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Keynes advocated, in his General Theory, that wages be kept stable because lower wages would reduce aggregate demand by reducing income and, therefore, consumption. Reductions in aggregate demand would offset any benefits accruing from the lower labor price. Although in favor of a “free market” Keynes did not believe the government should allow wages to be driven to their point of marginal utility, otherwise known as starvation of the middle class. Keynes simply thought that full employment should be a policy objective of the polity, irrespective of the wishes of those with a temporary enjoyment of the majority of society’s investment capital, otherwise known as the wealthy.
Adam Smith argued that jobs which were more difficult to learn would be paid a higher wage because of the scarcity of people willing, or able, to acquire that knowledge without additional compensation. This theory may not explain particularly well why world class golfers earn more that world class ping pong players or why rap artists earn more than children’s book authors, but it is a useful enough generalization. Smith also believed that specialization and the division of labor were keys to raising productivity and thence wages. Just to prove that even geniuses can get it wrong, Smith also believed that pay would be higher for dirty or unsafe occupations like coal mining or hanging people. Maybe hanging coal miners pays a lot in Smith’s world view, but that modern theorist of “dirty jobs” Mike Rowe has certainly shown that dirty jobs pay off in pride, not cash.
Given the insights of these two giants of modern economic theory the question turns to how can labor unions be used to raise real wages across the rapidly eroding middle class and working poor? The labor unions are posited as the motive force behind this economic evolution because:
1) unions are in big trouble and crave big ideas to survive,
2) the employers have a solemn duty to maximize shareholder returns which naively calls for opposition to union wage demands, and;
3) the government is rife with whack-job monetarists who think full employment is 5% of the country out of work. The equilibrium theory of free trade promises to even all this out over the long run, but that means that eventually all the peasants in China will be earning $35 an hour; or, the middle class in the United States will be earning $35 a month. Which end of this seesaw do you think will tip faster?
Accepting that the unions have the resources to follow Adam Smith’s recommendations; the question becomes; do they have the political will and the strategic vision? As a former member of the AFL-CIO, for some too brief, but enlightening, summers, it seemed clear that the old union agenda was focused on splitting the existing pie excruciatingly fairly rather than baking a pie so big that everyone could pig out.
Globalization makes strikes impossible because jobs simply vanish faster as wages are pushed higher. Real wages only rise, long term, if work becomes more specialized. The strategic crime is that the unions, historically, have focused on increasing wages without investing in human capital. They have allowed workers to become commoditized through collective bargaining; teaching the large employers that all workers have the same value and, therefore, the same replacement value. Even more difficult from a strategic change management perspective, the emotional structure of middle class and working poor wage earners plays into this paradigm. Equality is the emotional fulcrum of the middle class; the driving need to be treated fairly. The upper class is concerned with liberty; the driving need to win the race. Is it any wonder that the money falls into the hands of those striving to win at any cost versus those who really really want the race to be fair?
Should the unions take up this challenge, and reconstitute their role to create real wealth for their charges, rather than simply cushioning the downward slide, they have to rethink their economic structure and invest in the optimization of human capital. Unions should be the largest investors in R&D aimed at optimizing the productive output of individual workers; instead they debate whether carpenters or masons can handle composite roofing tiles containing both wood chips and concrete.
Enhanced skills will demand higher wages by creating higher value, new employee-owned technologies will increase productivity and real wages by creating shareholder value, and specialized training programs will accelerate Adam Smith’s program of specialization by creating owner-operators who bring advanced capabilities with them to the worksite. This should be a conservative economist’s dream come true because the unions then create millions of small entrepreneurs maximizing returns, instead of a handful of union stewards minimizing contractual losses.
There is a tidal wave of economic disruption headed toward the developed countries via the Internet that is either little understood or quietly ignored. Spend a few hours looking at the freelance bidding sites that “auction” professional jobs broken down into hourly or daily tasks. The bidding on one recent graphics design project ranged from $800 dollars from an established U.S. graphic artist to $2 from an established Pakistani graphic artist. The so-called knowledge worker in the U.S. who believes their job is safe because of local access and specialized knowledge is no more secure than the General Motors MIG welder waiting for the new robots to be bolted to the factory floor.
The unions, the government, or industry can play a role in this transformation. Industry will invest in outsourcing because it’s the path of least resistance. The government will blather with grandiose self-righteousness and unproductive partisan dithering. That leaves only the unions with the economic and human resources to force us into the next paradigm. Failing that, we all best learn subsistence farming all over again, those store-bought food stuffs might be out of our price range.
Mr. Stevenson works as a research assistant at Neural Genesis, LLC with responsibility for test marketing publications associated with emerging business segments. Mr. Stevenson also develops ersatz historical documents designed for examination in future settings to alter widely held, but apocryphal, views of the past. Prior to his work at Neural Genesis Mr. Stevenson worked as an author and illustrator of corporate presentations, technical manuals and children’s books.
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