Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: Job Creation

Why Unions Matter

I write an occasional column for Street Roots, a wonderful Portland, Oregon weekly newspaper that is sold on the streets by homeless vendors, who keep 75 percent of the dollar cost of each Friday issue.

As the paper explains:

Street Roots creates income opportunities for people experiencing homelessness and poverty by producing a newspaper and other media that are catalysts for individual and social change.

In addition to income and an opportunity for meaningful street conversations, Street Roots also provides venders, who number in the hundreds, a safe place with “access to computers, a mailing address, hygiene items, socks, fresh water, coffee, and public restrooms.”  It also maintains “a vendor health fund to support vendors when they are sick or in an extreme crisis.”

The paper does outstanding reporting on local, national, and even international issues; it has 20,000 readers throughout the region.  Check it out.

Here is my latest piece, published June 9, 2017.

The attack on labor unions – and why they matter

Fewer workers are in unions now than in 1983, the earliest year in the Bureau of Labor Statistics series on union membership. In 1983 there were 17.7 million, 20.1 percent of the workforce. In 2016 the number had fallen to 14.6 million, or 10.7 percent of the workforce. While union membership rates in Oregon have been above the U.S. average, they have also followed the national trend, falling to 13.5 percent in 2016.

This decline in unionization is largely the result of a sustained corporate directed and, in many ways, government-aided attack on unions. Its success is one important reason why corporate profits have soared and most people have experienced deteriorating working and living conditions over the past decades.

Improving our quality of life will require rebuilding union strength. And, although rarely mentioned by the media, things are starting to happen in Portland. Over the last few years new unions were formed and/or new contracts signed by workers at our airport, zoo, K-12 public schools, colleges and universities, parks and recreation centers, hotels, restaurants, hospitals and office buildings.

The attack on unions 

Not long after President Reagan declared the 1981 air traffic controllers strike illegal and fired 11,000 air traffic controllers, corporations began illegally opposing union organizing efforts by aggressively firing union organizers.

According to studies based on NLRB records, the probability of a union activist being illegally fired during a union organizing campaign rose from about 10 percent in the 1970s to 27 percent over the first half of the 1980s. Since then it has remained around 20 percent. Illegal firings occurred in approximately 12 percent of all union election campaigns in the 1970s and in roughly one out of every three union election campaigns over the first half of the 1980s. They now occur in approximately 25 percent of all union election campaigns.

It is a violation of U.S. labor law for an employer to “interfere with, restrain or coerce” employees who seek to exercise their right to unionize. However, the law is so weak that many employers willingly disregard it and accept the consequences in order to stymie union organizing efforts.

Many companies also try to undermine union organizing campaigns by illegally threatening to shut down or move operations if workers vote to unionize. One mid-1990s study found that more than 50 percent of all private employers made such a threat. The acceleration of globalization in the following decades, thanks to government support, has made growing numbers of workers fearful of pursuing unionization, even without an explicit threat by management.

Although not the most important factor, unions also have some responsibility for their decline. Union leaders have often been reluctant to aggressively organize new sectors; encourage new leadership from people of color, women, and other marginalized groups; promote rank and file democracy in decision-making and organizing; and vigorously defend the rights of their members to live in healthy communities as well as work in safe workplaces.

Taking all this into account, it is no wonder that the share of workers in unions has declined.

The union difference 

The decline in union strength matters. Here are a few examples of what unions still deliver:

According to the Economic Policy Institute, “the union wage premium – the percentage-higher wage earned by those covered by a collective bargaining contract, adjusted for workers’ education, age and other characteristics – is 13.6 percent overall.”

Unionized workers are 28.2 percent more likely to be covered by employer-provided health insurance and 53.9 percent more likely to have employer-provided pensions.

Working women in unions are paid 94 cents, on average, for every dollar paid to unionized working men, compared to non-union working women who receive only 78 cents on the dollar for every dollar paid to non-union working men. This union wage premium is significant for unionized working women regardless of race and ethnicity.

Looking just at Oregon, the Oregon Center for Public Policy found that “union representation boosts the wages of Oregon’s lowest paid workers by about 21 percent, while middle-wage workers enjoy an increase of about 17 percent. Even the highest paid workers benefit from unionizing, with a 6 percent increase to their wages.”

Studies also show that strong unions force non-union employers to lift up the wages and improve the working conditions of their own employees for fear of losing them or encouraging unionization.

More generally, unions provide workers with voice and the means to use their collective strength to gain job security and say over key aspects of their conditions of employment, including scheduling and safety. These gains are significant in our “employment at will” economy where, without a union, employers can fire a worker whenever they want and for whatever reason, subject to the weak protections afforded by our labor laws.

Why unions still matter 

Two widely respected labor economists, Lawrence F. Katz and Alan B. Krueger, recently published a study of the growth in the number of workers with so-called “alternative work arrangements,” which they “defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.” They found that the percentage of U.S. workers with such alternative work arrangements rose from 10.1 percent of all employed workers in 2005 to 15.8 percent in 2015. But their most startling finding was that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.”

Large corporations are driving this explosion in irregular and precarious work by applying the same strategy here in the U.S. that they have long used in the third world. They are increasingly outsourcing to smaller non-unionized firms the jobs that were once done by their own in-house workers. This allows these large corporations to escape paying many of those who “work for them” the wages and benefits offered to their remaining employees. Instead, their salaries are paid by smaller firms, whether they be independent businesses, temporary work agencies, or franchise owners, or in more extreme cases so-called independent contractors. And because these second-tier smaller businesses operate in highly competitive markets, with substantially lower profit margins than the corporations they service, these outsourced workers now receive far lower salaries with few if any benefits and protections.

As the Wall Street Journal describes, “Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry.”

At most large firms, 20 percent to 50 percent of the total workforce is now outsourced. This includes big and profitable U.S. companies like Google, Bank of America, Verizon, Procter & Gamble and FedEx.

In sum, companies aren’t going to willingly offer us jobs that pay a living wage, provide opportunities for skill development, and afford the security necessary to plan for the future. We are going to have to fight for them. And the strength of unions will be critical in that effort. So, the next time you hear about a unionization campaign or union organized workplace action— support it. You will be helping yourself.

The Problem Of Hunger In The US

Food insecurity is a major problem in the US.   The food stamp program–renamed the Supplemental Nutrition Assistance Program (SNAP) in 2008–helps, but that program is now threatened by the Trump administration.  An organization of the food insecure, echoing the Councils of the Unemployed of the 1930s, may well be needed if we are to make meaningful progress in reducing hunger.

The extent of food insecurity  

The federal government measures food insecurity using a yearly set of questions that are part of the U.S. Census Bureau’s Current Population Survey (CPS).  The questions asked, as a Hamilton Project study on food insecurity and SNAP explains, are about:

households’ resources available for food and whether adults or children in the household adjusted their food intake—cutting meal size, skipping meals, or going for a day without food—because of lack of money for food. A household is considered to be “food insecure” if, due to a lack of resources, it had difficulty at some time during the year providing enough food for all of its members. The more-severe categorization of “very low food security” status describes those food-insecure households in which members’ food intake was reduced and their normal eating patterns disrupted at some point during the year because of a lack of resources for food. Food insecurity and very low food security are measured at the household level, though questions about adults and children are asked separately.

Officially, 12.7 percent of US households were food insecure in 2015.  Five percent were very low food secure.

The extent of food insecurity is significantly greater in households with children under 18.  As we see below, 16.6 percent of all households with children suffered from food insecurity in 2015.  In more than half of those households, the adults were able to shelter their children.  However, both children and adults were food insecure in 7.8 percent of all households with children.

Food insecurity trends

Food insecurity is a problem in the United States even during periods of economic expansion.  As the following chart shows, more than one in ten households suffered from food insecurity during the growth years of 2001 to 2007.  The percentage of households experiencing food insecurity spiked with the start of the Great Recession and was slow to decline.  Although it is now falling, it is unclear whether it will return to pre-recession levels.

And, not surprisingly, non-white households are far more likely to experience food insecurity than white households.

