In an era when the Federal Reserve eyes wages as potential instigators of inflation, the questions of how wages are determined and what forces work against fair bargaining between labor and management remain more relevant than ever.
On this week’s WhoWhatWhy podcast we examine workers’ wages with Michael Lind, distinguished author, journalist, and co-founder of the think tank New America. Lind has taught at Harvard and Johns Hopkins, and is currently a professor at the University of Texas, Austin. His new book is Hell to Pay: How the Suppression of Wages Is Destroying America.
Lind describes the clandestine alliance between bipartisan political and business interests, which, in his view, has systematically crippled American workers’ bargaining power. This, according to Lind, has led to unfairly low wages and a consequent decline in American society at large.
He issues a stark warning: Unless workers’ power is restored, our republic will inevitably collapse. As we navigate the uncharted landscape of limitless technological advancement, including AI, and a globalized, borderless workforce, Lind’s predictions hold ever greater weight.
He offers compelling explanations for the current reluctance of workers to unionize, the misalignment between wages and productivity, and the myth of perfectly competitive markets. At the same time, Lind lays out specific proposals to limit offshoring, advance union membership, and champion collective bargaining, which he argues are the keys to reducing income inequality, political polarization, and even enhancing family formation, in today’s — and tomorrow’s — United States.
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(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)
Jeff: Welcome to the WhoWhatWhy Podcast. I’m your host, Jeff Schechtman. As the Fed considers wages as a potential cause of inflation, the question of how these wages are determined constantly arises. Historically, we’ve assumed that they’re set by the marketplace, but is that the whole story? My guest, Michael Lind, the author of the previous bestseller The New Class War, contends that bipartisan political and business interests have long colluded to weaken American workers’ bargaining power, leading to reduced wages and contributing, he says, to the symptoms of America’s decline, from political polarization to declining family formation.
In his latest book, Hell to Pay, Lind warns that the American republic will collapse if worker power isn’t restored. The extent to which this holds true in an era of boundless technological potential of AI and global and borderless workplaces remains to be seen. Michael Lind is an accomplished author with over a dozen books on US political and economic history, politics, and foreign policy. He’s written extensively for The New York Times, The New Republic, Vanity Fair, and numerous other publications.
He’s the founder of New America and has taught at Harvard, Johns Hopkins, and the University of Texas. He’s currently professor of practice at the Lyndon B Johnson School of Public Affairs at the University of Texas, Austin. And his latest book is Hell to Pay: How the Suppression of Wages Is Destroying America. Michael Lind, thanks for joining us here on the Who, What, Why Podcast.
Michael: Thank you for having me.
Jeff: Well, it is a delight to have you here in a country as big and as diverse and is different from place to place as ours. Is it fair to assume that there is this collusion that has taken place to actively suppress wages? Talk about that first.
Michael: Well, it’s not a centralized conspiracy, but it’s simply a matter of relative political power in Washington and state legislatures and bargaining power in the workplace. And in both of those sites, in politics and in the workplace, labor, mainly because of organized labor, had much more bargaining power half a century ago than it does now. And I go through the sources of the weakening of worker bargaining power, the collapse of unions from about a third of the private sector workforce to 6%, and falling much lower than in the 1920s under Herbert Hoover before the New Deal. That’s the major factor.
But another is the use of techniques like outsourcing, where you replace your in-house janitor with a contractor who does not have the same wages and benefits. Offshoring of manufacturing jobs and some service jobs is a factor, and so is immigration. Both illegal immigration and immigration of guest workers who strictly speaking, are not immigrants. They’re temporary workers in the US and of course, large-scale illegal immigration. All of this gives employers a divided workforce, many of which, particularly the illegal immigrants and the guest workers lack basic economic and civil rights.
So in the absence of worker bargaining power, you have to hope that the charity of the elite will rescue American workers. And I have to tell you, having spent 30 years in Washington, DC, and time in the Texas state capitol of Austin, I think that workers need to be able to defend their own interests both in politics and in the workplace. Enlightened, benevolent elites are not going to come to their rescue.
Jeff: Why, though, in certain instances where workers have had the opportunity to unionize, we haven’t seen that happening?
