THREE

WORKERS UNDER SIEGE

Has capitalism been good for the working class? This question was central in the battle between capitalism and communism. Communism held that the workers were exploited under capitalism. Those supporting capitalism say that workers around the world have better lives because of capitalism.

Karl Marx developed a labor theory of value—that is, all value came from the worker’s time and effort in production and distribution. Even capital that is used in production represents the past work of labor. Marx describes capitalism as having an institutional framework in which a small minority, the capitalists, has a monopoly on the means of production. Workers cannot survive except by working for capitalists, and the state reinforces this inequality of power. There is a reserve army of unemployed workers who depress the potential earnings of employed workers who are exploited.

Worker exploitation was vivid during the Industrial Revolution in Britain. Coal miners worked ten hours a day, six days a week, coming home exhausted and dying at an early age. Factory workers included young children, who never had time for schooling, working at assembly lines, doing the same work day after day, and being paid a pittance.

Worker exploitation was also vivid in the United States, especially with new immigrants working under sweatshop conditions and migrant workers working for pennies on farms. Consider the following two major books:

The Jungle (1909) by Upton Sinclair

• Sinclair described the hard lives of immigrants in Chicago and exposed the health violations and unsanitary practices in the American meatpacking industry during the early twentieth century. The book depicts working-class poverty, the absence of social programs, harsh, unpleasant living and working conditions, and a hopelessness among many workers, in contrast with the deeply rooted corruption of people in power.

The Grapes of Wrath (1939) by John Steinbeck

• A hardworking but poor farm family loses its home to the banks during the Great Depression of the 1930s and then is driven from Oklahoma by the enduring drought resulting in the Dust Bowl. Eight members of the family board their one truck to drive to the promised land of California, only to find that there are few jobs paying even a little money for picking fruit. The meager work disappears at the season’s end.

Worker exploitation is still alive today in the United States in commodity areas where migrant workers are employed. For many decades, migrant workers picking tomatoes in Florida would be harassed and bullied and given no rest breaks, although the temperature was 95 degrees in the sun. Crew leaders would often grope the women, demanding sex in exchange for steady jobs.¹

Worker exploitation is found in many parts of the world. In 2012 the International Labor Organization (ILO) estimated that nearly 21 million individuals across the globe were living and working under conditions of quasi-slavery, including debt bondage, forced labor, child labor, human trafficking, and sex trafficking. The workers come to earn money but their cost of transport, rent, and food leaves them with very little as their debt increases and they lack the means to return home.²

Is labor exploitation an inherent feature of capitalism? If so, is it correctible by public policies to limit the hours of work and improve workers’ safety, pay, and benefits? Or can it be corrected by joint action on the part of enlightened companies that won’t use suppliers who abuse their workers? In an example of the latter situation, a consortium of companies including Wal-Mart, McDonald’s, Yum Brands, Publix, and others formed the Coalition of Immokalee Workers, which refused to buy tomatoes from growers who were mistreating or underpaying their workers.

Working conditions are usually a function of whether workers are abundant or scarce. If workers are abundant, the company will post a low wage. If workers are scarce, the company will pay at a higher level. Yet in both cases, the pay level would hardly approach a living wage.

ORGANIZING UNIONS

When workers became highly aggrieved about their low wages and poor working conditions, they tried to organize trade or craft unions. Companies typically fought unions and the idea of collective bargaining on the grounds that workers were free to quit whenever they wanted and that unions violated the private property rights of owners. Although companies preferred no unions, some agreed to “open shop” unions where workers were not forced to join and pay membership fees. Unions tried to insist on “closed shop” unions that require all workers to pay dues, because this gives the union more money and manpower to fight management and go on strike if necessary. The closed shop also prevents “free riders,” workers who benefit from a union without paying dues.

In the early days of the union movement, there were bitter strikes during which several companies hired thugs to break up the crowd of picketing workers. The Pullman Strike that started on May 11, 1894, showed the bitterness that could take place in labor-management relations. The Pullman Company made railway cars. When demand fell, the Pullman Company laid off many workers and cut wages for those who kept their jobs, but did not cut rents in the Pullman community where many workers lived. Nearly 4,000 factory employees began a wildcat strike that ultimately affected 250,000 workers in twenty-seven states. Riots and sabotage caused $80 million in damages and thirty people were killed. The workers in many industries felt exploited and launched frequent and often long-lasting strikes that were costly to both labor and management and the country at large.