It is also important to recognize that annual rates of food insecurity tend to minimize the true extent of the problem.  That is because households tend to move into and then out of food insecurity over time.  In other words, it is often a temporary problem.  Thus, many more families will experience food insecurity over a period of time than suggested by the annual numbers.  Of course, even one year of food insecurity can have serious health consequences.

As the Hamilton Institute study notes:

Annual rates of food insecurity mask the extent of the food insecurity problem. Using the Current Population Survey, we can follow large numbers of households across two consecutive years, allowing us to compare food security status over time. In consecutive years during the post-recession period 2008–14, over 24 percent of households with children experienced food insecurity in one or both years: 9 percent of household experienced food insecurity in consecutive years, and an additional 15 percent of households experienced food insecurity in only one of the two years.

SNAP 

SNAP is one of the most important federal responses to food insecurity. To qualify for food stamps, a household needs to earn at or below 130% of the poverty line—or about $26,000 or less a year for a family of three. As of May 2017, 42.3 million people were receiving food stamps. Without the SNAP program, many more people would be experiencing food insecurity.

The following figures show the rise in the number and percentage of people receiving food stamps, and the average monthly food stamp benefit.  The growth in the number of food stamp recipients over the 2001 to 2007 period of economic growth reflects the explosion in inequality and weak job growth.  And the need for food assistance exploded with the Great Recession and has remained high because of the weak economic recovery that has followed.

The challenge ahead

Determined to slash all non-military discretionary programs, President Trump’s proposed budget calls for cutting almost $200 billion over the next decade from the Department of Agriculture’s SNAP program.  That is a cut of approximately 25 percent.

With weak job growth and stagnant wages likely in the years ahead, any cut to the SNAP budget will mean a new spike in hunger, especially for children.  One has to wonder when people will reach their limit and begin to organize and fight back.

Those struggling with food insecurity might well take inspiration from the work of the unemployed councils of the 1930s.  These councils provided a basis for the unemployed to resist rent increases and evictions, as well as fight for public assistance, unemployment insurance, and a public works program.  The councils also strongly supported union organizing efforts, ensuring that the unemployed respected union picket lines.  In return, many unions supported the work of the councils.

The unemployed in the 1930s eventually recognized that their situation was largely the result of the dysfunctional workings of the economic system of the time and they organized to defend their rights and change that system.  Households experiencing hunger today need to develop that same understanding about the root cause of their situation and respond accordingly.

Robots And Automation Are Not The Cause Of Our Labor Market Troubles

Employment growth remains weak in the United States.  Many in the media happily encourage us to blame the growing use of robots, or automation more generally, for this situation.  Their message is that we are just experiencing the consequences of technological progress and no one should want to fight that.  However, that is just misdirection; the numbers make clear that it is corporate financial “wheelings and dealings,” not robots and automation, that is the primary cause of our current employment woes.

Productivity Trends

If robots or automation were holding back employment growth we should see rapidly rising rates of output per labor hour or what economists call productivity.  In other words, the new technology would allow companies to greatly increase their production with the same number or even fewer hours of human labor.  And, as a consequence, the demand for labor would slow, leading to weak employment growth.

Here is how the Bureau of Labor Statistics (BLS) explains productivity:

Labor productivity is a measure of economic performance that compares the amount of goods and services produced (output) with the number of labor hours used in producing those goods and services. It is defined mathematically as real output per labor hour, and growth occurs when output increases faster than labor hours. . . . Technological advances, greater investment in machinery and equipment by businesses, increases in worker skill and experience, and other improvements to production can all lead to labor productivity growth.

The problem for those who want to blame our labor market woes on robots and automation is that US productivity gains have been historically weak, not strong, during this economic expansion.

Chart 1 shows the growth in output, hours worked, and labor productivity (shown by the red bar) for the non-farm business sector over every business cycle starting in 1948, as well as for the average business cycle for the historical period.  Of course, our current cycle is not yet over, and the data in this chart only take us through the 3rd quarter of 2016.  But our current expansion is already the longest, and since productivity tends to fall the longer an expansion goes on, we are unlikely to see much of an improvement in the numbers over the rest of the cycle.

As we can see, the growth in labor productivity in the current business cycle, at 1.1 percent, is tied with the 1980-1981 cycle for the lowest rate of productivity growth for the entire historical period.  Labor productivity growth for the average cycle is 2.3 percent.  The current business cycle also has the second lowest rate of growth in output.

Chart 5 offers another way to appreciate how weak productivity growth has been during the current business cycle.  It compares the growth in labor productivity over this cycle with the growth in productivity over the previous cycle (2001 to 2007) and the longer period 1947 to 2007.

In the words of the BLS:

Through most of the Great Recession, labor productivity lagged behind historical growth rates, but then it achieved above-average gains coming out of the recession and into the early quarters of the recovery. The U.S. economy actually caught up to the long-term historical trend (the dashed red line) in the fourth quarter of 2009, although it was still slightly behind the trend from the last cycle (the dotted red line) at that point. However, after 2010, productivity growth stagnated and a substantial deficit relative to historical trends developed over the next 5 years. By the third quarter of 2016, labor productivity in the current business cycle had grown at an average rate of just 1.1 percent, well below the long-term average rate of 2.3 percent from 1947 to 2007 and even further behind the 2.7 percent average rate over the cycle from 2001 to 2007.

In short, if robots or automation were replacing workers this would be reflected in strong productivity growth.  In fact, we see quite the opposite: the weakest productivity growth for any business cycle in the post-1947 historical period.

While high productivity does not guarantee strong wage gains, workers normally find it easier to force business to boost wages when output per labor hour is significantly growing.  Low productivity gains, on the other hand, normally translate into weak wage growth.  And that is what we see today.

Chart 6 shows the growth in labor productivity, real hourly compensation, and the wage gap (difference between productivity and compensation) over the 1948 to 2016 period.

As we can see, the growth in real hourly compensation (shown by the gold bar) has been extremely weak this business cycle, growing by only 0.7 percent.  As the BLS notes:

[This] is low by historical standards. The rate is lower than the average real hourly compensation growth rate of 1.7 percent observed during other business cycles. The rate is also below the rates of all other cycles, except for a brief six-quarter cycle in the early 1980s. Note also that the low growth rate of the current business cycle is a near-continuation of the similarly low growth rate of the early-2000s cycle (0.8 percent).

 Behind The Scenes

For all the talk about technology, business investment has been weak, as illustrated in the following charts from the Economic Policy Institute.  Capital investment has been slow compared with past periods and the same is true for business investment in information technology equipment and software—the alleged drivers of technological innovation.

So, what are businesses doing with their ample profits?  The answer is that they are using them to repurchase their own stock in order to boost stock prices (and managerial salaries) and to pay large dividends to their stockholders.  In other words, engaging in financial transactions to enrich those at the top.

Figure 1, from Yardeni Research, shows the annual dollar value (in billions) of stock buybacks, which is the repurchase of shares by the company that initially issued them, for S&P 500 listed firms over the years 1999 to 2016.  Figure 2 shows annual dividend payouts for these same firms.   Each has been substantial since 2003, although the period of the Great Recession did produce a steep short term dip.

Figure 12,  by showing the value of S&P 500 buybacks and dividends as a percent of operating earnings, illustrates just how substantial this financial activity has become.  Operating earnings are a key measure of profitability and are calculated by subtracting direct business expenses–such as the cost of production, administration and marketing, depreciation, etc.–from revenues.  What we see is that business spending on buybacks and dividends has actually been greater than total operating earnings for several years since 2007, including 2016.

In short, S&P 500 listed businesses are shoveling almost all their profits, and then some in many years, into financial dealings.  No wonder real capital investment has been weak and productivity, wage, and employment growth slow.  Forget that stuff about robots and automation.

The US Economy Doesn’t Create Jobs Like It Used To

Business pursuit of private profit drives our economy.  Sadly, firm profit-maximizing activity increasingly appears to view job creation as a distraction.

The official US unemployment rate fell to 4.5 percent in March 2017; that is the lowest unemployment rate since May 2007.  Many economists, and even more importantly members of the Federal Reserve Board, believe that this low rate indicates that the US economy is now operating at full employment.  As a result, they now advocate policies designed to slow economic activity so as to minimize the dangers of inflation.