Michael: Well, we see several phenomena. One of the things that has hurt the labor movement in the US is its identification with the Democratic Party. If you go back to the founding president of the AFL, which later became the AFL-CIO, Samuel Gompers, he argued that the labor movement should be strictly non-partisan, otherwise, it would simply be captured by one of the parties. And unfortunately, I think today’s AFL-CIO is seen as a get-out-the-vote organization for the Democratic Party, and public sector unions in particular are seen as sources of cash for Democratic campaigns.
So I think you cannot rebuild organized labor in the US except on a non-partisan basis. And the polls bear this out. American Compass, a think tank, did a poll recently, and it showed that one reason why, even though most Americans in principle are in favor of unions, a lot of American workers were wary of joining one because they were Republicans or independents, and they saw the unions as too Democratic and too partisan.
Jeff: Talk about supply and demand in the workplace because we’re constantly told that it is market-driven, that wages really are a function of supply and demand in terms of labor participation.
Michael: Well, what is taught in Economics 101 is a very simplified version of economics is that your wage is the direct reflection of your contribution to the marginal productivity of the firm. So somehow, mysteriously, the market sets the wages the boss does not. Now, that assumes all kinds of unrealistic things like perfectly competitive markets, which, if they existed, there would be no profits because profits would be competed away by rival firms.
In the real world, most firms have some flexibility in setting prices, and they also have some flexibility in distributing their profits to three different groups, to shareholders through dividends, to managers just through salaries, and to workers through wages. So it’s very interesting that we’re always told that wages are fixed by labor markets, but dividends are not [laughs] and CEO salaries are not. But, in fact, there’s an element of arbitrariness to it. And if workers have more bargaining power, then they can get a higher share of the profits. Now, it’s a big expense, perhaps, of the managers and the shareholders, which is why they don’t like that.
Jeff: Talk about the aspect of inflation, because when we see wages go up, it often is considered inflationary and we’ve certainly had a lot of that conversation of late.
Michael: Well, in the ’60s and ’70s there was a problem of what was called wage push inflation, where unions would ask for excessive wage increases beyond productivity growth and those would be factored into spiraling prices. That is not a problem today. If you look at the post-COVID inflation, it’s overwhelmingly caused by supply-side shocks, by shortages of imports from China and from other parts of the world. In the case of energy, oil and gas firms simply did not anticipate that the economy would open up as rapidly as it did and they stopped drilling.
So to blame workers for this is not just unfair, but it’s inaccurate because workers did not cause the problem. If you look at– it is true that some workers have been able to demand higher wages since the post-COVID reopening, but for a lot of workers, the price of gas and food has outstripped their wages. So I think this is a diversion from the real source of inflation, which is the supply side.
Now, tragically, if the federal government decides it’s going to punish workers for inflation, then they can raise interest rates and deliberately cause mass unemployment so that the workers who retain jobs are willing to accept wage cuts or at least not increases. And then you have a lot of desperate, unemployed workers willing to work for lower wages. This is the way that we’ve often dealt with inflation in the US. It’s terribly destructive. And it’s bad for business because one of the ways you create this artificial recession to create a lot of frightened, scared workers who will accept lower wages is by devastating vast numbers of businesses, including small businesses.
Jeff: And we have heard repeatedly that to bring inflation to the levels that the Fed would like to see at 2% or 3%, that it is going to require unemployment to be somewhere around 5%, 6%.
Michael: Well, but a lot of the argument was based on the experience of the 1970s and ’80s. And it’s just academics who are having more skepticism about this idea that you can fine-tune unemployment and interest rates like that. Unemployment should be the last resort in a democratic society. It’s absolutely devastating to people’s lives Now, ironically in countries that have stronger labor laws, those countries are better able to deal with inflation including wage-driven inflation by getting the unions to agree to moderation in their wage demands and you basically can’t do that in a system like the US. And you tend to wipe out millions of jobs and millions of lives to get the inflation down [unintelligible 00:10:33]
Jeff: Talk about the impact that offshoring and specifically globalization has had on wages.