Strikes were the union’s great weapon. The United States passed laws entitling labor unions to strike and have the rights of collective bargaining. The unions fought for a “living wage” and decent benefits, including vacations, health benefits, and higher pay for overtime. Unions also pressed legislators to pass a minimum wage law. In 1955, they pressed for a minimum wage of $1 an hour. Business interests thought this rate was outrageous and would destroy the economy. The unions eventually succeeded in this goal, even though the minimum wage rarely amounted to a living wage.

THE QUESTION OF MINIMUM WAGES

Today the federal minimum wage is $7.25 an hour and has been in place since 2009. This minimum wage is substantially below a living wage! A person earning $7.25 an hour working forty hours a week would not be able to afford the average one-bedroom apartment in any single county within the United States. In Seattle, such an apartment would require a minimum wage of $17.56 and in San Mateo County, California, it would take $29.83.³ Clearly the minimum wage of $7.25 an hour is woefully inadequate.

MIT prepared a living wage calculator to understand the gaps between what Americans earn and what they need to earn to cover basic needs. The living wage is not about a middle-class lifestyle and covers only the bare-bones cost of housing, food, transportation, and child and health care. In 2013, the living wage was $24.84 an hour in Massachusetts and $16.88 in Mississippi. These living-wage levels are far above today’s minimum wage of $7.25 and remain substantially above even the proposed new minimum wage level of $10.10.⁴

Let’s review what took place with workers’ incomes since the late 1940s. From 1940 to 1980, American workers enjoyed a substantial increase in their incomes and quality of life, certainly in contrast to the Great Depression years before World War II. During this period, the great American middle class was built. The high level of prosperity began to decline in the 1980s. It has continued to fall for the next thirty-five years until today, leaving a much smaller middle class.

During the period 1990–2000, the top one percent of earners increased their share of the national income from 14 percent to 22 percent (an increase of 50 percent), while the remaining 99 percent of earners saw their share of national income drop from 86 percent to 78 percent (a decline of 10 percent). Given that 70 percent of our national income comes from consumer spending, this drop in the mass spending power of the middle class slowed down the growth of national income.

During the period 2000–2006, the Federal Reserve System under Alan Greenspan adopted a laissez-faire attitude that prevented any government regulation on the use of financial derivatives and led to the complete repeal of the Glass-Steagall Act, leaving the financial community unregulated. This and other factors set the conditions leading to the Great Recession of 2007–2011, which further impoverished many workers, who also lost their homes.⁵

What’s Happening Today?

Workers are now organizing to raise the minimum wage of $7.25 to a significantly higher level. For example, fast-food workers are pushing for a $15 minimum wage—more than double the current figure. Senate Democrats want to raise the minimum to $10.10 over a three-year period. In 2013, Washington, D.C., passed a bill to require Wal-Mart to pay its workers a minimum “living wage” of $12.50 an hour for the privilege of opening six Wal-Mart stores there. Wal-Mart, which had fought hard for the right to open the stores in Washington, then threatened to reconsider entering the D.C. area.

Henry Ford in the 1920s was in favor of raising wages. He doubled workers’ pay not because he was an altruist, but because his workforce suffered from high turnover and absenteeism and he felt that his workers had to earn enough to buy his cars.⁶ Capitalists too often fail to see the connection between workers’ low pay and the absence of strong demand for their products, but nobody can deny Henry Ford’s credentials as a capitalist.

Some Republicans today are beginning to support an increase in the minimum wage. A conservative Republican, multimillionaire Ron Unz, is pushing in California for a referendum on a two-step minimum wage hike, first to $10 an hour in 2015 and then to $12 an hour in 2016. He wants to put an end to what he calls “poverty wages.” His reasoning is very straightforward. He argues that companies, by not paying higher wages to workers, are shifting the burden to the taxpayers, who have to supply food stamps and other subsidies to help workers get by. He estimates that taxpayers paid a quarter-billion dollars every year from 2007 to 2011 for public assistance. If business would pay its fair share, he argues, taxpayers would save a trillion dollars in five years. Furthermore, the increase in their wages would mostly be spent and would boost California’s economy, and the price increases by business would be minimal.⁷

The city of Seattle has passed a $15 minimum wage that would result in a 61 percent wage increase over its current minimum wage of $9.32.⁸ Portland, Oregon, has also passed a $15 minimum wage. Those against these hikes include not only restaurateurs and other service providers, but even nonprofit groups that think such increases would produce too much unemployment, especially among immigrants and the poorest workers. They favor a more modest increase along the lines of President Obama’s call for $10.10. I agree that minimum wages should be increased, but it should be done in a timed sequence of more moderate increases.