Unfortunately, the unemployment rate is a poor indicator of the current state of the labor market.  For one thing, it fails to include as unemployed those who have given up looking for work.

An examination of recent trends in the employment/population ratio (EPOP) makes clear that our economy, even during periods of economic growth, is marked by ever weaker job creation.  It also appears that this is not a problem correctable by faster rates of growth.  Rather, we need to change the organization of our economy and reshape its patterns of income and wealth distribution.

The Employment/Population Ratio and the shortage of jobs

The employment/population ratio (EPOP) equals the share of the non-institutional population over 16 that works for money.  The non-institutional population includes everyone who is not in prison, a mental hospital, or a nursing home.

The figure below, from a LBO News blog post by Doug Henwood, shows the movement of the EPOP for all workers and separately for male and female workers.

As we can see, the participation rate of male workers fell steadily from the early 1950s through the early 1980s recession years.  It then slowed its decent over the next two decades until the 2008 Great Recession, which caused it to tumble.  Its post-recession rise has been weak.  The male EPOP was 66 percent in March 2017.

The female EPOP rose steadily from 30.9 percent in 1948 to a peak of 58 percent in 2000.  Thereafter, it drifted downward before falling significantly during the Great Recession.  Its post-recession rise has also been weak.  It was 54.7 percent in March 2017.

The overall EPOP, the “all” line, began at 56.6 percent in 1948, hit a peak of 64.7 percent in April 2000, and was 60.1 percent in March 2017.

The recent decline in the EPOP for all workers over 16 translates into hard times for millions of people. As Henwood explains:

If the same share of the population were employed today as was in December 2007, just as the Great Recession was taking hold, 4.3 million more people would have jobs.  If it were the same share as the all-time high in April 2000, 7.3 million more people would be working for pay.  Either one is a big number, even in a country where 153 million people are employed.

In other words, it is likely that there are many people who want and need work but cannot find it.  And it is important to remember that the EPOP only measures the share of the non-institutional population with paid employment.  It tells us nothing about the quality of the existing jobs.

Flagging job creation  

It is easier to appreciate the growing inability of our economy to provide jobs by examining the movement of the EPOP over the business cycle.  Figure 1, from a note by Ron Baiman, a member of the Chicago Political Economy group, shows the number of quarters it takes for an economic expansion to return the EPOP to its pre-recession level.

As we can see, the expansion that started in November 2001, and which lasted for 73 months, ended with an EPOP that was 2.48 percent below where it had been before the start of the March 2001 recession.   This was the first post-war expansion that failed to restore the EPOP to its pre-recession level.  But, it is very likely not the last.  In particular, it appears that our current expansion will be the second expansion.

Our current expansion started June 2009 and as of October 2016 it was 88 months long.  Yet, it remains 4.78 percent below its pre-recession level, which as noted above, was already lower than the EPOP at the start of the March 2001 recession. Given that the EPOP is currently growing very slowly, it is doubtful that it will close that gap before the next recession begins.

Explanations

Many economists argue that the downward trend in the EPOP over the last business cycles is largely due to the aging of the population.  The EPOP of older workers is always lower than that of younger workers, so as their weight in the population grows, the overall EPOP falls.  However, as Baiman explains, and shows in Figure 2, this cannot fully explain what is happening:

Figure 2 below repeats the analysis of Figure 1, but does so within population cohorts of ages 16-24, 25- 54, and 55 and over, whose shares are held constant at October 2016 levels to remove the effects of changing demographics over the post-war period. For example, this eliminates the impact of an increased over 55 population share that is likely to reduce the overall employment/population ratio.

Thus, even with this correction, the current expansion seems very unlikely to recover its “demographically controlled pre-recession employment/population ratio.”

In fact, it is younger, not older workers that are suffering most from a declining EPOP.  As Henwood points out: “Those aged 35-44 and 45-54 have yet to return to their 2000 and 2007 peaks—but those aged 55-64 have, and those over 65 have surpassed them (though obviously a much smaller share of the 65+ population is working than the rest.”

In short, we can rule out an aging population as the primary cause of the growing inability of economic growth to ensure adequate job creation.

A look at the behavior of our dominant firms produces a far more likely explanation.  As Henwood notes:

despite copious profits, firms are shoveling vast pots of cash to their executives and shareholders rather than investing in capital equipment and hiring workers. From 1952 to 1982, nonfinancial corporations distributed 17 percent of their internal cash flow (profits plus depreciation allowances) to shareholders; that rose to about 30 percent in the 1980s and 1990s, and to 48 percent since 2000. (In 2016, the average was an incredible 64 percent.)

This behavior certainly pays off handsomely for top managers and already wealthy stock holders.  But it is not so great for the rest of us, especially for those workers–and their families–who find paid employment increasingly difficult to obtain, even during an economic expansion.

College Education No Ticket To Financially Rewarding Job

For some time, some in the media have blamed workers themselves for their low and stagnate wages. We now have a technology intensive economy, they said, and to get ahead you need a college education. Well, the trends, as illustrated in the following two charts from the Federal Reserve Bank of New York are clear: college grads are also struggling.

The chart below shows underemployment rates for college graduates with a bachelor degree or higher.  A college graduate is considered underemployed if they work in a job that typically does not require a college degree.  The red line shows the percent of recent college graduates, 22 to 27 years of age, that are underemployed.  The blue line shows the percent of all college graduates, 22 to 65, that are underemployed.

As we can see, approximately 44 percent of all recent college graduates with a bachelor degree or higher are currently working in what the Federal Reserve Bank of New York calls “non-college” jobs.   The same is true for roughly one-third of all college graduates.

While the percentage of underemployed college graduates has largely remained unchanged, the same is not true about earnings trends for college graduates employed in non-college jobs.  The following chart highlights the share of college graduates in what the Federal Reserve Bank of New York calls good non-college jobs–those paying an annual salary of $45,000 or more–and low-wage jobs–those paying an annual salary of $25,000 or less.

As we can see, the percentage of college graduates employed in good non-college jobs has steadily declined since 2001.  For recent college graduates (dark red line), the rate fell from approximately 50 percent down to 35 percent.  The percentage with low-wage jobs rose, over the same period, from roughly 10 percent to 13 percent.

There are many good reasons to pursue a college education.  But there is little evidence that employers are now busily creating jobs that require high skill or that a bachelor’s degree or higher is some automatic ticket to a financially rewarding job.

As shown above, a significant share of college educated workers are unable to find jobs requiring a college education.  And those workers are finding it ever harder to land a “good” non-college job.  The problem is not with US workers—it is with the job creating strategies of most businesses operating in the US.

President Trump’s Hollow Job Promises

President Trump’s election success rested to a considerable degree on his pre-election attack on globalization and verbal pledge to bring manufacturing jobs back to the United States. However, as I argued in a previous post, there is no reason to believe that President Trump is serious about wanting to restrict corporate mobility or fashion new, more domestically-centered, worker-friendly trade relations.

In fact, several of his appointees to key economic policy positions are people whose past work was promoting the very globalization he criticized.

Still, there are some in the labor and progressive communities who continue to hold out hope that they can find common ground with the Trump administration on trade.  Unfortunately, it appears that these people are ignoring what we do know about the nature of existing manufacturing jobs in the globalized industries that President Trump claims he will target for restructuring.  Sadly, the experience of workers in many of those jobs reveals the hollowness of Trump’s promises to working people.

The Southern Strategy of the Automobile Industry

The automobile industry, one of the most globalized of US manufacturing industries, offers a powerful example of the dangers of thinking simply about employment numbers. As an Economic Policy Institute report describes:

Political and market pressure on Japanese and European (and later, Korean) manufacturers to reduce imports to the United States has led to a rising number of “transplants” supplying auto components and assembling autos.