Michael: Well, the main purpose of offshoring it’s often said that foreign workers have skills that Americans lack. That’s complete nonsense. The US invented the computer revolution here at home, the first Apple phones were made in the US and there are plenty of skills here. It was cheap labor. That’s all it was. Ross Perot was right. When NAFTA passed as Perot warned, US companies shut down a lot of automobile production in the US and transferred it to Mexico to take advantage of the cheap labor and then to ship the cars back to the US.
In the case of China, these Foxconn factories making iPhones and other exports to the US, these are not manned by geniuses and by highly skilled workers, they’re manned by farm boys and farm girls in sweatshop conditions. So one of the points I make in my book Hell to Pay is it doesn’t matter how generous your national system of minimum wage is, of pro-worker contract law, of pro-union laws maybe if in the sector that involves exports and imports, if companies can just shut down production in the US will move elsewhere to avoid paying decent living wages, then your system of pro-worker reforms is going to fail.
So, I argue without some limits on offshoring, and conversely, on some limits on low-wage immigration which is just the opposite. Instead of taking the jobs from the workers in the US to low-wage workers abroad, you bring low-wage workers abroad to compete with the American workers, including recent immigrant workers. So, we have to rethink both offshoring and mass immigration policies. We need to have a generous immigration policy towards refugees, we can benefit from more skilled workers than we admit now but it really makes no sense in an economy in which most jobs that are being created pay less than $30,000 a year.
And are jobs like nursing aide and fast-food cook to the importing millions and millions of low-wage workers from other countries to compete with the native and the naturalized immigrants who are already here.
Jeff: Coming back to inflation, again part of the argument is that to the extent you eliminate offshoring, you’re driving up the price of goods and services, which is inflationary and antithetical to the consumer.
Michael: Yes, and that’s an excellent argument for people to make who do not believe in capitalism. [laughs] I love industrial capitalism, I think it’s great, it’s the source of the greatest improvements in living standards in world history. And the fact is, in some cases, raising wages may lead to higher prices but if it incentivizes employers to invest in labor-saving technology, then you can have two results. The prices can remain the same or become lower either because the new labor-saving technology complements workers. So, you can have the same number of workers but more output with robots working with them or if the robots replace the workers, then you have lower prices as well.
So the people who make this argument that wage increases inevitably lead to consumer price increases assume that businesses will not respond by automation or mechanization or other methods of keeping prices low by improving productivity rather than simply cheating their workers out of a decent life.
Jeff: In that case, is it going to increase unemployment?
Michael: It will increase transitional unemployment. Technological innovation in the 200 years of the industrial revolution has never led to mass unemployment despite frequent scares. Every 10 years there’s a scare about AI and I’m very skeptical about this one. The only mass unemployment episodes in the history of the industrial era have involved bank panics that go into the home mortgage system like The Great Crash of 1929 and the 2008 Crash. Elsewhere, for example, after World War II there were tight labor markets as GIS returned home and that’s when automated car washes were first developed.
A combination of automation and do-it-yourself. Now did that lead to unemployment for panned car washers? Of course, it did. Did the replacement of typesetting software eliminate jobs of typesetters in the 1990s? Of course, it did but the same technologies that eliminate old jobs by lowering the prices of high-tech goods increased disposable income even of working-class people and so you get more spending on areas that the displaced labor can join.
So one long-term trend we see is that as agriculture and manufacturing becomes more automated, service sector jobs increase and the service sector jobs that are increasing the most are in the healthcare sector which is perfectly fine. There’s nothing wrong with that. But the problem is a lot of these jobs are like home health aides and this is a real job in the future, a perfectly fine job, they’re being paid too little. They’re being paid slightly above poverty wages. So the challenge is not as is often said to train students for jobs of the future like solar panels and windmills and even software developers.
There aren’t that many software developer jobs to take the jobs that are actually being created which were largely service sector jobs in healthcare and in fast food, for example, and just turn them into decent jobs with decent wages.
Jeff: One of the things that you talk about is the way in which low wages really incentivizes the welfare state essentially to top off the wages that private industry has not paid.
Michael: Well, between a quarter and a fifth of all American workers have someone in the household dependent on means-tested welfare. Whether it’s food stamps, housing vouchers, or earned income tax credits, we have a category in this country of working poor. They work full time, they don’t make enough money in terms of the employer paid by their employers to pay their own bills much less a kid or two or to help a spouse and this is a deliberate thing. You cannot subsidize low-wage workers’ welfare by topping up their take-home pay with welfare benefits whether their cash like the earned income tax credit or in food stamps.