The reason for all this pressure is that neither $7.25, $10.10, $12.50, nor even $15.00 an hour provides a living wage. Low-wage workers, especially those working at fast-food outlets like McDonald’s, mainly used to be teenagers or women looking for part-time work to supplement family income. Today, many of these workers are older and better educated and depend for their entire income on these low-paying jobs. The low pay is woefully inadequate. The order-takers you meet at McDonald’s or the sales checkout people at Wal-Mart are the working poor. Many of them depend on food stamps and on Medicaid if they can get it.

The movement for a minimum wage was initially targeted at stopping sweatshop labor. Today, over 90 percent of the world’s countries have minimum wage laws. Minimum wage rates vary greatly across many different jurisdictions, not only in prescribing a certain wage but also in treating special situations such as tipped income. If the U.S. minimum wage had kept pace with the average growth in productivity, it today would be about $17 an hour. But productivity gains have mainly flowed to profits, shareholders, and executives instead of workers. This fact contradicts Milton Friedman’s famous statement that capitalism distributes the fruits of economic progress among all people. It is not true that all boats rise with rising productivity.

Disagreements About Raising the Minimum Wage

Among those who oppose raising the minimum wage are large companies such as Wal-Mart, McDonald’s, and many restaurants that are paying the minimum wage of $7.25 or slightly more. These companies argue that workers would ultimately lose if the government established “too high” a minimum wage.⁹ Companies would not only hire fewer workers but also would try to replace labor with machinery. This is exactly what happened in factories where an increasing amount of production is now done by automation and robot machines. The intended plan for the future supermarket is to collect cash without needing cashiers.

Businesses say that they will hire fewer workers if the minimum wage is raised. Existing workers would make more money, but those not hired would be worse off. Businesses complain that they will have to raise the wages of the more skilled workers as well, called the “ripple effect.” Businesses warn that they will also have to raise their prices in order to recover the cost, in which case higher minimum wages will hurt families who have to pay more for their goods. This might be the case with fast-food retailers, where the margins are razor thin and where they would have to raise prices to cover the higher minimum wage. Small retail businesses such as restaurants warn that they might have to close if the minimum wage is raised. Manufacturers complain that raising the minimum wage will lead them to leave for cheaper labor countries and depress jobs here.

Until the mid-1990s, a strong consensus existed among economists, both conservative and liberal, that increasing the minimum wage would probably reduce employment, especially among younger and low-skill workers. Some people have proposed setting a sub-minimum wage for teenage workers so that they can get work experience, but this would lead to teens being hired instead of older unskilled workers.

Setting the actual minimum wage is a balancing act, trying to minimize the loss of jobs while preserving the country’s international competitiveness. Many factors need to be considered, including the state of the economy, inflation potential, the prevailing average wage, level of unemployment, and the rate of productivity growth.

Unions argue that the minimum wage is particularly needed (1) when employers collude to keep the wages down; (2) where there is low job mobility, such as in company towns or where workers are loath to leave their homes and friends; and (3) where there is imperfect market information about where higher-paying jobs might be found.

There are many different empirical studies of the impact of minimum wage on employment with very different findings. The debate goes on not only between businesses and unions, but even within the economic profession. In 2013, economists were surveyed on their view of the minimum wage’s impact on employment. About 34 percent of respondents agreed with the statement, “Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment,” while 32 percent disagreed, and the remaining respondents were uncertain or had no opinion on the question.¹⁰

Economist Paul Krugman asserts there is hard evidence showing states that raised the minimum wage on their own haven’t lost out in employment compared to neighboring states that didn’t raise the minimum wage. Timothy Egan reports that “studies of nine cities and twenty-one states that upped their minimum over the last decade found almost no effect on employment. Businesses had less turnover and higher worker productivity, while restaurant prices went up only 2 or 3 percent.”¹¹