Initially, the transplants operated in the Midwest, including assembly plants in Illinois (Mitsubishi), Michigan (Mazda), Ohio (Honda), and Pennsylvania (Volkswagen), along with California (Toyota’s joint venture with General Motors, now a Tesla facility). More recently, however, the growth has been in Southern states, including assembly plants in Alabama (Honda, Hyundai, and Mercedes-Benz), Georgia (Kia), Kentucky (Toyota), Mississippi (Nissan and Toyota), South Carolina (BMW and Mercedes-Benz), Tennessee (Nissan and Volkswagen), and Texas (Toyota).

As a result of these trends, the weight of motor vehicle manufacturing employment (including parts suppliers) in the United States has shifted from the Midwest to the South.  And what kind of jobs has this investment brought?  The title of a Bloomberg Businessweek article – Inside Alabama’s Auto Jobs Boom: Cheap Wages, Little Training, Crushed Limbs – sums it up all too well.

As the article explains:

Alabama has been trying on the nickname “New Detroit.” Its burgeoning auto parts industry employs 26,000 workers, who last year earned $1.3 billion in wages. Georgia and Mississippi have similar, though smaller, auto parts sectors. This factory growth, after the long, painful demise of the region’s textile industry, would seem to be just the kind of manufacturing renaissance President Donald Trump and his supporters are looking for.

Except that it also epitomizes the global economy’s race to the bottom. Parts suppliers in the American South compete for low-margin orders against suppliers in Mexico and Asia. They promise delivery schedules they can’t possibly meet and face ruinous penalties if they fall short. Employees work ungodly hours, six or seven days a week, for months on end. Pay is low, turnover is high, training is scant, and safety is an afterthought, usually after someone is badly hurt. Many of the same woes that typify work conditions at contract manufacturers across Asia now bedevil parts plants in the South.

“The supply chain isn’t going just to Bangladesh. It’s going to Alabama and Georgia,” says David Michaels, who ran OSHA for the last seven years of the Obama administration. Safety at the Southern car factories themselves is generally good, he says. The situation is much worse at parts suppliers, where workers earn about 70¢ for every dollar earned by auto parts workers in Michigan, according to the Bureau of Labor Statistics. (Many plants in the North are unionized; only a few are in the South.)

In 2014, OSHA’s Atlanta office, after detecting a high number of safety violations at the region’s parts suppliers, launched a crackdown. The agency cited one year, 2010, when workers in Alabama parts plants had a 50 percent higher rate of illness and injury than the U.S. auto parts industry as a whole. That gap has narrowed, but the incidence of traumatic injuries in Alabama’s auto parts plants remains 9 percent higher than in Michigan’s and 8 percent higher than in Ohio’s. In 2015 the chances of losing a finger or limb in an Alabama parts factory was double the amputation risk nationally for the industry, 65 percent higher than in Michigan and 33 percent above the rate in Ohio.

The article provides several stories of low paid workers forced to work in unsafe conditions who suffered devastating injuries.  “OSHA records obtained by Bloomberg document burning flesh, crushed limbs, dismembered body parts, and a flailing fall into a vat of acid. The files read like Upton Sinclair, or even Dickens.”

The Story of Reco Allen

Here is one story from the article: in 2013 Reco Allen, a 35 year old father of three, with a wife working at Walmart, took at $9 an hour job with Surge Staffing, a temp agency that provides workers to Matsu Alabama, a Honda parts supplier.  Allen sought and was given a janitorial position at Matsu.  But after six weeks on the job, he was pressured by a supervisor to finish his shift by working on a metal-stamping press.  Matsu was in danger of not meeting its parts quota and the company “could have been fined $20,000 by Honda for every minute its shortfall held up the company’s assembly line.”

Allen received no training on operating the machine.  Moreover, there were known problems with the vertical safety beam that was supposed to keep the machine from operating if a worker was in danger of being caught in the stamping process.  Tragically, Allen’s arm was indeed caught by the die that stamped the metal parts.  As Businessweek reports:

He stood there for an hour, his flesh burning inside the heated press. Someone brought a fan to cool him off. . . . When emergency crews finally freed him, his left hand was “flat like a pancake,” Allen says, and parts of three fingers were gone. His right hand was severed at the wrist, attached to his arm by a piece of skin. A paramedic cradled the gloved hand at Allen’s side all the way to the hospital. Surgeons removed it that morning and amputated the rest of his right forearm to avert gangrene several weeks later.

The company had been told by the plant’s safety committee several times that the machine needed horizontal as well as vertical safety beams. In fact, one year before Allen’s accident, another worker suffered a crushed hand on the same machine.  Moreover, the company’s treatment of Allen was far from unusual.  Matsu “provided no hands-on training, routinely ordered untrained temps to operate machines, sped up presses beyond manufacturers’ specifications, and allowed oil to leak onto the floor.”

And what happened to the company?  They received a $103,000 fine from an Occupational Safety and Health Review Commission.

The Businessweek article includes several other stories of workers maimed because of unsafe work conditions at firms with long histories of safety violations.  And they all ended in much the same way: with corporations paying minimal fines.  And, apparently with little change in corporate behavior.

Known Knowns

We know that most employers will push production as hard as they can to cut costs, with little regard for worker safety.  We also know that union jobs are better than non-union jobs in terms of wages and benefits, and safety.

We also know that President Trump is taking steps to weaken labor laws and unions, as well as gut federal and state agencies charged with protecting worker health and safety and the environment.

Thus, even if President Trump does succeed in enticing some globalized corporations to shift parts of their respective production networks back to the US, the experience of the auto industry demonstrates that the resulting job creation is unlikely to satisfy worker demands for safe, living wage jobs.

In sum, no matter the campaign rhetoric, and no matter the twists and turns in policy, it should be clear to all that President Trump is committed to an anti-worker agenda.

Monopolization and Labor Exploitation

Those who advocate “freeing the market” claim that doing so will encourage competition and thereby increase majority well-being.  These advocates have certainly had their way shaping economic policies.  And the results?  According to several leading economists, the results include the growing monopolization of product markets and steady decline in labor’s share of national income.  Neither outcome desirable.

The economists—David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen—did not actually seek to examine the consequences of decades of neoliberal economic policies.  Rather they sought to understand why “there has been a decline in the U.S. labor share since the 1980s particularly in the 2000s.”  (See the figure below.)

What they found was evidence that sales have become increasingly concentrated in a small number of firms across many industries.  And, that “those industries where concentration rises the most have the sharpest falls in the labor share.”  Thus, “the [overall] fall in the labor share is mainly due to a reallocation of labor towards firms with lower (and declining) labor shares, rather than due to declining labor shares within most firms.”

The growing monopolization of the US economy

The authors calculated sales concentration in six large sectors—manufacturing, retail trade, wholesale trade, services, finance, and utilities and transportation—for the years 1982 to 2012.  They used two different measures of sales concentration: the fraction of sales in an “average industry” accounted for by its four largest firms (CR4 with Sales) and by its twenty largest firms (CR20 with Sales).  The results are illustrated in the figure below.

As the authors explain:

There is a remarkably consistent upward trend in concentration in each sector. In manufacturing, the sales concentration ratio among the top 4 increases from 38% to 43%; in finance, it rises from 24% to 35%; in services from 11% to 15%; in utilities from 29% to 37%; in retail trade from 15% to 30% and in wholesale trade from 22% to 28%. Over the same period, there were similar or larger increases in CR20 for sales.

The authors explain this growth in concentration by the rise of so-called “superstar” firms. These firms are characterized by rapid productivity growth and their dominance comes from the ways in which technological change has made most markets “winner take most.”  In other words, innovative firms are able to quickly assert market dominance thanks to “the diffusion of new competitive platforms (e.g. easier price/quality comparisons on the Internet), the proliferation of information-intensive goods that have high fixed and low-marginal costs (e.g., software platforms and online services), or increasing competition due to the rising international integration of product markets.”  And thanks to first mover advantages, this success builds upon itself, allowing superstar firms to further strengthening their market position.

Whatever the reason, clearly “market competition” has strengthened monopoly power, especially in manufacturing, finance, utilities, and retail trade, all sectors where the top four firms now account for at least 30 percent of average industry sales.

