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Why business needs a stronger labor movement

Updated

Why do we have a Labor Day and no Capital Day? Because every day is Capital Day, especially since the end of the Great Recession. It’s no surprise that the current imbalance between labor and capital screws the American worker. But it also screws the American capitalist. If only he knew!

Josh Bivens, an economist with Washington’s nonprofit Economic Policy Institute, recently plotted the share of corporate income claimed by capital (as opposed to labor) over the past 65 years. He found it to be higher in 2012 than at any time since 1966, and not far behind the previous peak, in the early 1950s.

From the 1970s through the 1990s capital claimed, on average, about 20% of corporate income, which meant that labor claimed about 80%. Now it claims about 25% of corporate income, which means labor must make do with about 75%. Except for the 2007-2009 recession, which caused a brief, predictable boost as capital took it on the chin, labor’s share of corporate income has been shrinking steadily for more than a decade.

This is nicely illustrated in an Aug. 27 Washington Post story by Jia Lynn Yang about IBM. Since the 1980s, IBM’s workforce in its birthplace of Endicott, N.Y., has fallen from 10,000 to 700, even as IBM’s stock price has risen from about $16 a share to about $400 a share.

As recently as 1981, Yang notes (quoting a recent paper by two NYU scholars), the Business Roundtable, a trade group for corporate chief executive officers, defined the corporation’s responsibilities thusly:  “To make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.”

By 1997, though, the Business Roundtable had changed its tune. This time, it said merely that a corporation’s responsibility was “to generate economic returns to its owners.” No sentimental references to the quality of its goods and services, the fairness of its prices, its contribution to the economy, or to creating jobs.

The trouble with a capital-focused economy isn’t only that it’s bad for workers. It’s also, more broadly, bad for the economy. Capital’s current hogging of corporate income is doing very little to create actual prosperity, except for stockholders—and eventually it won’t create prosperity even for them.

Consider profits. The Wall Street Journal’s Mark Hulbert reports that U.S. corporations are currently recording, on average, a profit margin of about 9%, which–except for the fourth quarter of 2011, when it reached 10% percent—is the highest that corporate profits have been in six decades. (From 1952 to the present corporate profit margins have averaged about 6%.)

You would think the surge in profits would mean that Gross Domestic Product—the standard measure of prosperity–was expanding like gangbusters. But it isn’t. Second-quarter GDP growth is estimated at a paltry 1.7%—an improvement over the first quarter’s 1.1% but about half what it would be in a healthy economy.

The problem is that GDP growth is dependent on employment growth. That’s because companies need employees to create products and services, and because those products and services will go unsold (and ultimately unmade) unless there’s a sufficient quantity of people with jobs to buy them. But employment growth has been anemic; the unemployment rate stands currently at 7.4%. (In that go-go fourth quarter of 2011, it was 9.5%!) All those wildly profitable corporations aren’t much interested in hiring people, because they don’t see much consumer demand, because … a lot of people are still out of work.

GDP is also tied, at least loosely, to labor income, but wages are down. Since 2007 they’ve fallen for 70% of the population, according to an EPI report by Lawrence Mishel and Heidi Shierholz (and wages were rising pretty meagerly before that). According to Sentier Research, a private firm run by former Census officials, as of this past June median income was about 6% below its level when the 2007-2009 recession began—and 4.4% below its level when that recession ended.

So what’s making all these corporations rich? Probably some combination of productivity increases (i.e., doing more with fewer people) that can’t likely rise higher in the short term; favorable tax depreciation rates that have already expired; and low interest rates, attributable to the Federal Reserve’s pro-growth policies, that already are rising higher. Lacking a rational reason to grow further, corporate profits are already starting to fall at some bellwether companies like Walmart, and Cisco Systems, taking stock prices down with them. All because capitalists don’t like hiring people.

Indeed, if Maine Gov. Paul LePage, a Tea Party Republican, is to be believed, they don’t even like looking at pictures of workers. Two years ago LePage ordered a labor-history mural removed from the state’s labor department building because he thought it was upsetting the state’s employers. (The mural is now on display at the Maine State Museum.)

Just as a run-up in stock prices didn’t make America more prosperous, a tumble in stock prices doesn’t necessarily make America less prosperous, provided it isn’t too severe. But neither is it much help to anyone seeking a job or a decent wage who can’t find one. Over the past six decades, the proportion of the U.S. private-sector labor force that’s covered by a union wage agreement has fallen from nearly 40% to about 7%. It’s surely no coincidence that for much of this time the share of corporate profits allocated to labor has also fallen. A revitalized labor movement—one with real muscle to affect decisions on hiring, wages, and layoffs in the private sector– would obviously help workers.  What capitalists can’t get through their Joe-Hill-hating skulls is that it would likely help them, too.

Why business needs a stronger labor movement

Updated