If there are few adverse effects on employment, wouldn’t it be better to raise the minimum wage nationally? The Economic Policy Institute estimated that an increase in the national minimum wage to $10.10 from its current $7.25 would benefit 30 million workers. And when you consider that those benefiting are likely to spend all the extra income, the increase could have an acceleration impact on income and employment.¹²

ALTERNATIVE PROPOSALS TO HELP WORKERS GET A LIVING WAGE

Some economists and political commentators have proposed alternative remedies to help unskilled workers improve their income. These remedies would benefit a broader population of low-wage earners and distribute the costs more widely, rather than putting all the burden on the heavy employers of low-wage workers. Proposals include establishing higher taxes on the rich, increasing the ease of forming unions, and establishing more government job creation and job training programs.

One provocative proposal is to establish a basic income that provides each citizen with a sum of money that is sufficient to live on. Sometimes this is called a “negative income tax.” It is a transfer payment from the government that comes from the broad tax base and doesn’t impose any loss of efficiency on different business groups.¹³ The argument is that unemployed people are more expensive to maintain than keeping them employed. If they are unemployed, they will receive unemployment insurance, food stamps, and welfare services that would cost more than the government paying them to work on useful projects. There are so many useful work projects—fixing the country’s infrastructure, caring for the aged, teaching literacy, and so on—that putting Americans to work through publicly financed jobs would be good for the unemployed and good for the country.

A guaranteed minimum income is a variant that is conditioned on a means test and the person’s willingness to participate in the private-sector labor market or perform community services. Several arguments have been advanced in favor of the government providing every citizen with a minimum income. First, no one would go hungry. Second, people could leave a hated job and start their own business. Third, the government could eliminate the inefficient patchwork of current programs (e.g., welfare, food stamps, housing vouchers, and others) in favor of a simpler system that in a single stroke does the job of delivering a minimum income to everyone.¹⁴

Another approach is called a refundable tax credit, available only to households that have earned some income, where the government can reduce the tax owed to zero and add net payment to the taxpayer.¹⁵

A quite different approach (used in Germany, Italy, Sweden, and Denmark) is called co-determination, which lets the minimum wage be set by collective bargaining in the company or industry. There is no minimum wage set by government.¹⁶

A stronger proposal than co-determination is to favor establishing more Workers’ Self-Directed Enterprises (WSDEs). Here, workers own shares in the company, called an ESOP (Employee Stock Ownership Plan). They participate in running the company and in deciding what is produced, how it is produced, where it is produced, and how profits are to be used and distributed. Normally these business decisions are made by an owner or investors with less consideration of their impact on the workers.

Some have suggested getting more workers to own stock in their own company or other companies, thereby turning them into capitalists who might have influence on corporate policies. However, this outcome likely would be a long time in coming because today one percent of U.S. shareholders own 75 percent of the outstanding stock. Furthermore, most workers don’t have spare money to invest in stocks or bonds. They are more likely to put any surplus money into home ownership instead of stocks or bonds.

Then there are calls for establishing a universal savings plan for retirement in addition to Social Security. Workers and their employers have been contributing to Social Security so that the workers receive payments upon retiring. But in the future, Social Security income may not be adequate. Some percentage of workers independently decided to build their own private retirement accounts in addition to Social Security. On average, the median couple in the United States carries a private retirement account averaging $42,000. Those favoring a universal savings plan call for companies to contribute 50-cents-per-hour for each employee in a portable plan managed by a privately run, low-fee, life-cycle fund. The money would be invested in an appropriate mix of stocks and bonds. In this sense, the workers would become capitalists to some degree! It’s estimated that a person beginning work at age 22 with such a plan would retire at age 67 with a balance of $160,000, substantially more than the current $42,000 average balance. This would handsomely supplement workers’ Social Security receipts and enable them to live better upon retirement.¹⁷

THE ISSUE OF WORKER SATISFACTION ON THE JOB

Even if workers received a living wage, many would still be dissatisfied with their jobs. Such would be the case with jobs that are hard, such as construction work; jobs that are dangerous, such as mining; and jobs that are boring, such as cashiering or “shelving” in a supermarket or putting a walnut on each piece of chocolate coming down the production line. Even in the professions, such as law and teaching, there is much boring work. The challenge facing companies is whether they can do anything to make work more interesting and “happify” their employees. Everyone has had the experience of shopping in a big-box store such as Wal-Mart or a fast-food chain like McDonald’s and seeing them staffed with many unhappy and unhelpful people. These organizations view workers largely as a cost that must be contained. Ikea manages its 130,000 global workers using workforce management software to assign and train them in the most efficient way to keep costs down. Yet customers might experience too few people on the floor to answer questions or willing to go out of their way to help the customer.