Labor’s declining share of national income

It is the rise of these superstar firms, according to the authors, that best explains the decline in labor’s share of national income.  They test and reject several other explanations.  For example, some economists argue that international trade is key.  But the authors point out that it is not just import-competing industries in which labor’s share is falling; it is also falling in non-traded sectors like retail trade, wholesale trade, and utilities.

Other economists point to the decline in capital costs, which they believe has encouraged firms to increase spending on capital goods, leading to falling labor shares in all industries.  But the authors find no support for this.  In fact, they find that “the unweighted mean labor share across firms has not increased much since 1982. Thus, the average firm shows little decline in its labor share.”

All of this points to the growth of superstar firms as the key to explaining labor’s declining share of national income.  According to the authors, superstar firms have a lower labor share than do most other firms.  One reason is that these firms tend to enjoy significant markup pricing power which allows them to boost their profits without adding labor.  Another is that they also tend to enjoy great economies of scale; with a relatively fixed amount of overhead labor, they are able to boost production without a commensurate increase in employment.

The authors calculated concentration measures for employment (CR4 with Employment, CR20 with Employment) much as they did for sales; see above figure.  As they note:

Again, we observe a rising concentration in all six sectors for 1982 to 2012, although employment concentration has grown notably more slowly than sales concentration in finance, services, and especially in manufacturing. The pattern suggests that firms may attain large market shares with a relatively small workforce, as exemplified by Facebook and Google.

And as these firms increase their market dominance, labor’s overall share tends to fall.  As the authors explain: “those industries where concentration rises the most have the sharpest falls in the labor share . . . [Thus] the fall in the labor share is mainly due to a reallocation of labor towards firms with lower (and declining) labor shares, rather than due to declining labor shares within most firms.”  In fact, the strength of this negative relationship between market concentration and labor’s share grew stronger over the period of study.

A look behind the curtain

These results are important, suggesting that capitalism’s motion itself is driving labor’s declining share.  However, I think that there is good reason to believe that the underlying dynamics at work are different from those highlighted above.  To state it bluntly, superstar firms are driving down labor’s share because they are increasingly using strategies of profit maximization that have them replace direct labor with contract labor, franchising, and supply chains.

Over most of the post-war period, until the late 1970s, large corporations tended to directly employ the workers needed to produce the goods or services they sold.  But starting in the 1980s, and especially in the 2000s, these firms began actively shedding employees and hiring smaller firms to carry out the tasks that were once done in-house.  This enabled these lead corporations to greatly expand production and boost profits with a minimal increase in direct employment.

David Weil calls this strategy “fissuring the workplace” and his book, The Fissured Workplace Why Work Became So Bad for So Many and What Can Be Done to Improve It, documents how this has become the preferred strategy of most of our major companies.  Here, from Weil’s book, are three examples of fissured workplaces:

A maid works at the San Francisco Marriott on Fisherman’s Wharf. The hotel property is owned by Host Hotels and Resorts Inc., a lodging real estate company. The maid, however, is evaluated and supervised daily and her hours and payroll managed by Crestline Hotels and Resorts Inc., a national third- party hotel management company. Yet she follows daily procedures (and risks losing her job for failure to accomplish them) regarding cleaning, room set- up, overall pace, and quality standards established by Marriott, whose name the property bears.

A cable installer in Dayton, Ohio, works as an independent contractor (in essence a self-employed business provider), paid on a job-by-job basis by Cascom Inc., a cable installation company. Cascom’s primary client is the international media giant Time Warner, which owns cable systems across the United States. The cable installer is paid solely on the basis of the job completed and is entitled to no protections normally afforded employees. Yet all installation contracts are supplied solely by Cascom, which also sets the price for jobs and collects payment for them. The installer must wear a shirt with the Cascom logo and can be removed as a contractor at will for not meeting minimum quotas or quality standards, or at the will of the company.

A member of a loading dock crew working in Southern California is paid by Premier Warehousing Ventures LLC (PWV)— a company providing temporary workers to other businesses— based on the total time it takes him and members of his crew to load a truck. PWV, in turn, is compensated for the number of trucks loaded by Schneider Logistics, a national logistics and trucking company that manages distribution centers for Walmart. Walmart sets the price, time requirements, and performance standards that are followed by Schneider. Schneider, in turn, structures its contracts with PWV and other labor brokers it uses to provide workers based on those prices and standards and its own profit objectives.

At one time, large corporations like Marriott, Time Warner, and Walmart directly employed the workers that labored on their behalf.  But no more.  Now, these large corporations are able to escape paying many of those who “work for them” the wages and benefits offered to their other employees.  Instead, their salaries are paid by other smaller firms, whether they be independent businesses, temporary work agencies, or franchise owners, or in more extreme cases so-called independent contractors.  And because these second-tier businesses operate in highly competitive markets, with substantially lower profit margins than the lead corporations they service, these workers now receive far lower salaries with few if any benefits and protections.

As Weil summarizes:

This [business strategy] creates downward pressure on wages and benefits, murkiness about who bears responsibility for work conditions, and increased likelihood that basic labor standards will be violated. In many cases, fissuring leads simultaneously to a rise in profitability for the lead companies who operate at the top of industries and increasingly precarious working conditions for workers at lower levels.

This strategy is the domestic counterpoint to the globalization strategies of the large multinationals like Dell Computers and Apple.  And it has come to dominate and structure US labor markets.  As the Wall Street Journal explains:

Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry. . . .

The contractor model is so prevalent that Google parent Alphabet Inc., ranked by Fortune magazine as the best place to work for seven of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees, according to people familiar with the matter.

About 70,000 TVCs—an abbreviation for temps, vendors and contractors—test drive Google’s self-driving cars, review legal documents, make products easier and better to use, manage marketing and data projects, and do many other jobs. They wear red badges at work, while regular Alphabet employees wear white ones. . . .

Companies, which disclose few details about their outside workers, are rapidly increasing the numbers and types of jobs seen as ripe for contracting. At large firms, 20% to 50% of the total workforce often is outsourced, according to staffing executives. Bank of America Corp. ,Verizon Communications Inc., Procter & Gamble Co. and FedEx Corp. have thousands of contractors each. . . .

Janitorial work and cafeteria services disappeared from most company payrolls long ago. A similar shift is under way for higher-paying, white-collar jobs such as research scientist, recruiter, operations manager and loan underwriter.

Two labor economists, Lawrence F. Katz and Alan B. Krueger, recently published a study of the rise of so-called alternative work arrangements, which they “defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.”

They found that the percentage of US workers with alternative work arrangements rose from 10.1 percent [of all employed workers] in February 2005 to 15.8 percent in late 2015. (See the figure below).

That is a huge jump, especially since the percentage of workers with alternative work arrangements barely budged over the period February 1995 to February 2005; it was only 9.3 in 1995.  But their most startling finding is that “all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.”

Looking behind the curtain shows that the decline in labor’s share is the result of a brutal process of work restructuring that affects a rapidly growing percentage of US workers.  Reversing the decline will require both a broader awareness of the negative social consequences of the private pursuit of profit and a far stronger labor movement than we have today.

Trump’s Economic Policies Are No Answer To Our Problems

President Trump has singled out unfair international trading relationships as a major cause of US worker hardship.  And he has promised to take decisive action to change those relationships by pressuring foreign governments to rework their trade agreements with the US and change their economic policies.

While international economic dynamics have indeed worked to the disadvantage of many US workers, Trump’s framing of the problem is highly misleading and his promised responses are unlikely to do much, if anything, to improve majority working and living conditions.

President Trump and his main advisers have aimed their strongest words at Mexico and China, pointing out that the US runs large trade deficits with each, leading to job losses in the US.  For example, Bloomberg News reports that Peter Navarro, the head of President Trump’s newly formed White House National Trade Council “has blamed Nafta and China’s 2001 entry into the World Trade Organization for much, if not all, of a 15-year economic slowdown in the U.S.” In other words, poor negotiating skills on the part of past US administrations has allowed Mexico and China, and their workers, to gain at the expense of the US economy and its workers.

However, this nation-state framing of the origins of contemporary US economic problems is seriously flawed. It also serves to direct attention away from the root cause of those problems: the profit-maximizing strategies of large, especially US, multinational corporations.  It is the power of these corporations that must be confronted if current trends are to be reversed.

