Why The Economy Has Only Recovered for the One Percent

Roger Bybee

For the fortunate few scanning America’s economic recovery from luxurious penthouse suites, they are treated to the magnificent scenery of record profits, escalating CEO pay and an ever-growing share of the nation’s income.

But for the vast majority, the view remains bleak, despite the 4.3 million private-sector jobs added since early 2010. The horizon is still gray because of ongoing, pervasive wage cuts and a feeble job market. Very decidedly, this is a recovery largely reserved for the Republican-deified job creators” and the investor class. In 2010, the richest 1% monopolized income gains, hauling in fully 93% of increased income, according to economist Emanuel Saez. As Think Progress reported:

After dipping during the Great Recession, corporate profits have now skyrocketed past their pre-recession levels, Business Insider’s Joe Weisenthal notes. After-tax profits and corporate profits as a share of gross domestic product (GDP) are now higher than they were in the middle of the last decade, after a similar vertical spike. Despite massive profit gains, however, corporations are adding more jobs overseas than they are in the United States and paying one of the lowest effective tax rates in the developed world.

Economist Heidi Schierholz of the Economic Policy Institute explains that the relatively slow pace of hiring — although an improvement from the depths of the recession brought on by Wall Street deregulation — undermines the bargaining power of workers both individually and collectively.

We haven’t seen a labor market this weak for this long since the Great Depression. This economy needs at least 10 million more jobs. Workers don’t have much power individually when there is a long line of people applying for jobs extending around the block,” Schierholz says.

With the economy still running in low gear except for the mechanisms generating riches for those at the top, there are few alternatives for workers from which to choose from. The lack of bargaining power is tied to a lack of outside options for employment,” Schierholz says. That’s why the number of voluntary quits is very, very low.”

In addition, Republicans have now fiercely reversed course on the counter-cyclical strategies followed by Richard Nixon, George H.W. Bush and George W. Bush of increasing public employment during recessions. They have vigilantly fought against every attempt by President Barack Obama to stimulate the economy with increased public hiring. At the same time, Republican governors have hacked away at public employment and pay at the state and local level. In the midst of the biggest economic crisis in 80 years, The government sector has cut 502,000 workers from payrolls” since the start of 2010.

The collective power of workers through their unions has been severely diminished by a set of devastating policy changes, most recently with restrictions on public employees’ bargaining rights in Wisconsin and enactment of anti-union right to work” legislation in Indiana. These developments cap an era concisely explained by EPI vice president Ross Eisenbrey and Iowa history professor Colin Gordon:

[O]ver the [last] 30 years — an era highlighted by the filibuster of labor law reform in 1978, the Reagan administration’s crushing of the PATCO strike, and the passage of anti-worker trade deals with Mexico and China — labor’s bargaining power collapsed. The consequences are driven home by the figure below, which juxtaposes the historical trajectory of union density and the income share claimed by the richest 10 percent of Americans. Union membership has fallen and income inequality has worsened—reaching levels not seen since the 1920.

The repercussions have been massive:

[The] divergence in income growth, especially noticeable since 1979, corresponds with a decline in union influence, as an increase in union membership would help to boost worker incomes. Indeed, if the incomes of the union rank-and-file rose by just 10 percent, middle-class incomes would go up $1,479 per year, even for middle-class families who aren’t union members, according to a September analysis from the Center for American Progress.

The systematic weakening of union power, accompanied by the fierce competition for a shrinking number of quality jobs, has set the stage for wage-slashing by U.S. employers. A number of indicators document that the trend toward wage-cutting — spotlighted by New York Times economics reporter Louis Uchitelle in early 2009 when the reverberations of the Wall Street meltdown were still being felt — is, if anything, gaining momentum even as major corporations have fully recovered.

In some states, like Wisconsin, there have been employment gains in traditionally high-wage industries like manufacturing, but these industries have also witnessed wage drops, as the Milwaukee Journal Sentinel reported. From December 2010 to December 2011, the average weekly wage in Wisconsin declined.”

Starting wages in manufacturing — a mainstay of high-wage, family-supporting jobs — have dropped by 50% in just the past six years, notes former Labor Secretary Robert Reich. Two-tier and multi-tier wage structures — which freeze the pay and benefits of long-term union members at current levels while slashing starting wages by 40% or more for new workers — have begun to proliferate in the face of labor’s weakened bargaining power.

Even the once-mighty United Auto Workers has been forced to accept pay packages for new hires at the Big Three that provide half of what new hires got a decade ago. At $14 an hour, new auto workers earn about the same as America’s service-sector workers.

But perhaps nothing exemplifes the national picture more than the strategy followed by General Electric. Even during the Great Depression, when it faced shrinking profit margins, industrial giant General Electric limited its wage cuts to 10%, according to Chris Townsend, political director of the United Electrical, Radio and Machine workers, who recently perused his union’s extensive files.

But General Electric’s current condition can be described as nothing less than superb, enjoying a 16% increase in profits in 2011 on top of $14.2 billion in 2010. To make things sweeter, GE managed to pay no corporate taxes. Nonetheless, GE was able to force its unionized workforce to accept a new system of risky high-deductible healthcare policies and to exclude new workers from defined-benefit pension plans. 

But nothing is more indicative of GE’s new mindset than the recent wage cuts imposed at its non-union plant in Mebane, North Carolina, where veteran workers had earned as much as $23.67 per hour. After being recalled from brief layoffs, long-time workers with up to 20 years of service at GE discovered that their pay had been cut by 45% and that they had been removed from the company’s defined-benefit pension plan.

The wave-slashing is about to become more widespread at GE’s non-union plants, based on GE memos obtained by the UE’s Townsend. In last year’s negotiations with a coalition of unions, GE repeatedly informed labor that it viewed $13 per hour a competitive wage in manufacturing, recalled Townsend.

But GE is not alone in pressing this low-wage agenda. Toyota’s goal has become $12.64 an hour, the median wage for comparable manufacturing in Kentucky, where it has its largest plant, or $10.79 in Alabama, where it is building a new plant,” reports UC-Berkeley Professor Harley Shaiken, a long-time scholar on labor issues and the auto industry.

Absent a revitalized upsurge from labor and its allies like the Occupy movement that places inequality squarely at the center of the presidential campaign in 2012, we can expect even further acceleration of wage-slashing from corporate America.

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Roger Bybee is a Milwaukee-based freelance writer and University of Illinois visiting professor in Labor Education. Roger’s work has appeared in numerous national publications, including Z magazine, Dollars & Sense, The Progressive, Progressive Populist, Huffington Post, The American Prospect, Yes! and Foreign Policy in Focus. More of his work can be found at zcom​mu​ni​ca​tions​.org/​z​s​p​a​c​e​/​r​o​g​e​r​d​bybee.
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