Post War Social Contract

Workers' standard of living should go up, in "real" terms adjusted for inflation, exactly to the extent that productivity increases.

That's the social contract. For Greenhouse it's simply the cost-of-living adjustment (COLA) plus the annual improvement factor (AIF) first inscribed in the so-called Treaty of Detroit in the 1948 and 1950 negotiations between General Motors and the United Auto Workers and subsequently spread to most union workers and, as a more intangible principle, to all workers in the aggregate.

For more than a quarter-century, from 1947 into the 1970s, wages, incomes, working conditions, and living standards improved steadily and dramatically.

Not an accident, not a gift of benevolent capitalists, but the result of social struggle. UAW. Reuther leads UAW out vs. GM. Nearly 200,000 workers strike for 116 days. Partial victory but dramatic impact. Principle of pay increases with productivity. With union representing 30% of workforce and threatening to organize more, event non-union companies more-or-less matched the union deal.

This began to unravel in the 1970s and 1980s. Defeat of labor law reform under Cater.

a reversal—a 15 percent decline in real weekly wages for production and nonsupervisory workers and a shredding of health insurance, pensions, workplace health and safety, work-family balance, and loss of basic dignity.

If the fruits of productivity growth had been shared since the 1970s as they had been for the preceding quarter-century, the average full-time worker would be earning $22,000 more than she or he is earning today—$58,000 instead of $36,000.

Thus, if you use the postwar social contract of America's "mixed economy" as your only measure of economic justice, every full-time worker is owed $22,000 for the work done last year, and another $22,000 for the work being done this year.

This is an average

Some $2.5 trillion a year (about 18 percent of U.S. gross domestic product) that is being transferred from workers to profits (corporate and otherwise) and, to an extraordinary degree, to the top 1 percent of income earners.

If this were understood more widely, our policy discussions would be focused on two things they are not now: how to increase wages across the board, but especially for the bottom four-fifths of workers, and how to use progressive taxation to recover at least some of the money that has already been stolen in the workplace over the last three decades.

Writing in the American Prospect (March 2008) Bob Kuttner found $600 billion in new tax revenues from corporations and rich households that could be used to spur sustainable economic growth and to adequately fund entitlements, including universal health care.

INEQUALITY

[CBPP]

New data from the Congressional Budget Office (CBO) show that in 2006, the top 1 percent of households had a larger share of the nation's after-tax income, and the middle and bottom fifths of households had smaller shares, than in any year since 1979, the first year the CBO data cover. As a result, the gaps in after-tax incomes between households in the top 1 percent and those in the middle and bottom fifths were the widest on record.

The data reveal starkly uneven income growth over recent decades. Between 1979 and 2006, real after-tax incomes rose by 256 percent — or $863,000 — for the top 1 percent of households, compared to 21 percent — or $9,200 — for households in the middle fifth of households and 11 percent — or $1,600 — for households in the bottom fifth.

In 2006, the average household in the top 1 percent had an income of $1.2 million, up $63,000 just from the prior year; this $63,000 gain is nearly two times the total income of the average middle-income household.

In addition, the share of national after-tax income going to the top 1 percent of households more than doubled between 1979 and 2006, rising from 7.5 percent to 16.3 percent.

Taken together with prior research, the new data suggest greater income concentration at the top than at any time since 1929.

Top 1 percent increased share of income from 7.6 percent in 1979 to 16.3 percent in 2006

That's why Greenhouse's narrow sense of the social contract and the $22,000-per-worker-per-year violation of it are so valuable. Whether it's living wage laws and union protections and workplace law enforcement well beyond the Employee Free Choice Act or increased social wages through universal health insurance and large increases in the Earned Income Tax Credit, among others, there are now well-defined and increasingly popular ways to go about restoring that social contract.

There is also a large pool of excess capital available for the purpose, making the threat of wage-push inflation negligible if not nonexistent. What's more, as all the recent allusions to the Great Depression suggest, we are now in a classic Keynesian crisis of under consumption, hidden for decades in mountains of consumer debt. Even Democratic politicians seem sometimes to realize that restoring economic growth will require us to stop throwing money at rich people and start getting it into paychecks.

Raising wages in a recession is especially difficult, but it is the only way to get the economy growing again on a sustained basis.

It is also the only way for us to recover our civic integrity so that we can get back to treating each other not as costs to be avoided but as fellow workers and citizens to and from whom a decent level of moral reciprocity is owed.