Inequality and Corporate
Multinational Monitor, May
Here are 10 of the more important contributing
factors to surging inequality in the United States.
1. FALLING LEVELS OF UNIONIZATION
Unions now represent less than 10 percent
of the workforce in the private sector in the United States. Yet
they still represent the single best means for workers to improve
their economic conditions. There is a more than 28 percent wage
premium for union membership in the United States -meaning the
single fact of belonging to a union raises the average worker's
wage more than 28 percent-and it is far higher in the area of
But even reference to the dramatic wage
premium understates the importance of unions. Union power is collective
power. When unions represent a higher proportion of the workforce-when
there is greater "union density"-in a particular industry,
unions can raise the overall industry wage rate, including for
non-union workers. When unions represent a higher proportion of
the national workforce, they can raise the national wage rate.
Even more importantly, when there is greater
national union density, unions can exert more political power,
to ensure the benefits and pain in the national economy is more
As Kate Bronfenbrenner describes, the
erosion of the U.S. manufacturing base, vicious anti-union campaigns
by employers and inadequate organizing efforts by labor has led
to the drop-off in union representation in the United States.
2. CORPORATE GLOBALIZATION
The corporate globalization trade regime-manifested
in 1 the rules of the World Trade Organization and other trade
agreements-has freed corporations to locate production anywhere
in the world for sale anywhere in the world. As Jared Bernstein
recounts, millions of high-paying manufacturing jobs have been
lost in the United States as a result.
Workers who remain in the manufacturing
sector are forced to compete in the race to the bottom, with union
demands for wage gains replaced by employer demands for wage givebacks.
Sometimes the employers really are unable
to compete with lower-wage producers in
other countries (sometimes they are those lower-wage producers).
Sometimes the employers simply use the threat to threat to enhance
profitability. Either way, workers bargaining leverage is dramatically
lessened. Workers lose. Owners win.
Moreover, the exact same threats are among
the most effective at deterring workers from joining unions. Join
a union, employers tell workers in the majority of organizing
campaigns, and we'll have to close. We just can't compete if we
are burdened by union wages and union bureaucracy (read: protection
for worker rights).
Nowhere is the intertwined nature of the
causes of inequality made more clear: Corporate globalization
diminishes the union base and worker power. Weaker unions are
less able to defend their jobs, either in direct negotiations
with companies or in policy-making disputes in Congress. And on
One way to place a floor on the downward
push on wages is to maintain a respectable minimum wage. Because
the minimum wage in the United States is set periodically, and
not pegged to inflation, it is forever losing value, though periodically
bumped up a bit when the drop gets severe and the political moment
makes it hard for Republicans to defeat a minimum wage rise. There
has been no progress whatsoever in the obvious solution to this
problem, which is to raise the minimum wage and then peg it to
the inflation rate, so that it rises along with the cost of living.
Low-wage industries-led by the restaurant association-have led
the Chamber of Commerce and the major national business lobbies
to oppose minimum wage hikes.
Today's minimum wage of $5.15 has been
stuck since 1997. In inflation-adjusted terms, its current value
is almost a quarter less than at its peak in the late 1960s.
In one of the most vibrant economic justice
campaigns in the United States today, many communities have passed
living wage laws, requiring employers to pay not just a minimum
wage, but a minimum wage sufficient to enable a family to survive.
Unfortunately, these laws typically apply only to government contractors,
or sometimes to recipients of government benefits, but not to
the overall community. They are an important step forward, and
provide some hope for the future; but for now have not managed
to have broad nationally felt impacts on wage rates.
4. THE SOARING STOCK MARKET
Although the market has come back down
to earth to more reasonable levels in the last couple years, it
has grown dramatically over the last three decades. The "sustainable"
part of this stock market rise-meaning stock prices justifiable
in relationship to earnings, or profits, and the prospect for
future profits-reflects spikes of very high profits, including
in the mid-1990s. Those high profits themselves were due to a
variety of factors, but among them were the increased reliance
on overseas manufacturing and monopolistic markets enabling corporations
to impose excessive prices on consumers.
Popular myth to the contrary, the stock
market gains accrued overwhelmingly to the rich. Edward Wolff
explains that stock holdings are as concentrated now as they have
5. TAX CUTS FOR THE RICH
Although the federal tax code remains
somewhat progressive-meaning higher income earners pay a higher
proportion of their income in taxes than lower earners-it is less
so than it has been historically. The Reagan and Bush II tax cuts
have massively reduced the tax take from the rich, and the currently
proposed Bush tax cut would reduce the level still further. More
than a third of the value of the current Bush proposal would accrue
to the richest 1 percent of taxpayers, according to Robert McIntyre
of Citizens for Tax Justice. Nearly half of the benefit would
go to the richest 5 percent of taxpayers.
State taxes, heavily reliant on sales
tax, remain regressive; and the current state funding deficit
is likely to lead states to increase regressive taxes.
The one very important offset in the gloomy
tax story has been the Earned Income Tax Credit, a federal tax
rebate for the lowest income earners, which has meaningfully raised
the income level of the poorest.
6. REDUCED TAXES ON CORPORATIONS
As Robert McIntyre explains, thanks to
tax code revisions and fancy tax sheltering, the corporate share
of paid federal taxes is down to approximately 7 percent-compared
to 22 percent level in the 1960s.
7. DECLINING WELFARE PAYMENTS TO THE POOR,
INCREASED PAYMENTS TO THE RICH
The last three decades have seen a steady
decline in traditional welfare payments to the poor, leaving them
considerably worse off-though again, this condition has been considerably
offset by the Earned Income Tax Credit. At the same time as they
have cut welfare for the poor, local, state and federal governments
have become far more generous in making gifts to the corporate
welfare kings. To take two indicators: in just the period from
the 1970s to the 1990s, corporate bailouts have grown from the
level of hundreds of millions of dollars to hundreds of billions
of dollars. The defense budget, which serves corporate welfare
as much as any other purpose, has soared under the Reagan and
Bush II administrations-a simple transfer from taxpayers to Lockheed,
Boeing, Raytheon and their shareholders.
8. AN OUT-OF-WHACK FINANCIAL SYSTEM
The banking system systematically deprives
lower-income and minority communities of the credit they need
to build up investments and wealth. The services that are provided
come increasingly from shady and price-gouging check-cashing operations
and payday lenders. Meanwhile, the super-aggressive marketing
of credit cards to middle-income people has led many to fall deep
into debt, and forced to pay off huge accumulated debts at usurious
9. TIGHT MONEY FROM THE FEDERAL RESERVE
Although it has loosened its grip on the
money supply in recent years, at crucial periods over the last
three decades the Fed has driven up interest rates and plunged
the economy in recession. The resultant high unemployment rates
diminished worker power and pushed down wages.
10. A CULTURE OF OVERCOMPENSATION AND
ACCEPTANCE OF THE WEALTH DIVIDE
Although the routinization of obscenely
high executive pay directly affects too few people to meaningfully
impact overall income inequality, it has created a culture in
which professionals and people in upper-income groups expect to
be paid very generously. New class-based social norms have emerged
about what constitutes a reasonable salary, and how a much a person
"needs" to get by-what upper-income groups view as necessity
is of course unavailable to most people in the country.
This culture, nurtured by new marketing
campaigns advertising luxurious lifestyles and a media that more
and more narrowly targets upper-income groups, has helped push
up salaries broadly at the top.
But these riches are not available to
all. Part of the culture has been the normalization and acceptance
of a persistent and deepening income and wealth inequality, with
the situation of middle and lower income groups largely absent
from the news or popular culture.