The shortage of secure jobs for the middle classes is closely linked to the disappearance, as a result of globalization and technological change, of blue-collar manufacturing jobs and sales and office jobs in the service sector.

December 13, 2021, 12:10 p.m.

Last modification: December 13, 2021, 01:25 PM

Dani Rodrik / Professor, Harvard University. Illustration: SCT


Dani Rodrik / Professor, Harvard University. Illustration: SCT

The past four decades of globalization and technological innovation have been a boon for those with the skills, wealth and connections to take advantage of new markets and opportunities. But ordinary workers have had much less reason to celebrate.

In advanced economies, the incomes of less educated people have often stagnated despite gains in aggregate labor productivity.

Since 1979, for example, the compensation of production workers in the United States has increased by less than a third of the rate of productivity growth. Insecurity and inequality in the labor market increased, and many communities were left behind as factories closed and jobs moved elsewhere.

In developing countries, where standard economic theory predicted that workers would be the primary beneficiaries of the expanding global division of labor, business and capital again reaped the greatest gains.

A forthcoming book by Adam Dean of George Washington University shows that even where democratic governments prevailed, trade liberalization went hand in hand with repression of workers’ rights.

The ills of the labor market create wider social and political tensions. In his groundbreaking 1996 book “When Work Gone”, sociologist William Julius Wilson described how the decline in blue-collar jobs had fueled an increase in family breakdown, drug addiction and crime.

More recently, economists Anne Case and Angus Deaton have documented the increase in “deaths of desperation” among less educated American men. And a growing empirical literature has linked the rise of authoritarian, right-wing populism in advanced economies to the disappearance of good jobs for ordinary workers.

Due to the global Covid-19 pandemic, labor issues are receiving renewed attention – and rightly so. But how can workers not only get their fair share, but also have access to decent jobs that allow them to live fulfilling lives?

One approach is to rely on the enlightened self-interest of large corporations. Happy, fulfilled workers are more productive, less likely to quit, and more likely to provide good customer service.

MIT’s Zeynep Ton has shown that retail establishments can cut costs and increase profits by paying good wages, investing in their workers, and meeting employee needs.

In advanced economies, the incomes of less educated people have often stagnated despite gains in aggregate labor productivity. Photo: Bloomberg

In advanced economies, the incomes of less educated people have often stagnated despite gains in aggregate labor productivity.  Photo: Bloomberg

In advanced economies, the incomes of less educated people have often stagnated despite gains in aggregate labor productivity. Photo: Bloomberg

But many companies that claim to take the labor standards route are also fiercely anti-union; taking the low road by minimizing workers’ wages and saying is too often a profitable business strategy.

Historically, it is the counter-power of work – through collective action and union organization – that has brought the most significant gains to workers.

Thus, a second worker support strategy consists of increasing the organizational power of workers vis-à-vis employers. US President Joe Biden has explicitly endorsed this approach, arguing that the shrinking American middle class is a consequence of declining union power, and pledged to strengthen organized labor and collective bargaining.

In countries like the United States, where unions have weakened considerably, this strategy is essential to correcting imbalances in bargaining power.

But the experience of many European countries, where work organization and collective bargaining remain strong, suggests that this may not be the complete cure.

The problem is that the rights of strong workers can also create dualistic labor markets, where the benefits flow to the “insiders” while many less experienced workers struggle to find employment.

Extensive collective bargaining and rigorous labor regulations have generally served French workers well. But France has one of the highest youth unemployment rates among advanced economies.

A third strategy, which aims to minimize unemployment, is to ensure adequate demand for labor through expansionary macroeconomic policies. When fiscal policy keeps aggregate demand high, employers hunt workers – rather than the other way around – and unemployment can stay low.

Research by Larry Mishel and Josh Bivens of the Economic Policy Institute shows that macroeconomic austerity is one of the main reasons American wages have lagged productivity since the 1980s.

In contrast, the Biden administration’s aggressive budget response to the Covid-19 crisis caused US wages to rise amid sharply falling unemployment.

But while tight labor markets can help workers, they can also pose an inflation risk. Moreover, macroeconomic policy cannot target the least skilled workers or the regions where the jobs are most needed.

A fourth strategy is therefore to change the structure of demand in the economy in order to benefit less educated workers and disadvantaged regions in particular.

The shortage of secure jobs for the middle classes is closely linked to the disappearance, due to globalization and technological change, of manual manufacturing jobs and of sales and office jobs in the service sector.

Policymakers need to focus on expanding the supply of jobs amid the distribution of skills in order to reverse these polarization effects.

This involves revising existing industrial and commercial development programs so that incentives are aimed at companies most likely to generate decent jobs in the right places and are designed with the needs of those companies in mind. Conventional industrial policies that target skill- and capital-intensive manufacturing, and rely heavily on tax breaks, will do little to spur the expansion of good jobs for those who need them most.

In addition, we need to explicitly consider how new technologies help or hurt workers, and rethink national innovation policies. The current narrative focuses almost exclusively on how workers should retrain to adapt to new technologies, and too little on how innovation should adapt to the skills of the workforce.

As economists such as Daron Acemoglu, Joseph E. Stiglitz, and Anton Korinek have pointed out, the direction of technological change is flexible and depends on the price incentives, taxes, and standards prevailing among innovators.

Government policies can help guide automation and artificial intelligence technologies on a more worker-friendly path that complements workers’ skills rather than replacing them.

My Harvard colleague Stefanie Stantcheva and I discussed some preliminary ideas in a report we prepared for French President Emmanuel Macron.

Ultimately, increasing labor incomes and the dignity of work requires both strengthening the bargaining power of workers and increasing the supply of good jobs. It would give all working people a better deal and a fair share of future prosperity.

Dani Rodrik, professor of international political economy at the John F. Kennedy School of Government at Harvard University, is the president of the International Economic Association.

Warning: This article first appeared on Project Syndicate and was published by Special Syndication Agreement.

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