Globalization and the Politics of Pay

Policy Choices in the American States

Susan B. Hansen

Publication Year: 2006

In the American federal system, states actively compete for jobs, business investment, and factory locations. Labor costs have played an important role in such interstate competition since the days of the pre-Civil War plantation economy. In recent years, however, global economic trends have put added pressures on businesses and government to reduce labor costs. At least, that is what most politicians, the media, and the business community believe. Globalization and the Politics of Pay examines the economic, political, and social causes and consequences of declining wages in the United States. It challenges the conventional wisdom that globalization is to blame for the decline in workers' earnings. Susan B. Hansen presents a comprehensive analysis of the many factors affecting labor costs and concludes that many of them result from choices made by the states themselves through the laws and policies they enact. In addition, free-market ideologies and low voter turnout have had greater effects in keeping wages down than globalization. In fact, foreign trade and investment can actually result in higher pay in the state labor market. In this rigorous yet surprising study, Hansen develops new measures of state and federal labor costs to test competing theories of the consequences of reducing wages and benefits. Most economists would argue that higher labor costs cause higher unemployment, and that reducing labor costs will lead to higher levels of job creation. But citizens and elected officials must weigh any employment gains in lower-wage jobs against slower state economic growth, declining personal income, and a less-competitive position in international trade. Cutting state labor costs is shown to have adverse social consequences, including family instability, high crime rates, poverty, and low voter turnouts. The book concludes with policy recommendations for state governments trying to balance their need for more jobs with policies to enhance productivity, living standards, social stability, and international competitiveness.

Published by: Georgetown University Press

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THIS BOOK HAS HAD a long gestation. During research on my 1983 book The Politics of Taxation, I discovered that most economists doubted that state tax rates or incentives had much effect on business location or investment decisions. But most politicians, the media, and the business community believed otherwise. This puzzling discrepancy pointed to the ways in which ideas and evidence (or lack thereof ) influence public discourse and public policy decisions. During the 1980s, the impact of deindustrialization...

1. Globalization, Interstate Competition, and Labor

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pp. 1-25

IN THE AMERICAN FEDERAL system, the fifty states actively compete for jobs, business investment, and factory locations. Labor costs have played a role in this interstate competition since the days of slavery and the pre–Civil War plantation economy. In recent years, however, global economic trends have put additional pressures on businesses to reduce labor costs. As Levi (2003, 51) notes, “The movement of jobs to locations with low-wage and nonunionized workers, and the consequent race to the bottom, is worldwide.” How have the fifty states responded...

2. The State Role in Labor Costs

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pp. 27-57

THIS CHAPTER REVIEWS THE historic and contemporary state role in regulating the cost of labor. Labor policies constitute one of the many efforts that the fifty U.S. states have pursued to foster economic development, including tax and location incentives, regulatory relief for business, development of infrastructure, and investment in human capital. A central argument of this book is that...

3. Explaining State Differences in Labor Cost Trends

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pp. 59-90

STATE LABOR COSTS HAVE been heading downward since 1970, according to the comprehensive measure described in chapter 2. Yet the fifty U.S. states vary considerably in both levels and rates of change in labor costs. What accounts for these differences? In this chapter, I find little evidence that globalization is responsible for lower state labor costs. Though state/local...

4. The Economic Effects of Cutting Labor Costs

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pp. 91-112

AS THE PREVIOUS CHAPTER has shown, state-level factors have accounted for much of the variation in labor costs in the United States since the 1970s. The fifty U.S. states also vary greatly in their exposure to the international economy, and thus they provide an ideal laboratory for examining the economic and social effects of labor costs. This chapter analyzes the economic impact...

5. The Social and Political Consequences of Declining Labor Costs

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pp. 113-133

THE ANALYSIS IN CHAPTER 4 confirmed what most economists have claimed: Rising labor costs lead to higher unemployment and slower rates of job creation. For elected officials focused on “jobs” and a general public concerned with unemployment, cutting labor costs in the hopes of creating more jobs governed the mindset of the 1980s and 1990s. But what kinds of jobs are created by lowering labor costs? What is the social impact of stagnant wages, weaker...

6. Conclusion: Lessons Learned and Policy Options for the States

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pp. 135-164

THIS BOOK HAS FOCUSED on trends in labor costs in the fifty U.S. states between 1970 and 2000. By developing a measure combining wages, union density, right-to-work laws, and state-provided benefits (unemployment benefits and workers’ compensation), I have been able to analyze labor costs across time...

APPENDIX A: Explaining State Differences in Labor Costs

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pp. 165-169

The measure underlying tables 3.4 and 3.5 is the Pearson correlation coefficient (designated by r), which can range between –1 and 1. If two indicators have no relationship with each other, the correlation coefficient will be close to zero. But if higher values on one indicator are associated with higher values on the other, the value of r will increase; if high values on one indicator are linked to lower values on another...

APPENDIX B: Time-Series Analysis of State Economic Outcomes, 1970–2000

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pp. 171-177

The economic analysis of the impact of state labor costs was performed in two stages. The first set of models considers domestic factors only, and it uses state exports and foreign direct investment (FDI) as dependent variables. I then bring in indicators of exports and FDI as independent variables to test whether, and how much, exposure to the international economy affects state employment trends, gross state product...

APPENDIX C: Analysis of Social Consequences of Declining Labor Costs

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pp. 179-181

Ordinary-least-squares (OLS) regression was used to compare the impact of state labor costs and job growth on trends in crime rates, voter turnout, and the proportion of children living in poverty. Because of data availability, the years used are slightly different for each dependent variable. Crime rates are based on FBI Uniform Crime Reports data on violent crime. Data on voter turnout for the period 1981–88...

APPENDIX D: Data and Sources

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pp. 183-184

Notes

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pp. 185-195

References

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pp. 197-217

Index

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pp. 219-231

E-ISBN-13: 9781589013292
Print-ISBN-13: 9781589010888

Page Count: 248
Publication Year: 2006

Series Title: American Governance and Public Policy series
Series Editor Byline: Gerard W. Boychuk, Karen Mossberger, and Mark C. Rom, series editors