Good News About Worker Power (in Rich Countries)

Most American progressives, and I would include myself in that lot, are very gloomy about worker power both in the United States and in the world.

   

Worker power is an extremely important determinant of the economic well-being of the working class. Worker economic well-being is essentially the product of how much money they earn at their job. Worker’s pay is generally a function of three factors: how scarce labor is, how skilled labor, is and how unionized the workers are. When labor markets are tight, employers have to pay higher wages in order to attract workers. When workers are skilled, employers have to pay a lot to keep their employees from defecting to competing firms. And when workers are unionized, they can go on strike to demand higher pay.  

    

We used to think that workers were losing power in the face of capital. The villain was globalization. Manufacturing production is now done all over the Global South. Jobs in America and Europe have migrated – mostly to Asia, and to a lesser degree, Latin America and Africa. Labor is no longer scarce because there is often someone in a poorer country willing to do a given job. Unionization has declined because strike threats are no longer credible. Workers who unionize and become too expensive lose their jobs because their employers move overseas. There is debate about whether work is becoming more or less skilled. (I think it is staying the same.) The expansion of the global labor force and the persistent threat of out-sourcing production were viewed as having savagely gutted the labor power of American and European workers. This was going to lead to a “race to the bottom” as wages and working conditions would decline to those of the cheapest workers anywhere in the world. Worker economic power was going to disappear.

   

Enter Matthew Mahutga, a sociologist at the University of California – Riverside. Mahutga has done an exhaustive analysis of the power of manufacturing workers globally. (It appears on Pp. 275-295 of the 2020 Sociology of Development – “Production Globalization and the Segmentation of the Global Manufacturing Sector”.)

   

His story is essentially a happy one, with a couple of dark overtones. What Mahutga did is actually disregard the standard accounts of race to the bottom as being based on anecdotal and superficial data. Instead, he went out to systematically measure the actual labor power of manufacturing workers in all of the different nations of the world. How did he do this? He used a clever strategy originally devised by Nita Rudra, a Bengali professor of government at Georgetown. She broke power into two components, labor scarcity and skill, and figured that unionization would follow those two. That last assumption is not a bad one. You can measure labor scarcity with employment/unemployment data – and measure skill with average skill ratings for workers in particular industries. When you collect the data and do the math what do you find?

   

Worker power has gone up throughout the world! Workers have more power than they did twenty or thirty years ago! What is going on? Not counting the years of financial meltdown after the 2008 derivatives crisis, most of the world has been economically expanding. GDP is up. Poorer nations are industrializing. New middle classes are consuming more and more – creating jobs in the rest of the economy. The wealthy nations are enjoying various kinds of tech booms. There are poor and suffering regions here and there. But overall, these are prosperous times, and there is plenty of demand for manufacturing workers at the global level. Many of the products being created require high skill. (Computers, automobiles, phones.) So scarce skilled workers have the clout to demand high wages.

    

BUT

    

(You knew there was going to be a but … right?)

    

The increase in worker power has actually been quite uneven. All of the world has seen a rise in worker power. But the increases in worker power in the Global South have been very modest. They started from having almost no worker power. They now have a little. They are better off than they were before. The huge increases in worker power have been in the Global North.

   

Mahutga gets very clever about figuring out where these advantages come from. For each of the nations, he calculates their “negotiating power”.  Here he uses a measure he himself invented, the positional centrality of industries in each country. He looks at how many countries each nation trades with. Countries that buy from and sell to a lot of nations presumably have both buyers and vendors with whom the world wants to do business with. Countries that only buy and sell from a small number of countries don’t have a lot of choices. They are forced to deal with a small number of customers and vendors who they can’t leave. Those customers and vendors can impose whatever terms they want. Not surprisingly, many rich countries are positionally central, having the key companies who everyone wants to buy from and sell to. They trade with lots and lots of different countries. Countries in the Global South often have only a small number of trading partners. Their business is not sought after and they have to take what they can get.

   

Not surprisingly, workers in countries with positional power have more economic power.

   

This is why the Global North is doing better than the Global South.

   

Note a key but unspoken factor in this analysis – that changes a lot about how we ought to think about worker power.

   

Positional power is an advantage that accrues to management and not labor. It is management’s company that has the bargaining power. It uses that bargaining power to get higher prices for its products. The higher prices create higher profits for management. With that comes higher executive salaries, higher bonuses, and a higher standard of living for the 1%.

   

What Mahutga is implying is that what is good for corporate profits is good for workers. The companies get more economic power; the workers get higher pay.

    

Some of this is true, I think. Rich companies can get extremely loose and generous with their wage rates. There used to be a literature on the dual sector economy. It argued that American firms were divided into a monopoly and a competitive sector. The competitive sector was struggling to survive. It paid minimal wages. The monopoly sector was rolling in dough. It could afford to give workers high wages because it didn’t matter. It was going to make a zillion dollars in profits anyway.

   

That literature was written in the 1970’s and 1980’s. Fortune 500 companies have gotten a lot tighter about wages than they used to be fifty years ago. It would be worth looking at the relationship between worker economic power and wages over time. The premium that comes from positional centrality may have gone down.

   

However, I think some of the slosh factor that characterized the monopoly sector of the 1970’s may have returned to some of the American economy. Workers in Wall Street banks are paid very well. They are not paid as well as the dealmakers on the top of the organizational hierarchy. But Goldman Sachs is not a terrible place to be a secretary or a low-level infotech person. Silicon Valley is not known for its low wages. The generosity extends below the programmers to the rest of the mere mortals in the lower ranks of the organization. The less visible manufacturers who make our pharmaceuticals, our aircraft, our weapons, our tires may behave in the same way.

    

This is good news for American and European workers. As for the workers in the Global South, they are not gaining as much as we are. But they are better off than they were before.

For More Information

For Nita Rudra’s own fine work on worker well-being under globalization, see her “Are Workers in the Developing World Winners or Losers in the Current Era of Globalization?” Studies in Comparative International Development 40: 29-64.

On dual sector models, see E.M. Beck, Patrick Horan and Charles Tolbert’s piece in the 1978 American Sociological Review. “Stratification in a Dual Economy: Sectoral Model of Earnings Determination”. Pp. 704-720.

For an orthodox view of declining wages in America, see the Economic Policy Institute’s “America’s Slow Motion Wage Crisis: Four Decades of Slow and Uneven Growth” authored by John Schmitt, Elise Gould and Josh Bivens. https://www.epi.org/publication/americas-slow-motion-wage-crisis-four-decades-of-slow-and-unequal-growth-2/

Note that this orthodox view may be correct. If worker power is going up but worker wages are stagnating, this is cause for thought. Note that Mahutga concentrates on manufacturing workers, while the whole economy also includes agricultural and service workers. Many of the complaints about low wages come from these other two sectors – especially service.