The view is growing, however, that companies would be more profitable if they would pay their employees more and treat them better. Employees who have more job satisfaction would engage with the customers to find out what they really want. They might even be empowered to show off merchandise and improve displays and would end up selling more goods and services, which would feed back into more employee job satisfaction. Companies such as Costco, Trader Joe’s, Nordstrom, Zappos, Lego, and others have higher employee satisfaction and outperform their competitors even though they pay more to their employees.

Consider Tony Hsieh, CEO of Zappos, whose organization is highly successful in selling shoes online. He wants Zappos to be a happy place for his employees. Other companies have studied his methods.¹⁸ His consultancy, called “Delivering Happiness at Work,” consists of a three-day boot camp to teach companies to become more successful through the science of happiness.

Paul Zak, a neuroscience researcher, has proposed that employees who have trust in their organization and see a higher purpose to their work will experience more joy (Trust × Purpose = Joy). His research team has found evidence that confirms happy employees are more productive, are more innovative, and contribute more to the bottom line of companies.¹⁹ Similar findings have been reported by Zeynep Ton, an MIT business professor, who said that “contrary to conventional corporate thinking, treating retail workers much better may make everyone (including their employers) much richer.”²⁰

Some progressive companies go even further and want to invest in enhancing their employees’ healthful living. In the United States, workplace wellness is a $6 billion industry. Companies offer programs to improve the health and well-being of their employees in the hope that it will increase their productivity, reduce their risk of costly chronic diseases, and improve their control of chronic conditions.²¹ Company wellness programs have two parts: lifestyle management and disease management. The lifestyle management program tries to help employees eat healthier foods, give up smoking, and exercise regularly to avoid obesity, diabetes, cancer, hypertension, and other health problems. The disease management program helps employees with a chronic disease take better care of themselves by reminding them to take their prescribed medications and not miss lab tests or doctor’s appointments. Many of these programs have yielded a better life to employees and a financially sound return to the companies.

One additional factor in job satisfaction is paid vacations and holidays. “All work and no play” is a prescription for disaster. A report about working hours in China carried the headline that Chinese workers are dying on the job from overwork.²² Workers deserve and need vacation time to renew their energy and outlook. The United States is the only wealthy economy that does not require employers to provide paid vacation time or paid holidays.²³ One in four Americans do not receive any paid vacation or paid holidays. In contrast, most advanced countries provide both paid holidays in addition to paid vacation days. For example, the European Union legally guarantees workers at least twenty paid vacation days per year, and workers also get between five and thirteen paid holidays a year. The lack of paid vacation and paid holidays in the United States falls especially hard on low-wage workers, part-time workers, and employees of small businesses.

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Under capitalism, businesses operate to make a profit that will yield a good return to the owners or investors. Businesses need to keep their costs down, especially their labor costs. If there is an oversupply of labor, businesses will take advantage by setting the lowest wages possible, whether or not they constitute a living wage. This leads workers in many cases to organize into unions to press for better pay and enlist government support to legislate a minimum wage. Businesses originally fought against these unions and blocked unions from organizing, sometimes even with police support and violence. But unions and collective bargaining began to prevail in many countries. Unfortunately, there is a suspicion on the part of some workers that unions have become self-serving and have not effectively raised workers’ incomes. In the United States, unions are weak today, which raises the question of why so many workers in manufacturing and service industries refuse to unionize. One test of workers’ willingness to unionize occurred in early 2014, with a workers’ vote at a Volkswagen factory in Tennessee. The workers voted 712 to 626 against joining the United Auto Workers (UAW), marking another defeat for the union movement.

There is little doubt that the union movement helped workers earn higher wages and benefits and raise their standard of living. Worker exploitation is at a lower level today than in the past in most advanced economies. Raising minimum wages is one tool for increasing the pay of the most unskilled workers. Some economists have also talked about other alternatives such as a guaranteed minimum income, refundable tax credits, or co-determination solutions between management and labor.