Samuelson devoted his column yesterday to a very interesting new paper from
Frank Levy and Peter Temin of MIT. For those
of us who prefer to read original papers rather than the journalism based on
them, the paper can be found here.
The basic idea behind the paper is that between World War II and 1980 or so,
a set of institutions led by strong labor unions helped to ensure that workers’
income kept up with productivity gains. Since then, however, capital has gained
the upper hand over labor. What’s more, all of these developments were encouraged
by government policy:
The early postwar years were dominated by unions, a negotiating framework
set in the Treaty of Detroit, progressive taxes, and a high minimum
wage – all parts of a general government effort to broadly distribute the
gains from growth. More recent years have been characterized by reversals
in all these dimensions in an institutional pattern known as the Washington
Consensus.
The authors convincingly show a steady decline in workers’ bargaining power
over the past 50 years, as calculated by the proportion of their productivity
gains which end up in their paychecks.
Thoma has a nice response to Samuelson on the question of whether this rise
in inequality is a good thing or has helped the US economy. As for me, I’m also
interested in the term which the authors use to describe the state of affairs
from the Reagan years onwards: the Washington
Consensus.
This is a term coined by John Williamson in the late 1980s,
designed to apply not to the US but rather to policy prescriptions for developing
countries. It’s been distorted wildly since then, to the point at which Williamson,
who has reasonably solid leftist credentials (at least by US standards), has
more or less disowned
it. In any case, however, there is very little in the Washington Consensus
about labor unions being a bad thing, and there’s no hint that productivity
gains should accrue to capital more than labor. (Quite the opposite, in fact,
since the purpose of the Washington Consensus was to help the world’s poor.)
All the same, Levy and Temin pose an interesting question for Democratic presidential
candidates. If you want to reduce inequality, what are you going to do about
it? To be sure, you could start taxing the rich more. But are there more directly
pro-worker things you could do as well – things which would place you
solidly in the legacy of JFK? And can those things really work in an era of
globalization?