America Works: Thoughts on an Exceptional U.S. Labor Market

CHAPTER 9. Helping the Invisible Hand Do Better

 CHAPTER 9  HELPING THE INVISIBLE HAND DO BETTER Nothing irritated John Dunlop, former secretary of Labor, dean of faculty at Harvard, and my mentor as labor economist at Harvard , as much as academics tacking obiter dicta policy suggestions on to the end of their specialized analyses without giving them the critical attention that they had given to the rest of their study. When I was a student, Dunlop would rail about research that focused on one aspect of a problem but ignored other aspects, that failed to consider the political realities in changing policies, and that ignored the problems of implementation. He viewed ideas by academics that bore no line responsibility for policies as “blue sky” dreaming. Mea culpa. As I noted at the outset of America Works, this chapter differs from the rest of the book. It is normative and prescriptive rather than analytic. It takes as given the impressive rates of employment , productivity growth, and economic responsiveness that the U.S. labor market delivered in the 1990s and 2000s, and it also takes as given the huge inequality and the failure to deliver the bene fits of rapid growth to most workers and to give workers the voice they want at their workplaces. Given these disparate outcomes, the question becomes: Can the United States do better? Are there labor market reforms and policies that can mitigate the failures of the exceptional labor market while maintaining its successes? The growing influence of globalization on economic outcomes documented in chapter 8 makes it more important and more difficult to find such policies. The doubling of the global workforce gives greater power to capital and management than in the past. 141 Given the way management operates when it is in the driver’s seat, such power risks exacerbating inequality in the United States between the owners of capital and top management and the rest of the workforce, if not between highly educated and less-educated workers, both of whom face increased competition from workers overseas. Some of my conservative colleagues believe that Americans have no choice but to “suck it up” and accept growing inequality and insecurity at work, though they would never use such strong language. For them, the invisible hand has spoken, and that is what it says. You better do what capital wants, or you will be in an even worse state. Others believe that the cure for the weaknesses of America’s exceptional labor market is to go further down the road toward laissez-faire. Eliminate what is left of the unions, reduce government protections further, let all workers deal with their problems on their own, and somehow or other the average worker’s position will improve. I reject these prescriptions for doing nothing. Doing nothing but hoping that the unfettered market will suddenly turn in favor of workers will not produce the more even distribution of economic outcomes that most Americans, from conservatives to progressives, would like to see. For three or so decades, with some modest exceptions , the country has tried trickle-down economics, and only in the peak of the late 1990s boom did anything much reach regular workers . The market that best fits the invisible hand model, the financial market, requires considerable government oversight and institutional rules to provide the transparency and trust necessary to produce efficient outcomes. Shareholders have to organize and battle to protect their interests against many of the managements that purportedly represent them. If financial markets need institutional oversight and transparency to work for the benefit of all, so too do labor markets and the institutions that govern labor and management relations. So what might mitigate the weaknesses of the exceptional labor market while preserving its strengths? I sketch out nine possible reforms that seek to strengthen the position of U.S. workers by supplementing market forces with institutions and policies that will better enable them to navigate the labor market in an era of massive globalization. My general assumption America Works 142 in making these suggestions is that policies whose primary effect is to help ordinary citizens are more likely to benefit those citizens than trickle-down policies whose primary effect is to enrich the super -wealthy. The chapter is brief, because it would require another book to meet the Dunlop critique and give a full analysis of these policies. With modern tools of analysis, I would want to develop arti...