On Thursday, October 4th, the Science, Technology, America and the Global Economy Program hosted Richard Freeman for a discussion of his new book, America Works: Critical Thoughts on the Exceptional U.S. Labor Market. The book is an even-handed and well-researched analysis of the U.S. labor market, with specific and pragmatic policy proposals for fine-tuning the American system to meet the needs of workers.
Why is the labor market in America exceptional? Freeman began his discussion with an explanation that the US is more reliant on the free market and has fewer labor institutions than the other industrialized nations, creating substantial economic success: high productivity growth, high rates of employment, and an adaptable economy.
The lack of government labor regulation, though, has created serious negative effects – high and increasing income inequality and worker dissatisfaction. The US is 84th of 118 countries in income inequality, alongside third world countries (cited by Freeman from the CIA World Factbook). Most of the productivity growth over the last 30 years has gone to the top 1% of Americans, while average earnings have remained stagnant.
These serious issues in the labor market have not gone unnoticed. Worker demands for unions and other kinds of worker representation over the last 10 years have risen extraordinarily. Editors of top economics journals can now be found reporting the unfairness and even criminal nature of stock options and other top-executive perks. Freeman noted, "They know something has not gone right with the capitalist system...you don't have to be a leftist to think that this is something unhealthy for the country."
Freeman further explained that the inequality is due to a variety of factors, including new technologies, the pressures of the global economy, and the decline of unions, coupled with a failure on the part of the U.S. government to adopt policies that would reduce the current level of inequality. Markets depend on public institutions and an array of public investments. Nor do market outcomes always align with national goals. At times, government action and intervention are necessary to assure the effective working of markets.
In fact, one of Freeman's most intriguing points was that a small rate of inequality is good for a country's economy, but, after a certain point, the higher the inequality, the lower the output. Thus, income disparity is not only an ethical predicament, but an economic one as well.
His proposed reform has nine components, all of which he contended will support continued prosperity, but will limit the growth of inequality by increasing taxes paid by the super-rich. A few notable solutions include more research and development, especially for the sciences, more worker decision-making and organization, better pensions and health care, distribution of stock options to all a company's employees, and the certification of corporate board members.
Freeman concluded that these solutions, or others, need to be carried out soon, so that America does not continue to create ever greater levels of inequality.
Drafted by Jacqueline Nader