It's time for a big push for labor to organize.
The economic problem of this generation in the United States is income inequality. The rich continue to get richer, and the rest of America wonders when, if ever, a raise is coming. The CEO-to-average-worker pay ratio in 2013 was 331:1. For every dollar the average employee made, a CEO made $331. Back in 1983, the ratio was less than 50:1. (At Wal-Mart in 2013, the ratio was over 1000:1.)
One of the best solutions to this problem is for workers to organize and form unions. As you can see from the chart above, the share of income going to the top 10% of earners took off as union membership fell.
Don't get me wrong, there are a lot of legitimate drawbacks to unions. It adds another layer of political bureaucracy to the workforce. The workplace becomes less flexible, and more split into an us (workers) and them (managers) mentality. That can hurt team cohesion. And overall, it can be a detriment to business.
On the other hand, it can also remind workers that their company isn't their friend — everybody deserves to be paid fairly for their work. Unions can be frustrating for workers, until a crisis happens and they suddenly become indispensable.
Organizing may not be the only solution to income inequality. But it's a big one, and it could move the economy in the right direction.
It's already beginning
On Wednesday, employees at Gawker Media, the massive New York-based news site, will vote on whether to join the Writers Guild of America. This is a symbolic moment, as Gawker would be the first media company created in the age of web-only journalism to vote to organize. Once upon a time, Gawker was known as a place where young writers went to make a name for themselves for a pittance.
That's no longer the case. Because Gawker now seems to be a relatively pleasant place to work, it makes it even more impressive that the employees are ready to organize.
In the LA Times, Steven Greenhouse writes, "The Gawker unionization drive shows that many young people support a union for the same reasons that many of their parents and grandparents did decades ago... [the Gawker employees] say that having a union will assure minimum salary levels and regular raises, improved health coverage and maternity benefits, and create a grievance procedure."
It's a truism that young people are the future of the labor movement, but when you look at the numbers, they are the ones who are the most optimistic about it. Pew put out a new survey on the American public's views on union membership back in April, and young people turn out to be vastly more positive about unions than any other generation.
This coincides with millennials overtaking Gen X as the largest demographic group in the labor force.
Most of these millennials have also entered the labor force in one of the worst economic climates since the Great Depression (after which there was an explosion in labor organization). The demographics, optimism, and economic malaise line up to paint a pretty good picture of the opportunity for labor organizing in the US.
In the last few years, we haven't really seen that. That's because workers have not had much power. When the economy was still really weak, workers didn't have the leverage to demand much from their employers. But the tides are turning and the labor market is firming up. People are quitting and moving between jobs. And yet we're still not seeing wage growth. That should be making workers angry.
Workers now have leverage
We're starting to see the effects. Low paid workers from all industries are increasingly joining the Fight for $15 campaign. Fast food workers are winning higher wages (through organizing). Wal-Mart just announced a pay hike for 500,000 employees. Los Angeles is in the final stages of raising its minimum wage to $15 an hour by 2020.
Even in notoriously union-averse Silicon Valley, support workers are organizing, thanks to a big push supported by the California Labor Federation. Unions are organizing bus drivers and security guards that work on the big tech campuses like Facebook and Google.
Higher wages will come at a cost
Higher wages aren't going to bankrupt corporate America. But paying workers more does cut into profits. Wall Street knows this, and it is aware that keeping union membership low is good for them. Policy wins like the $15 minimum wage are great, but not as effective as voting to organize, which unions are still having a hard time with.
In an investment outlook from last year, Goldman Sachs wrote:
The most important structural reason for the increase in [profit] margins is the fact that the share of corporate revenues that accrues to labor has been steadily declining since 1990. As shown in Exhibit 14, labor’s share of national income was on an upward trajectory until about 1970. It then stabilized for two decades with twin peaks in 1980 and 1992. Since then, labor’s share has been on a downward trend. While some of the recent decline may be cyclical due to the financial and economic crisis of 2008–09, we believe that most of the shift is structural.
As long as union membership stays low, corporate profits stay high. This is what exhibit 14, referenced above, looks like:
The only way to get that line back up is to organize.
But the cost of low wages is higher
Not everyone on Wall Street thinks organizing is a terrible idea for business.
"Falling rates of union membership fragment the labor pool’s bargaining capabilities, keep wage inflation low and thus have the potential to enhance profits," John Stoltzfus, a managing director and Chief Market Strategist at Oppenheimer and Co. "That said, it is ironic that in an economy that is driven by the consumer, reduced wage growth impacts earnings growth of many corporate entities in sectors that traditionally attract broad flows of discretionary income."
Stoltzfus speculates that stagnant wages have contributed to weak earnings in some industries including retail.
While each individual company wants to keep their labor costs low, if all consumer-facing companies' customers have thinner paychecks, that's going to cut into revenues. Eventually, low wages become bad for everyone.