Capitalist Globalization Dynamics

Beginning in the late 1980s large multinational corporations, including those headquartered in the US, began a concerted effort to reverse declining profits by establishing cross border production networks (or global value chains).  This process knitted together highly segmented economic processes across national borders in ways that allowed these corporations to lower their labor costs as well as reduce their tax and regulatory obligations.   Their globalization strategy succeeded; corporate profits soared.  It is also no longer helpful to think about international trade in simple nation-state terms.

As the United Nations Conference on Trade and Development explains:

Global trade and foreign direct investment have grown exponentially over the last decade as firms expanded international production networks, trading inputs and outputs between affiliates and partners in GVCs [Global Value Chains].

About 60 per cent of global trade, which today amounts to more than $20 trillion, consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption. The fragmentation of production processes and the international dispersion of tasks and activities within them have led to the emergence of borderless production systems – which may be sequential chains or complex networks and which may be global, regional or span only two countries.

UNCTAD estimates (see the figure below) that some 80 percent of world trade “is linked to the international production networks of TNCs [transnational corporations], either as intra-firm trade, through NEMs [non-equity mechanisms of control] (which include, among others, contract manufacturing, licensing, and franchising), or through arm’s-length transactions involving at least one TNC.”

tnc-involvement

In other words, multinational corporations have connected and reshaped national economies along lines that best maximize their profit.  And that includes the US economy.  As we see in the figure below, taken from an article by Adam Hersh and Ethan Gurwitz, the share of all US merchandise imports that are intra-firm, meaning are sold by one unit of a multinational corporation to another unit of the same multinational, has slowly but steadily increased, reaching 50 percent in 2013.  The percentage is considerably higher for imports of manufactures, including in key sectors like electrical, machinery, transportation, and chemicals.

onea

The percentage is lower, but still significant for US exports.  As we see in the following figure, approximately one-third of all merchandise exports from the US are sold by one unit of a multinational corporation to another unit of the same company.

oneb

The percentage of intra-firm trade is far higher for services, as illustrated in the next figure.

services

As Hersh and Gurwitz comment,

The trend is clear: As offshoring practices increase, companies need to provide more wraparound services—the things needed to run a businesses besides direct production—to their offshore production and research and development activities. Rather than indicating the competitive strength of U.S. services businesses to expand abroad, the growth in services exports follows the pervasive offshoring of manufacturing and commercial research activities.

Thus, there is no simple way to change US trade patterns, and by extension domestic economic processes, without directly challenging the profit maximizing strategies of leading multinational corporations.  To demonstrate why this understanding is a direct challenge to President Trump’s claims that political pressure on major trading partners, especially Mexico and China, can succeed in boosting the fortunes of US workers, we look next at the forces shaping US trade relationships with these two countries.

The US-Mexican Trade Relationship

US corporations, taking advantage of NAFTA and the Mexican peso crisis that followed in 1994-95, poured billions of dollars into the country (see the figure below).  Their investment helped to dramatically expand a foreign-dominated export sector aimed at the US market that functions as part of a North American region-wide production system and operates independent of the stagnating domestic Mexican economy.

fdi-mexico

Some 80 percent of Mexico’s exports are sold to the US and the country runs a significant merchandise trade surplus with the US, as shown in the figure below.

trade-mexico

Leading Mexican exports to the US include motor vehicles, motor vehicle parts, computer equipment, audio and video equipment, communications equipment, and oil and gas.  However, with the exception of oil and gas, these are far from truly “Mexican” exports.  As a report from the US Congressional Research Service describes:

A significant portion of merchandise trade between the United States and Mexico occurs in the context of production sharing as manufacturers in each country work together to create goods. Trade expansion has resulted in the creation of vertical supply relationships, especially along the U.S.-Mexico border. The flow of intermediate inputs produced in the United States and exported to Mexico and the return flow of finished products greatly increased the importance of the U.S.- Mexico border region as a production site. U.S. manufacturing industries, including automotive, electronics, appliances, and machinery, all rely on the assistance of Mexican [based] manufacturers. One report estimates that 40% of the content of U.S. imports of goods from Mexico consists of U.S. value added content.

Because foreign multinationals, many of which are US owned, produce most of Mexico’s exports of “advanced” manufactures using imported components, the country’s post-Nafta export expansion has done little for the overall health of the Mexican economy or the well-being of Mexican workers. As Mark Weisbrot points out:

If we look at the most basic measure of economic progress, the growth of gross domestic product, or income per person, Mexico, which signed on to NAFTA in 1994, has performed the 15th-best out of 20 Latin American countries.

Other measures show an even sadder picture. The poverty rate in 2014 was 55.1 percent, an increase from the 52.4 percent measurement in 1994.

Wages tell a similar story: There’s been almost no growth in real inflation-adjusted wages since 1994 — just about 4.1 percent over 21 years.

Representative Sander Levin and Harley Shaiken make clear that the gains have been nonexistent even for workers in the Mexican auto industry, the country’s leading export center:

Consider the auto industry, the flagship manufacturing industry across North America. The Mexican auto industry exports 80 percent of its output of which 86 percent is destined for the U.S. and Canada. If high productivity translated into higher wages in Mexico, the result would be a virtuous cycle of more purchasing power, stronger economic growth, and more imports from the U.S.

In contrast, depressed pay has become the “comparative advantage”. Mexican autoworker compensation is 14 percent of their unionized U.S. counterparts and auto parts workers earn even less–$2.40 an hour. Automation is not the driving force; its depressed wages and working conditions.

In other words, US workers aren’t the only workers to suffer from the globalization strategies of multinational corporations.  Mexican workers are also suffering, and resisting.

In sum, it is hard to square this reality with Trump’s claim that because of the way NAFTA was negotiated Mexico “has made us look foolish.” The truth is that NAFTA, as designed, helped further a corporate driven globalization process that has greatly benefited US corporations, as well as Mexican political and business elites, at the expense of workers on both sides of the border.  Blaming Mexico serves only to distract US workers from the real story.

The US-Chinese Trade Relationship

The Chinese economy also went through a major transformation in the mid-1990s which paved the way for a massive inflow of export-oriented foreign investment targeting the United States.  The process and outcome was different from what happened in Mexico, largely because of the legacy of Mao era policies.  The Chinese Communist Party’s post-1978 state-directed reform program greatly benefited from an absence of foreign debt; the existence of a broad, largely self-sufficient state-owned industrial base; little or no foreign investment or trade; and a relatively well-educated and healthy working class.  This starting point allowed the Chinese state to retain considerable control over the country’s economic transformation even as it took steps to marketize economic activity in the 1980s and privatize state production in the 1990s.

However, faced with growing popular resistance to privatization and balance of payments problems, the Chinese state decided, in the mid-1990s, to embrace a growing role for export-oriented foreign investment.  This interest in attracting foreign capital dovetailed with the desire of multinational corporations to globalize their production.  Over the decade of the 1990s and 2000s, multinational corporations built and expanded cross border production networks throughout Asia, and once China joined the WTO, the country became the region’s primary final assembly and export center.

As a result of this development, foreign produced exports became one of the most important drivers, if not the most important, of Chinese growth.  For example, according to Yılmaz Akyüz, former Director of UNCTAD’s Division on Globalization and Development Strategies:

despite a high import content ranging between 40 and 50 percent, approximately one-third of Chinese growth before the global crisis [of 2008] was a result of exports, due to their phenomenal growth of some 25 percent per annum. This figure increases to 50 percent if spillovers to consumption and investment are allowed for. The main reason for excessive dependence on foreign markets is under consumption. This is due not so much to a high share of household savings in GDP as to a low share of household income and a high share of profits

The figure below illustrates the phenomenal growth in Chinese exports.

china-exports

The US soon became the primary target of China’s exports (see the trade figures below).   The US now imports more goods from China than from any other country, approximately $480 billion in 2015, followed by Canada and Mexico (roughly $300 billion each).  The US also runs its largest merchandise trade deficit with China, $367 billion in 2015, equal to 48 percent of the overall US merchandise trade deficit.  In second place was Germany, at only $75 billion.

china-trade-us

Adding to China’s high profile is the fact that it is the primary supplier of many high technology consumer goods, like cell phones and laptops. More specifically:

(F)or 825 products, out of a total of about 5,000, adding up to nearly $300 billion, China supplies more than all our other trade partners combined. Of these products, the most important is cell phones, where $40 billion in imports from China account for more than three-quarters of the total value imported.

