EPI on the so-called “slow-motion wage crisis”

by Jehu

Decline of manufacturing employment in absolute numbers and as a percentage of the labor force, 1939-2017. Source: EPI, U.S. Census

The Economic Policy Institute has produced a report, America’s slow-motion wage crisis, purporting to explain the decline in the living standards of American workers since 1979. The problem with this report is that it completely ignores the role unions played in abandoning the fight for fewer hours of labor:

For the last four decades, the United States has been experiencing a slow-motion wage crisis. From the end of World War II through the late 1970s, the U.S. economy generated rapid wage growth that was widely shared. Since 1979, however, average wage growth has decelerated sharply, with the biggest declines in wage growth at the bottom and the middle. The same pattern of slow and unequal growth continues in the ongoing recovery from the Great Recession.

In addition to grossly understating the decline in real wages since 1971 by employing the misleading Bureau of Labor Statistics consumer price index measure, there are real problems with the conclusions to this study.

The first problem is that with regards to the decline of manufacturing, it is entirely predictable based on Keynes theory of technological unemployment. That theory simply states technological unemployment is inevitable because the rate at which we are improving the productivity of labor is outstripping the rate at which we can find new uses for labor. Keynes clearly stated that this problem could only be solved by a progressive reduction of hours of labor.

The second problem is that the term, “full employment,” is meaningless. We have one objective benchmark by which to measure whether available labor power is fully employed or not: can the employment of additional labor power produce additional profit. But here we run into Keynes problem of technological unemployment, which suggests there is no use for the additional surplus product. If there is no use for the additional surplus product, it has no value, according to Marx. This situation can be disguised for a time by the wholesale destruction of the productive forces in a world war, as happened from 1936-1945, but it must reassert itself eventually.

The third problem is that if unionization is mostly concentrated in manufacturing and related sectors and those sectors are being eviscerated by technological unemployment, the natural tendency would be for unionization to decline unless effort was made in the opposite direction by labor unions and workers. For whatever reason (and there are many), we don’t see this.

Not surprising, union membership has been devastated during the period from 1983 to 2018:

Declining union membership, 1983-2018. Source: Bureau of Labor Statistics

It is this last trend that should make us pause at this point: historically, unionization is tied to manufacturing and related sectors, but these sectors are precisely the ones that were being eviscerated by technological unemployment and shedding massive numbers of union jobs during the 1970s. To save those union jobs, labor unions should have been pressing for a sharp reduction in hours of labor to address the effects of technological unemployment. Instead, the unions abandoned the fight for less work, with the devastating results we see today.

The year 1979 is in fact a pivotal year not only for the study, but in American labor history: that was the year the AFL-CIO and the Democrats celebrated the signing of the Humphrey–Hawkins Full Employment and Balanced Growth Act. Although highlighting full employment in its title, the act actually de-emphasized employment; giving priority to maintaining low inflation. Which is to say, after effectively abandoning the fight for a shorter work week in the 1960s, in 1979, full employment was abandoned entirely with the tacit approval of the labor unions.