an average 
     of 5 to 6 percent.''
       Reich is also half-right. There's a surplus of unskilled 
     and semi-skilled labor. Unfortunately, giving them skills 
     won't necessarily help things. According to a study last fall 
     by James Franklin of the Bureau of Labor Statistics most new 
     jobs in the next decade will be as unskilled hospital 
     orderlies or food preparation workers, not as software 
     engineers or marketing supervisors. And while training, 
     especially on the job, can boost productivity, studies don't 
     bear out Reich's or Clinton's hopes that it will raise the 
     future wages of those involved. The most recent Labor 
     Department survey, conducted by the highly respected 
     Mathematica Policy Group, found that laid-off workers who 
     underwent training under the Trade Adjustment Assistance 
     Act failed to raise their wages. More than three-quarters 
     of the workers, the study found, ``earned less in their 
     new job three years after their initial unemployment 
     insurance claim than they did in their pre-layoff job.''
       The solution favored by many labor leaders and liberal 
     Democrats is to restore the pre-1973 status quo. They want to 
     raise the minimum wage (which Clinton has postponed asking 
     Congress to do), reform labor laws, restrict the immigration 
     of unskilled workers and remove incentives for firms to have 
     foreign countries do their manufacturing. While these 
     measures address the cause of wage decline much more directly 
     than do the economists' or Clinton's proposals, they slight 
     the genuine dilemma that American businesses face. If wages 
     were to increase at the rate that they did from 1948 to 1973, 
     many American firms quickly would suffer the fate of 
     Frigidaire or Philco. The world economy is simply a different 
     and less friendly place than it once was.
       What is really needed is a grand compromise between 
     business and labor, where business would secure labor's 
     commitment to raising productivity and keeping wage costs 
     competitive in exchange for its support of legislation 
     strengthening labor's organizing rights. Although it wouldn't 
     restore the status quo ante, this kind of compromise would do 
     more to brake the fall in wages than the most innovative 
     training program.
       Some labor economists and maverick labor leaders have 
     already suggested this kind of compromise. MIT economist 
     Thomas Kochan, a member of the administration's newly 
     appointed Commission on the Future of Worker-Management 
     Relations, has proposed one possible deal. Business would 
     support labor law reform to put teeth into that laws that 
     deter companies from strong-arming against union 
     organization. In return, labor would swallow what is now a 
     potentially illegal way to raise worker productivity--
     Japanese-style, management-sponsored employee committees in 
     nonunion workplaces. But while some labor unions would 
     support this kind of compromise, business is almost 
     universally opposed. Absent a wave of 1930s-style worker 
     militance, business leaders believe they would be giving up 
     more than they receive by agreeing to any new labor 
     organizing rights. Kochan has tried to interest Clinton and 
     Reich in this idea, but they remain enthralled with the 
     panacea of retraining.
       It would be nice if the affliction of falling real wages 
     could be cured through the market's invisible hand. But it 
     has already persisted through three recessions and 
     recoveries. It's a problem that ultimately requires visionary 
     thinking and radical political action. But like other such 
     problems (welfare reform leaps to mind), the decline of wages 
     will probably have to get worse before everyone can agree on 
     a viable strategy for reversing it. What our standard of 
     living will be when that happens is anybody's guess.

                          ____________________