There are also 83 products where 90 percent or more of US imports come from China; together these accounted for a total of $56 billion in 2015. The most important individual product in this category is laptop computers, which alone have an import value of $37 billion from China, making up 93 percent of the total imported.

Of course, China is also a major supplier of many low-technology, low-cost goods as well, including clothing, toys, and furniture.

Not surprisingly, exports from China have had a significant effect on US labor market conditions. Economists David Autor, David Dorn and Gordon Hanson “conservatively estimate that Chinese import competition explains 16 percent of the U.S. manufacturing employment decline between 1990 and 2000, 26 percent of the decline between 2000 and 2007, and 21 percent of the decline over the full period.”  They also find that Chinese import competition “significantly reduces earnings in sectors outside manufacturing.”

President Trump has accused China of engaging in an undeclared trade war against the United States.   However, while Trump’s charges conjure up visions of a massive state-run export machine out to crush the United States economy for the benefit of Chinese workers, the reality is quite different.

First, although the Chinese state retains important levers of control over economic activity, especially the state-owned banking system, the great majority of industrial production and export activity is carried out by private firms.  In 2012, state-owned enterprises accounted for only 24 percent of Chinese industrial output and 18 percent of urban employment.  As for exports, by 2013 the share of state-owned enterprises was down to 11 percent.  Foreign-owned multinationals were responsible for 47 percent of all Chinese exports.  And, most importantly in terms of their effect on the US economy, multinational corporations produce approximately 82 percent of China’s high-technology exports.

Second, although these high-tech exports come from China, for the most part they are not really “Chinese” exports.  As noted above, China now functions as the primary assembly point for the region’s cross border production networks.  Thus, the majority of the parts and components used in Chinese-based production of high-technology goods come from firms operating in other Asian countries.  In many cases China’s only contribution is its low-paid labor.

A Washington Post article uses the Apple iPhone 4, a product that shows up in trade data as a Chinese export, to illustrate the country’s limited participation in the production of its high technology exports:

In a widely cited study, researchers found that Apple created most of the product’s value through its product design, software development and marketing operations, most of which happen in the United States. Apple ended up keeping about 58 percent of the iPhone 4’s sales price. The gross profits of Korean companies LG and Samsung, which provided the phone’s display and memory chips, captured another 5 percent of the sales price. Less than 2 percent of the sales price went to pay for Chinese labor.

“We estimate that only $10 or less in direct labor wages that go into an iPhone or iPad is paid to China workers. So while each unit sold in the U.S. adds from $229 to $275 to the U.S.-China trade deficit (the estimated factory costs of an iPhone or iPad), the portion retained in China’s economy is a tiny fraction of that amount,” the researchers wrote.

The same situation exists with laptop computers, which are assembled by Chinese workers under the direction of Taiwanese companies using imported components and then exported as Chinese exports.  Economists have estimated that the US-Chinese trade balance would be reduced by some 40 percent if the value of these imported components were subtracted from Chinese exports.  Thus, it is not Chinese state enterprises, or even Chinese private enterprises, that are driving China’s exports to the US.  Rather it is foreign multinationals, many of which are headquartered in the US, including Apple, Dell, and Walmart.

And much like in Mexico, Chinese workers enjoy few if any benefits from their work producing their country’s exports.  The figure below highlights the steady fall in labor compensation as a share of China’s GDP.

china-labor

Approximately 80 percent of Chinese manufacturing workers are internal migrants with a rural household registration.  This means they are not entitled to access the free or subsidized public health care, education, or other social services available in the urban areas where they now work; the same is true for their children even if they are born in urban areas.  Moreover, most migrants receive little protection from Chinese labor laws.

For example, as the China Labor Bulletin reports:

In 2015, seven years after the implementation of the Labor Contract Law, only 36 percent of migrant workers had signed a formal employment contract with their employer, as required by law. In fact the percentage of migrant workers with formal contracts actually declined last year by 1.8 percent from 38 percent. For short-distance migrants, the proportion was even lower, standing at just 32 percent, suggesting that the enforcement of labor laws is even less rigid in China’s inland provinces and smaller cities.

According to the [2014] migrant worker survey . . . the proportion of migrant workers with a pension or any form of social security remained at a very low level, around half the national average. In 2014, only 16.4 percent of long-distance migrants had a pension and 18.2 percent had medical insurance.

Despite worker struggles, which did succeed in pushing up wages over the last 7 years, most migrant workers continue to struggle to make ends meet.   Moreover, with Chinese growth rates now slipping, and the government eager to restart the export growth machine, many local governments have decided, with central government approval, to freeze minimum wages for the next two to four years.

In short, it is not China, or its workers, that threaten US jobs and well-being.  It is the logic of capitalist globalization.  Thus, Trump’s call-to-arms against China obfuscates the real cause of current US economic problems and encourages working people to pursue a strategy of nationalism that can only prove counterproductive.

The Political Challenge Facing US Workers

The globalization process highlighted above was strongly supported by all major governments, especially by successive US administrations.  In contrast to Trump claims of a weak US governmental effort in support of US economic interests, US administrations used their considerable global power to secure the creation of the WTO and approval of a host of other multilateral and bilateral trade agreements, all of which provided an important infrastructure for capital mobility, thereby supporting the globalizing efforts of leading US multinational corporations.

President Trump has posed as a critic of existing international arrangements, claiming that they have allowed other countries, such as Mexico and China, to prosper at US expense.  He has stated that he will pursue new bilateral agreements rather than multilateral ones because they will better serve US interests and he has demanded that US multinational corporations shift their investment and production back to the US.

Such statements have led some to believe that the Trump administration is serious about challenging globalization dynamics in order to rebuild the US economy in ways that will benefit working people.  But there are strong reasons to doubt this.  Most importantly, he seems content to threaten other governments rather than challenge the profit-maximizing logic of dominant US companies, which as we have seen is what needs to happen.

One indicator: an administration serious about challenging the dynamics of globalization would have halted US participation in all ongoing negotiations for new multilateral agreements, such as the Trade in Services Agreement which is designed to encourage the privatization and deregulation of services for the benefit of multinational corporations.  This has not happened.

Such an administration would also renounce support for existing and future bilateral agreements that contain chapters that strengthen the ability of multinational corporations to dominate key sectors of foreign economies and sue their governments in supranational secret courts.  This has not happened.

Another indicator: an administration serious about creating a healthy, sustainable, and equitable domestic economy would strengthen and expand key public services and programs; rework our tax system to make it more progressive; tighten and increase enforcement of health and safety and environmental regulations; strengthen labor laws that protect the rights of workers, including to unionize; and boost the national minimum wage.  The Trump administration appears determined to do the opposite.

Such an administration would also begin to develop the state capacities necessary to redirect existing production and investment activity along lines necessary to rebuild our cities and infrastructure, modernize our public transportation system, and reduce our greenhouse gas emissions.  The Trump administration appears committed to the exact opposite.

In short, if we take Trump’s statements seriously, that he actually wants to shift trading relationships, then it appears that his primary strategy is to make domestic conditions so profitable for big business, that some of the most globally organized corporations will shift some of their production back to the United States.  However, even if he succeeds, it is very unlikely that this will contribute to an improvement in majority living and working conditions.

The main reason is that US corporations, having battered organized labor with the assistance of successive administrations, have largely stopped creating jobs that provide the basis for economic security and well-being.  Economists Lawrence F. Katz and Alan B. Krueger examined the growth  from 2005 to 2015 in “alternative work arrangements,” which they defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers.

