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How a Catch-22 is destroying our middle class

4:57 PM, Apr. 6, 2012  |  

Two major causes of chronic unemployment and stagnant wages are the outsourcing of jobs and the rapid increase of worker productivity. Until Washington politicians deal with these two closely related issues, we’re never going to regain the kind of economy that creates a vibrant middle class.

Throughout most of the past century, corporations became successful through productivity and quality improvement programs that used the ideas and efforts of workers at all levels, from assembly line workers to engineers and scientists.

Some, especially lower-level workers, were concerned that if they increased their productivity, the corporation could function with fewer employees. To get their cooperation, managements pointed out that it was only through improved productivity that workers could expect to receive better pay, better working conditions and possibly fewer work hours.

It’s true that a society improves living standards by cutting the costs of production, including the labor required.

However, there’s a Catch-22 to this reality. Productivity improvements are not automatically shared by everyone involved, no matter who was responsible for them. Indeed, corporate managements and their investors are inclined to keep all benefits for themselves and not share any of their largesse with workers unless they are forced to.

When federal legislation allowed corporations to hire low-wage foreign workers to manufacture products and import them duty-free into the U.S., it forced millions of American workers out of decently paid jobs. Those workers then entered the labor market and depressed wages for all workers in their class.

More importantly, corporations’ power to abandon their American workforces destroyed the ability of labor unions to negotiate for a fair share of productivity improvements. Since union wage increases have always led to increases in nonunion wages as well, their loss of power has resulted in lower overall working-class incomes. (Corporations avoid unionization by keeping their wages close enough to union wages so that workers see no benefit from paying dues.)

Compare the effects of free-market legislation — which has been a disaster for workers at all levels, including professionals, scientists and engineers — with those of the Fair Labor Standards Act of 1938. At a time of 19.9 percent unemployment, the federal government decided that investors and corporate executives should share more of their profits with the people who were actually doing the work.

The FLSA established a minimum wage of 29 cents per hour, prohibited children younger than 16 from working full-time, nonfarm jobs and required time-and-a-half pay for more than 40 hours a week. Amid protests of an economic Armageddon and charges that “socialism never works,” the 60-hour workweek was abandoned, and the 40-hour workweek became the new U.S. standard.

These improvements in pay and working conditions were not the result of workers becoming more productive; they were the result of government actions that protected their interests. For the next four decades, American industry not only survived, it thrived. During this time, our industries and their jobs were protected from low-wage imports, so unions could continue to pressure managements for a fairer share of profits from improved productivity. The resulting prosperous middle class created the most powerful consumer market in the world.

Today, we’ve seen a total reversal of the values that made our economy the best in the world. Corporate leaders now tell relatively powerless unions that they must accept lower wages and worse working conditions if they are to remain competitive with workers in the developing nations.

The appalling unfairness of this whole process is made worse when one considers the fact that the workers who produced our successful corporations in the first place were essentially sold out.

Many of our present manufacturers have become, in effect, investment bankers.

Instead of producing things themselves, they’ve simply given other countries their advanced technologies and the money they need to manufacture products — to sell in the U.S.

Voters should take note: When politicians say they want to “get government out of your lives,” they really want to get government (and labor unions) out of corporations’ lives.

Charles M. Kelly is a retired management consultant living in Burnsville. He can be reached at

Return to Kelly's home page, In Defense of Democratic Capitalism

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