You can’t subsidize low-wage workers without subsidizing cheap labor employers. So I argue in my book Hell to Pay that our welfare system, not all of it, but to the extent that it allows employers to knowingly pay workers less than they need to move on and the employers know that they’ll turn to welfare to survive, this is basically a transfer of wealth from American taxpayers to cheap labor, of course. It’s a parasitic system, and the taxpayers are left on the boat.
Jeff: One of the things that you argue is that this has impacts on a lot of other problems that we see today in terms of demographics, in terms of the political polarization.
Michael: Well, in terms of demographics, what we see is that high levels of low wages and job insecurity lead many working-class people to postpone marriage and family formation or never to get married or have kids at all. The college-educated minority it’s about a third of the population actually is much more likely to be married and to have children within marriage but the problem is because their careers depend on credentialing with ever longer periods in college in your 20s and 30s, and sometimes your 40s before you settle down in a career and start a family, these college-educated professionals have told pollsters that they want more kids than they ended up having because they started so late.
So it has this ripple effect on family formation, low wages and the collapse of unions also affects friendships because if in one way you make friends is through your coworkers. And if you have an insecure job and you’re bouncing from one to another and you’re paid very poorly and you can’t go out and socialize then you’re going to have fewer friends. And we see that young Americans have fewer friends than the previous generations do.
A couple of the other knock-on effects of low wages are, I argue, identity politics. It exacerbates racial and gender tensions because too many people are competing for too few good jobs. And one way to open up a job for yourself is to do it for your colleague by denouncing them to HR, to human relations for not being woke enough. So we’re seeing identity politics weaponized as a tool in office politics, because of the fear of sinking into a bad job if you don’t get the good job.
And finally, in terms of partisan polarization which has gotten much worse in recent decades. If you look at the source of polarization, it’s our party primary system, which replaced the party selecting their candidates with individual voters selecting candidates in primaries in the 1970s and ’80s. The people who go to primaries, both Democrats and Republicans, are much more likely to be college educated and fairly well-off compared to working-class people.
And they have different interests. Working-class people tell pollsters their main political concerns are good jobs, safe neighborhoods, and access to healthcare. It’s actually the affluent professional class Democrats and Republicans who dominate the primaries, who are materially, they’re well off, they’re comfortable. They have healthcare. They have health insurance. They have good wages.
They’re the ones who want to be the cultural workers for whom the most important things are non-economic social issues, which are important. But if we had a political system that reflected working-class voters more, you’d have much more lunch bucket type bread and butter politics than the constant battles about sex and reproduction, and environmentalism.
Jeff: The battles that you’re seeing and these issues with respect to stagnant wages, suppressed wages, is this something that is only happening among the working class, among blue-collar workers, or do you see it beyond that?
Michael: It’s happening to more and more Americans who are not or would not think of themselves as working class because of credential inflation. It was true 30 or 40 years ago if you went to college, there was a scarcity value to a college diploma. And you would probably get a good job if you wanted one. Today about a third of the population has a bachelor’s degree and is much less valuable simply because there’s so many diplomas, so many PAs.
The Federal Reserve calculated about half of people with PAs are working in jobs that only require high school education. So it is perverse at a time when arguably we’re sending too many people to college given the number of jobs that actually require diplomas to tell everybody in the working class that, well your low wages have nothing to do with your bargaining power. You just need to go get a BA or a Master’s degree and learn to code in BA software development.
Jeff: How does the talk about UBI, Universal Basic Income fit into this broader equation?
Michael: It basically benefits employers even if the supporters of UBI are often on the socialist left because it takes our present system, which allows employers to pay less than a living wage and it universalizes. It would allow all employers to pay peanuts because they would know that all workers or all citizens, some people might not work, could live at the poverty level.
Basically, everyone would be on welfare up to– I think Charles Murray supports the UBI. Just give everybody $12,000 a year and then to lure you up to work, the employers would already have to pay anything. They would say, “Okay, we’ll give you 5,000 a year to work.” So my own view is that this is something workers do not want. Intellectuals are attracted to it.
