Noah Smith: America’s workers need a labor union comeback

There are two basic ways to improve the economic situation of the middle and lower classes. First, you can use taxes and government spending to shift income down from the top, either via direct transfers or through services like health care. Second, you can change the laws governing markets, with the goal of producing better outcomes for low- and middle-wage workers. These two approaches are sometimes called redistribution and predistribution.

Much of the Democratic presidential contest has focused on redistribution — higher taxes on the wealthy, nationalization of health insurance and so on. But candidate Pete Buttigieg recently released a plan for predistribution, to relatively little fanfare. Buttigieg’s plan would raise the federal minimum wage to $15 an hour and peg it to inflation after that. It would strengthen anti-harassment laws, mandate that businesses reveal how much they pay men and women, beef up overtime rules, encourage predictable scheduling for hourly workers and implement various other workplace protections. But perhaps most importantly, Buttigieg’s plan would rewrite U.S. labor law to strengthen unions.

Unions were a pillar of the mid-20th century U.S. corporate system developed during the New Deal. President Franklin Roosevelt envisioned unions as a source of power to counter the greater information, flexibility and legal protections of corporate owners and managers. A number of economic studies have underscored the importance of unions in supporting the middle class. But in the years since the mid-century, private-sector unions have declined into irrelevance.

Unions are probably a big part of the reason that people look back so fondly on the era of manufacturing. So far, the service-sector jobs that now employ a large majority of the American workforce have failed to unionize like manufacturing workers once did. A recent spate of strikes shows that this vast low-paid service class may finally be awakening to the possibility of collective bargaining:

But there are many obstacles. So-called right-to-work laws in some states have weakened unions’ ability to hold sway in workplaces. Many employers have classified workers as independent contractors, preventing them from unionizing. Buttigieg’s plan would crack down on both of those practices, banning anti-union right-to-work laws and severely restricting which employees could be deemed as contractors. Gig economy workers would be allowed to unionize under the plan.

The most innovative element of Buttigieg’s plan is known as sectoral wage bargaining. Currently, U.S. employers in a local industry — for example, all the fast-food restaurants in the city of Miami — are not legally required to sit down with union representatives and hash out wage levels for all the workers in the industry (though some used to do it voluntarily). This leaves unions vulnerable to competitive pressures — if one restaurant’s union forces management to raise wages, and that wage hike gets passed through to higher prices, it could leave that restaurant vulnerable to being undersold by its local competitors. Buttigieg’s proposal would reduce or eliminate that risk. Consumers would pay somewhat higher prices for local services, but some income would be shifted from business owners to workers.

Multi-employer bargaining would probably work fine for local services, but can run into a problem when overseas competition comes into the picture. Unions that push up wages in industries like auto manufacturing can win worker gains in the long term but leave their companies vulnerable to competitors in South Korea, Japan, Germany or elsewhere. Unions in general have this problem, but multi-employer bargaining could increase the risk that an entire U.S. industry could lose market share from one short-sighted labor agreement.

However, it is possible to envision institutions that would limit this risk, and raise the chance that unions and management would come to agreements that sustain productive industries for the long-term. One such idea would be presidential candidate Elizabeth Warren’s plan for co-determination (worker representation on corporate boards), which could make labor-management negotiations less confrontational.

Another possibility is wage boards. This system would create councils composed of representatives from labor, management and government. These boards would set minimum wage standards for industries and occupations where wages are already higher than the federal minimum. Such a system — whose powers would be similar to those of government tribunals used in Australia — would rapidly eliminate the problem of low unionization rates, since even workers who aren’t in unions would be covered by the standards. That would bring the U.S. in line with most of Europe, where the number of workers covered by collective-bargaining agreements is much higher than the number belonging to unions.

It would also potentially lead to more far-sighted decision-making about whether to raise wages now or keep wages temporarily low to preserve an industry’s competitive position. In Germany, where wage bargaining is done at the industry and regional level and involves worker councils that operate independently from unions, labor has actually helped to restrain wage growth in order to maximize employment levels, avoiding the kind of destructive and confrontational relationship that has tended to characterize union-management relations in the U.S.

Buttigieg, Warren, and other candidates should consider bargaining with either wage boards or German-style worker councils. It would have the potential to simultaneously raise wages for millions of U.S. workers not covered by the minimum wage and make the relationship between labor and management more harmonious and forward-looking. It’s a big idea worth serious consideration.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.