Popular Economics Weekly

It’s well-known that American job formation isn’t keeping up with economic growth, but not why. It’s mostly because corporations have been retaining more of their profits and sharing less with their employees, so that household incomes have fallen to historic lows as a share of national income. That has to be reversed, if we are to get back to full employment, and employees are again paid a living wage.

It makes sense economically, since households consume some 70 percent of what is produced, diminished incomes have reduced the public’s demand for the very goods and services that would create more jobs.

So the why is not something we see in everyday headlines. WSJ Marketwatch has said that if 175,000 jobs are added in Friday’s Labor Department unemployment report, then the 135 million jobs total will just bring it back to mid-2008 levels during the Great Recession.

Why have corporations been able to rack up such profits? The conventional wisdom is because of strong global demand, cheap global labor, and low interest rates, while American workers muddle along, their significance to these companies greatly diminished by a worldwide market for goods and people.

But it’s more than that. American workers have not been able to share in that prosperity. Economist John Kenneth Galbraith pointed out as early as the 1960s in The Affluent Society, among other writings, that labor was no longer an equal partner in the Big Business, Government, Labor triumvirate. Thanks to business-friendly legislation—such as the deregulation of whole industries and Wall Street finance, corporations began to grow beyond government’s power to control their behavior.

Most American workers today are paid a barely living wage, as household incomes have declined steadily since the 1970s, while labor productivity has soared. This is while labor friendly laws were weakened that gave corporations more power to hire and fire. And Right to Work laws enabled states to inhibit or even prohibit collective bargaining, which prevented workers from negotiating for their own wages.

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U.S. companies today give wage and salary earners the least amount of vacation and, health care coverage, while working the longest hours, of any developed country. The American employee has lost the ability to control their own destiny, in other words.

The New York Times highlighted the divergence of record corporate profits from the meager jobs formation, and income gains. Corporate profits have risen 20 percent annually since the end of 2008, while disposable (after tax) incomes have risen just 1.4 percent. This trend has in fact been happening since the 1970s, but especially since 2000 and the concerted push of Republicans to increase corporate and investment tax breaks, which pushed more of the tax burden on ordinary households.

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Graph: The Atlantic

“We went almost a century where the labor share was pretty stable and we shared prosperity,” says Lawrence Katz, a labor economist at Harvard. “What we’re seeing now is very disquieting.” For the great bulk of workers, labor’s shrinking share is even worse than the statistics show, when one considers that a sizable — and growing — chunk of overall wages goes to the top 1 percent: senior corporate executives, Wall Street professionals, Hollywood stars, pop singers and professional athletes.

Corporate power in America is now becoming egregious, as corporations continue to consolidate power over everyday life. Corporate lobbying groups such as ALEC now write states’ legislation that limits voters’ rights and environmental regulation, as well as pushing for even less gun regulations that now endanger children.

ALEC, the American Legislative Exchange Council is the corporate-funded organization that allows global corporations like Wal-Mart and ideological special interests like the National Rifle Association (NRA) to give state legislators changes to the laws they desire. ALEC "model bills" have served as the template for voter ID laws that swept the country in 2011, for the "voucher" programs that privatize education, for anti-environmental deregulatory bills, and for the wave of anti-union legislation in Wisconsin, Ohio, and most recently, Michigan.

So it turns out taking away the voice of American employees is really taking away democracy for the majority of Americans, something that cannot be tolerated if America is to remain a prosperous democracy.

Harlan Green © 2013

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