Everywhere it’s come up for a vote with ordinary people like Switzerland, it’s been voted down. Most people in modern societies are wage earners, and they’re proud of that. There’s nothing wrong with that. And rather than live off of government welfare in the form of a UBI, most people would rather work for decent hours and get paid a living wage and wage high enough to raise a family.
And when I’ve given talks to Democrats, Republicans, and Independents, the sure-fire applause line is this. Anybody who works 40 hours a week should not have to rely on welfare [unintelligible 00:25:32] of any kind. So that’s the view. There’s no great longing to stay at home and be paid UBI checks by the government. The people are fine with working. They’re proud of what they do in many cases. They just want to be paid well.
Jeff: Given the political polarization that we talked about before, given the issues that you argue are the result of this suppression of wages, how do you see any of this beginning to turn around? In fact, arguably with automation, with technology, which does seem to be moving faster than it has in previous generations, it seems like the situation is potentially going to get worse.
Michael: I’m not convinced it’s going to get worse because let’s say automation eliminates trucking jobs and receptionist jobs, and I don’t know, maybe some kinds of teaching jobs. Jobs are created by demand, not just by supply. So as long as there is demand for jobs that involve human beings that cannot be automated in things like– Particularly elder care, childcare, nursing care, and so on until you get very, very sophisticated.
Robots, it seems unimaginable. Then there will be plenty of jobs. For example, why not have more teachers? So instead of having 30 kids in a room, you have three times as many teachers. And you have 10 kids in a room. Why not have more nurses so that you get one nurse per patient or every one or two patients instead of an entire floor? So I don’t think we’ve begun to see the expansion of service sector jobs that cannot be automated, that can absorb a lot of workers who are displaced by automation.
And at the same time, to the extent that automation lowers prices, it increases the spending power even of working-class people. And it’s always done that with productivity growth. So even poor people now often have cell phones, which would’ve only had to be a millionaire in the 1950s to own something like that. So I think that automation is scary leading to mass unemployment, I think it’s misguided.
Now, if in the distant future you really get hyper-sophisticated automation, and it destroys even a lot of jobs that can be automated in the near future. At that point, you have people– You don’t get rid of work, you simply lower the hours. You go from 40 hours a week to 30 hours a week to two-day weeks. But people would still work. So I don’t see the sudden cliff where there’s mass unemployment as a result of automation. There might be a soft landing over time where people are paid well, but they work fewer hours.
Jeff: And is there the political will, do you think, to address any of this?
Michael: This will happen when the American elite, the bipartisan elite, is frightened. They’re not going to do it out of the goodness of their own heart. That’s not how elites operate. But they need to be scared and they should be frightened because US politics is moving towards a system that you’ve seen in Latin America and in the deep South between the Civil War and the Civil Rights Revolution, where instead of a left-right spectrum, you get very affluent, very educated insiders who run the government.
And then you get a lot of angry, unrepresented working-class people. And if they don’t have adequate representation and if their material conditions are miserable, they will turn to demagogues like Donald Trump in [unintelligible 00:29:33] in Italy, and many others who are popping up in the Western world because they’re addressing anger and alienation on the part of low wage workers in many cases.
So if you don’t want a system where the oligarchs are constantly battling demagogues, that’s the end of democracy. Democracy can’t survive a system like that. Then it seems to me that an enlightened elite would want to not only share some of this wealth but share some of this power and that’s the problem with proposals like UBI in increasing the EITC and so on. You get elites from very well-meaning in some cases, saying well out of the spirit of charity, we will give the workers a little bit more money or a little bit of vacation. I don’t think you can have a happy society unless the workers have their own labor representatives who can negotiate both with employers and also with politicians.
Jeff: Michael Lind, his book is Hell to Pay: How the Suppression of Wages Is Destroying America. Michael, it is always a pleasure, I thank you so much for spending time with us here on the WhoWhatWhy podcast.
Michael: Thank you, Jeff.
Jeff: Thank you. And thank you for listening and joining us here on the WhoWhatWhy podcast. I hope you’ll join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you like this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate
