A post-COVID labor revival?

New York – Although one or more vaccines may soon be available, COVID-19 will continue to harm the global economy in the year ahead. And that means a difficult year for the world’s workers.

The good news is that the pandemic has highlighted the vital role played by essential workers in sectors such as health care and logistics, especially those in precarious, low-paid jobs. In 2020, many in the developed world realized that their health and wealth depends in part on public schools staying open so that parents can work. People also saw how economies can suffer from a lack of paid sick leave, weak unions, the absence of workplace safety standards for infectious diseases, and the erosion of basic income protections when paid work is unavailable.

The bad news is that recognizing these problems does not change them. As millions of people actively seek work in 2021, many will find that employers increasingly have the upper hand, particularly in the United States. In short, American workers are about to be squeezed further, unless President-elect Joe Biden’s administration does something about it.

This reflects the increase in surplus labor (10 million fewer Americans were working in October 2020 than in February), the absence of vigorous full-employment policies, and inadequate unemployment insurance, pensions and health-care coverage. Furthermore, the pandemic-induced recession is enhancing monopoly and monopsony power — most of all in the United States, but elsewhere as well — and accelerating the long-term decline in labor’s share of total national income.

In recent decades, U.S. productivity gains have increasingly gone to capital rather than labor. Between 1979 and 2018, net productivity grew by 69.6% but typical workers’ pay rose just 11.6%, or only one-sixth as much.

The decoupling of pay and productivity can be seen across the OECD. In Poland, for example, productivity grew 2% more than wages per year between 1995 and 2013. That difference amounted to 1.3% in the United States, 0.7% in Canada, 0.5% in Japan and 0.2% in Germany over the same period. The weighted OECD average was 0.7%.

Princeton’s Steven Strauss argues that COVID-19 is ushering in an era of increased industrial concentration. High returns to e-commerce, automation and technology will leave fewer competitors in various markets, with corporate chain stores replacing many local small businesses. This trend will further stymie labor’s ability to press for improved compensation and working conditions. The recent success of ride-hailing firms such as Uber and Lyft in securing the passage of Proposition 22 in California — allowing gig companies to continue treating their drivers as independent contractors rather than employees — may be just the start of a renewed anti-labor push.

What workers want

When labor’s share of GDP falls, aggregate demand, investment, productivity and economic growth all suffer. U.S. policymakers must therefore urgently begin to reverse this decades-long trend. For starters, Congress should approve further stimulus payments for workers, restore supplemental federal unemployment benefits and provide more resources for public schools.

The Biden administration will still have room for maneuver even if the Senate remains under Republican control following the two run-off elections in Georgia in January 2021. It should restore labor unions’ power through executive-branch measures that facilitate collective bargaining and strengthen enforcement of rules upholding workers’ rights. This will help to boost labor’s share of national income by increasing low- and middle-income workers’ compensation. The new administration should also implement overtime pay protections and bar employers from imposing non-compete clauses on those they classify as independent contractors.

Requiring all employers to provide paid sick leave should be another of the new administration’s goals. The current large gaps in provision are a public-health menace, because the risk to workers’ household finances discourages them from staying home or seeking medical treatment. That is precisely why the U.S. Centers for Disease Control and Prevention, and not the Department of Labor, keeps data on paid sick leave.

Congress can boost workers’ bargaining power by increasing penalties for employers who misclassify workers and violate labor law. Likewise, the federal government could block contractors who chronically violate labor and employment laws, offshore and outsource jobs, increase dividends or engage in stock buybacks. And with several states having approved a $15 hourly minimum wage — most recently Florida, which US President Donald Trump won in 2016 and 2020 — a few Republican senators might be persuaded to increase the federal minimum wage to this level.

Moreover, permanent changes to U.S. social-insurance programs would strengthen workers’ economic security. Higher pensions would help to avert the risk of tens of millions of financially fragile older workers flooding the labor market as they cash out their retirement accounts. Avoiding this scenario would, in turn, reduce the downward pressure on younger workers’ pay and employment conditions. Similarly, eligibility for unemployment benefits should be dramatically broadened (not least to include gig workers) and benefit levels increased.

Employers should have easier ways to furlough rather than shed employees during sharp downturns, or to offer work-sharing arrangements, as the University of Massachusetts economist Arindrajit Dube argues. Finally, if full employment was the top policy priority, the government would become the employer of last resort. Laid-off bartenders could become disease contact tracers or teacher assistants, for example.

The equity imperative

Economists could have done better in the pandemic-driven recession, but their complicated models once again proved to be too facile. They sought to maximize two objectives — health and wealth — by modeling how to generate as much economic activity with as little illness as possible. But they should have included a third aim: equity.

Had policymakers in most rich countries taken equity into account, all schools and all but the least-valued and most virus-prone businesses would have remained open. Mask mandates, fines for large gatherings, adequate personal protective equipment and jobs for the unemployed as public-health and school assistants would have been key public-health measures. Instead, school closures worsened social inequality. Many children who lack access to private schooling (or home-schooling pods), the Internet and adult supervision will be left behind.

The U.S. and other economies risk operating well below full employment in 2021, owing to lower spending by households, businesses and governments. Policymakers should therefore use all levers to boost aggregate demand, sustain full employment and redress the current power imbalance in the labor market. Four decades of pro-business tax policies, lax financial regulation and anti-union bias mean that employers haven’t had to compete hard for workers. The erosion of pensions, low or negative growth in public-sector employment, and underinvestment in education have all helped to weaken the position of workers who otherwise would take risks to change jobs or press for improved compensation.

But at least now labor and its interests are getting the attention they deserve. In contrast to the recession that followed the 2008 global financial crisis, the COVID-19 downturn has elicited strong public support for workers. Perhaps, at long last, that sentiment will translate into concrete measures that benefit labor and apply a brake on corporate welfare. To ensure a sustainable recovery from the current crisis, and to mitigate the economic fallout from the next one, policymakers everywhere must put workers first.

Teresa Ghilarducci is professor of economics at The New School for Social Research. © Project Syndicate, 2020.