They found that the percentage of workers employed in such arrangements rose from 10.1 percent of all employed workers in February 2005 to 15.8 percent in late 2015.  But their most startling finding is the following:

A striking implication of these estimates is that all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements. Total employment according to the CPS increased by 9.1 million (6.5 percent) over the decade, from 140.4 million in February 2005 to 149.4 in November 2015. The increase in the share of workers in alternative work arrangements from 10.1 percent in 2005 to 15.8 percent in 2015 implies that the number of workers employed in alternative arrangement increased by 9.4 million (66.5 percent), from 14.2 million in February 2005 to 23.6 million in November 2015. Thus, these figures imply that employment in traditional jobs (standard employment arrangements) slightly declined by 0.4 million (0.3 percent) from 126.2 million in February 2005 to 125.8 million in November 2015.

A further increase in employment in such “alternative work arrangements,” which means jobs with no benefits or security, during a period of Trump administration-directed attacks on our social services, labor laws, and health and safety and environmental standards is no answer to our problems. Despite what President Trump says, our problems are not caused by other governments or workers in other countries.  Instead, they are the result of the logic of capitalism. The Trump administration, really no US administration, is going to willingly challenge that. That is up to us.

We Need To Once Again Take “The Working Class” Seriously

The great majority of working people in the US have experienced tough times over the last few decades.  And all signs point to the fact that those in power are committed to policies that will mean a further deterioration in majority living and working conditions.

One obvious response to this situation is organizing; working people need strong organizations that are capable of building the broad alliances and advancing the new visions necessary to challenge and transform existing political-economic relationships and institutions. Building such organizations requires, as a first step, both acknowledging the existence of the working class and taking the concerns of its members seriously.

Unfortunately, as Reeve Vanneman shows in a Sociological Images blog post, writers appear to have largely abandoned use of the term “working class.”  One indicator is the trend illustrated in the chart below, which is derived from Google Books’ Ngram Viewer.  The Ngram Viewer is able to display a graph showing how often a particular word or phrase appears in a category of books over selected years.  In this case, the chart below shows how often the two-word phrase “working class” (a bigram) appears as a percentage of all two word phrases used in all books written in American English.

google

As Vanneman explains:

a Google ngram count of the phrase “working class” in American books shows a spike in the Depression Thirties and an even stronger growth from the mid-1950s to the mid-1970s. But after the mid-1970s, there is a steady decline, implying a lack of discussion just as their problems were growing.

A similar overall trend emerges from “a count of the frequencies of ‘working class’ in the titles or abstracts of articles in the American Journal of Sociology and the American Sociological Review.”  As we see in the chart below, there was a rapid growth in the use of the phrase from the late 1950s through most of the 1960s, followed by a slow but steady decline until the mid-1980s, and then, after a brief resurgence, a dramatic fall off in its use.

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As Vanneman comments: “These articles on the working class were not insignificant; even through the 21st century, the authors include a number of ASA presidents. But overall, working-class issues seem to have lost their salience, as if even American sociology was also telling them that they didn’t matter.”

While there is no simple relationship between working class activism and scholarship on the working class, the synergy is important.  Now is the time to take working class issues seriously.  Given current trends, we desperately need a revival of labor activism and the development of labor-community alliances around issues such as housing, health care, discrimination, and the environment.  And we also need new scholarship that shines a light on as well as engages the challenges of our time from a working class standpoint.

The Devastating Transformation Of Work In The US

Two of the best-known labor economists in the US,  Lawrence F. Katz and Alan B. Krueger, recently published a study of the rise of so-called alternative work arrangements.

Here is what they found:

The percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.1 percent [of all employed workers] in February 2005 to 15.8 percent in late 2015.

That is a huge jump, especially since the percentage of workers with alternative work arrangements barely budged over the period February 1995 to February 2005; it was only 9.3 in 1995.

But their most startling finding is the following:

A striking implication of these estimates is that all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements. Total employment according to the CPS increased by 9.1 million (6.5 percent) over the decade, from 140.4 million in February 2005 to 149.4 in November 2015. The increase in the share of workers in alternative work arrangements from 10.1 percent in 2005 to 15.8 percent in 2015 implies that the number of workers employed in alternative arrangement increased by 9.4 million (66.5 percent), from 14.2 million in February 2005 to 23.6 million in November 2015. Thus, these figures imply that employment in traditional jobs (standard employment arrangements) slightly declined by 0.4 million (0.3 percent) from 126.2 million in February 2005 to 125.8 million in November 2015.

Take a moment to let that sink in—and think about what that tells us about the operation of the US economy and the future for working people.  Employment in so-called traditional jobs is actually shrinking. The only types of jobs that have been growing in net terms are ones in which workers have little or no security and minimal social benefits.

Figure 2 from their study shows the percentage of workers in different industries that have alternative employment arrangements.  The share has grown substantially over the last ten years in almost all of them.  In Construction, Professional and Business Services, and Other Services (excluding Public Services) approximately one quarter of all workers are employed using alternative work arrangements.

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The study

Because the Bureau of Labor Statistics has not updated its Contingent Work Survey (CWS), the authors contracted with the RAND institute to do their own study.  Thus, Rand expanded its own American Life Panel (ALP) surveys in October and November 2015 to include questions similar to those asked in the CWS.   They surveys only collected information about the surveyed individual’s main job.  And, to maintain compatibility with the CWS surveys, day laborers were not included in the results.  Finally, the authors only included information from individuals who had worked in the survey reference week.

People were said to be employed under alternative work arrangements if they were “independent contractors,” “on-call workers,” “temporary help agency workers,” or “workers provided by contract firms.  The authors defined these terms as follows:

“Independent Contractors” are individuals who report they obtain customers on their own to provide a product or service as an independent contractor, independent consultant, or freelance worker. “On-Call Workers” report having certain days or hours in which they are not at work but are on standby until called to work. “Temporary Help Agency Workers” are paid by a temporary help agency. “Workers Provided by Contract Firms” are individuals who worked for a company that contracted out their services during the reference week.

The results in more detail

All four categories of nonstandard work recorded increases:

Independent contractors continue to be the largest group (8.9 percent in 2015), but the share of workers in the three other categories more than doubled from 3.2 percent in 2005 to 7.3 percent in 2015. The fastest growing category of nonstandard work involves contracted workers. The percentage of workers who report that they worked for a company that contracted out their services in the preceding week rose from 0.6 percent in 2005 to 3.1 percent in 2015.

Table 4 shows the percentage of workers in different categories that are employed for their main job in one of the four nonstandard work arrangements.  The relevant comparisons over time are with the two CPS studies and the Alternative Weighted results from the Rand study.

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Here are some of the main findings:

There is a clear age gradient that has grown stronger, with older workers more likely to have nonstandard employment than younger workers.  In 2015, 6.4 percent of those aged 16 to 24 were employed in an alternative work arrangement, while 14.3 percent of those aged 25-54 and 23.9 percent of those aged 55-74 had nonstandard work arrangements.

The percentage of women with nonstandard work arrangements grew dramatically from 2005 to 2015, from 8.3 percent to 17 percent.  Women are now more likely to be employed under these conditions than men.

Workers in all educational levels experienced a jump in nonstandard work, with the increase greatest for those with a bachelor’s degree or higher.  “Occupational groups experiencing particularly large increases in the nonstandard work from 2005 to 2015 include computer and mathematical, community and social services, education, health care, legal, protective services, personal care, and transportation jobs.”

The authors also tested to determine “whether alternative work is growing in higher or lower wage sectors of the labor market.”  They found that “workers with attributes and jobs that are associated with higher wages are more likely to have their services contracted out than are those with attributes and jobs that are associated with lower wages. Indeed, the lowest predicted quintile-wage group did not experience a rise in contract work.”

The take-away

The take-away is pretty clear.  Corporate profits and income inequality have grown in large part because US firms have successfully taken advantage of the weak state of unions and labor organizing more generally, to transform work relations.  Increasingly workers, regardless of their educational level, find themselves forced to take jobs with few if any benefits and no long-term or ongoing relationship with their employer.  Only a rejuvenated labor movement, one able to build strong democratic unions and press for radically new economic policies will be able to reverse existing trends.