The last four decades of globalization and technological innovation have been a golden age for people with lucrative work skills, capital and good connections. They benefited the most from new markets and new jobs. For ordinary workers, on the other hand, these were hard times.
Earnings of lower-skilled labor have largely stagnated in advanced economies, despite substantial productivity growth. Since 1979, wages for manufacturing workers in the United States have increased by less than one-third of the productivity growth achieved. Job insecurity and social inequality continue to grow. After closing factories and moving production to other countries, many local communities were left to fend for themselves.
In developing countries, where, according to accepted economic theory, workers should benefit most from the new global division of labor, the biggest winners were large corporations and capital owners. Adam Dean, a professor at George Washington University, has shown in his new book how trade liberalization leads to the erosion of workers' rights even in countries dominated by democratic forces.
Labor market problems produce broader social and political problems. In a famous book When jobs disappear sociologist William Julius Wilson describes how the disappearance of jobs for members of the working class leads to the accelerated disintegration of families, drug abuse and the rise of crime. Economists Anne Case and Angus Deaton recently documented in detail the rise in suicides, "deaths of despair" in the population of less educated men in the United States. There are more and more empirical findings that point to the conclusion that the rise of authoritarian right-wing populism in advanced economies is a consequence of the disappearance of good jobs for ordinary workers.
With the global covid-19 pandemic, problems on the labor market have come into the spotlight - which is understandable. The question is how to help workers gain a fair share in the prosperity of society and get access to jobs that will enable them to live a meaningful life?
One possible way out is to trust that large corporations will recognize their own interest in this. Satisfied and fulfilled employees are more productive, loyal and ready to provide good services. Zeynep Ton of MIT has shown that retail businesses can reduce costs and increase profits if they pay employees well, invest in workers, and respond to their needs.
But many of the big companies that in principle stand for high standards in the field of work are at the same time strongly opposed to union organizing of workers. Limiting workers' wages and rights is often seen as a more profitable strategy. Historically speaking, the ability to resist - through trade union organization and joint actions - has always contributed the most to the good position of workers.
Hence, another possibility would be a strategy that will increase the power of workers and enable them to organize and act together in negotiations with employers. American President Joe Biden explicitly opted for such an approach, claiming that the disappearance of the middle class in the United States is a consequence of the collapse of unions, which is why he committed to strengthening organized labor and its collective bargaining capacities.
In countries where unions have lost power, such as the United States, such a strategy is necessary to remedy the power imbalance in labor-capital negotiations. But the experience of several European countries where organized labor and collective bargaining are still relatively strong shows that this may not be enough.
The problem with broad employee rights is that they lead to duplication in the labor market and direct all benefits to "insiders", while many workers with less experience are left without any work. The protection of rights in negotiations with employers and in the workplace has certainly brought many benefits to French workers. But, compared to other developed countries, France today has one of the highest youth unemployment rates.
The third strategy is aimed at reducing the unemployment rate and involves the application of expansive macroeconomic policies to increase demand on the labor market. If we raise the level of aggregate demand for labor through fiscal policies, employers will chase workers - not the other way around - and the unemployment rate will fall. Research conducted by Larry Mishel and Josh Bivens from the Economic Policy Institute showed that workers' wages in the United States have been lagging behind productivity growth since the 80s precisely because of accepted macroeconomic austerity policies. On the other hand, the aggressive response of the Biden administration to the crisis caused by the covid-20 pandemic brought a significant increase in wages.
A decrease in supply in the labor market is beneficial for workers, but at the same time it carries the risk of inflation. In addition, macroeconomic policies cannot be selectively directed to affect lower-skilled workers or regions that need new jobs the most.
Therefore, the fourth possible strategy should include the restructuring of demand in favor of workers with lower qualifications and underdeveloped regions. The shortage of secure jobs for members of the middle class is directly related to the disappearance of jobs for workers in manufacturing, services and administration - a consequence of globalization and technological change. Policy makers must try to increase the supply of jobs in the middle part of the labor skill distribution in order to counteract the effects that deepen polarization.
This entails revising the existing production development programs and the business environment and providing tailored incentives to those companies that can offer decent jobs in the desired locations. Conventional development policies focused on capital-intensive production, advanced labor skills and significant tax breaks cannot contribute to the creation of good jobs for those who need it most.
Also, we need to examine how new technologies contribute to or harm the interests of workers and revise state policies in the field of innovation. The current narrative is dominated by the idea that workers must be retrained and adapted to new technologies, while too little thought is given to adapting innovations to available work skills.
As Daron Acemoglu, Joseph E. Stiglitz, and Anton Korinek emphasize, the direction of technological change can be modified by price incentives, tax policies, and adaptation of accepted norms in the world of innovation. Government policies can direct the development of automation and artificial intelligence in a way that will be less destructive to workers, by new technologies complementing their work rather than replacing it. My Harvard colleague Stefanie Stantcheva and I discussed some of the preliminary ideas in a report we put together for French President Emmanuel Macron.
Finally, the growth of wages and the restoration of dignity to work imply the strengthening of the bargaining positions of workers and the increase in the supply of good jobs. This would improve the position of all workers and ensure a fair share of labor in future prosperity.
(Project Syndicate; Peščanik.net; translation: Đ. Tomić)
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