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America Works

America Works: Thoughts on an Exceptional U.S. Labor Market

Richard B. Freeman
Copyright Date: 2007
Published by: Russell Sage Foundation
Pages: 208
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  • Book Info
    America Works
    Book Description:

    The U.S. labor market is the most laissez faire of any developed nation, with a weak social safety net and little government regulation compared to Europe or Japan. Some economists point to this hands-off approach as the source of America’s low unemployment and high per-capita income. But the stagnant living standards and rising economic insecurity many Americans now face take some of the luster off the U.S. model. In America Works, noted economist Richard Freeman reveals how U.S. policies have created a labor market remarkable both for its dynamism and its disparities. America Works takes readers on a grand tour of America’s exceptional labor market, comparing the economic institutions and performance of the United States to the economies of Europe and other wealthy countries. The U.S. economy has an impressive track record when it comes to job creation and productivity growth, but it isn’t so good at reducing poverty or raising the wages of the average worker. Despite huge gains in productivity, most Americans are hardly better off than they were a generation ago. The median wage is actually lower now than in the early 1970s, and the poverty rate in 2005 was higher than in 1969. So why have the benefits of productivity growth been distributed so unevenly? One reason is that unions have been steadily declining in membership. In Europe, labor laws extend collective bargaining settlements to non-unionized firms. Because wage agreements in America only apply to firms where workers are unionized, American managers have discouraged unionization drives more aggressively. In addition, globalization and immigration have placed growing competitive pressure on American workers. And boards of directors appointed by CEOs have raised executive pay to astronomical levels. Freeman addresses these problems with a variety of proposals designed to maintain the vigor of the U.S. economy while spreading more of its benefits to working Americans. To maintain America’s global competitive edge, Freeman calls for increased R&D spending and financial incentives for students pursuing graduate studies in science and engineering. To improve corporate governance, he advocates licensing individuals who serve on corporate boards. Freeman also makes the case for fostering worker associations outside of the confines of traditional unions and for establishing a federal agency to promote profit-sharing and employee ownership. Assessing the performance of the U.S. job market in light of other developed countries’ recent history highlights the strengths and weaknesses of the free market model. Written with authoritative knowledge and incisive wit, America Works provides a compelling plan for how we can make markets work better for all Americans.

    eISBN: 978-1-61044-217-6
    Subjects: Business, Sociology, Political Science

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. About the Author
    (pp. ix-x)
  4. Foreword
    (pp. xi-xiv)
    Eric Wanner

    On April 19, 2007, the Russell Sage Foundation will celebrate its centennial, 100 years to the day since Margaret Olivia Sage dedicated the foundation, in her husband’s name, “to the improvement of social and living conditions in the United States of America.” From the outset, social research played a key role in the foundation’s mission—both by providing vivid descriptions of the social problems that called out for reform in a newly industrialized, urbanized America and by assessing the effectiveness of the foundation’s early programs designed to improve the lot of the disadvantaged. As the foundation’s enterprise matured after World...

  5. Introduction
    (pp. 1-6)

    In 1984 the American Economics Association sent a delegation of economists to the Soviet Union for scientific discussion with Soviet economists. It was the final meeting in a series of cultural exchanges at a time when the Cold War was heating up. The trip was made in summer, but in terms of intellectual discourse, Moscow was as cold and dark as Mordor. At lunch the head of the Soviet delegation reminded us that the Soviet Union had enough nuclear weapons to destroy the United States many times over, including President Reagan’s Hollywood and Disneyland.

    My job was to talk about...

  6. Chapter 1 The U.S. Market-Driven Labor System
    (pp. 7-19)

    More than any other advanced country, the United States relies on the competitive labor market to determine the well-being of workers and the living standards of their families. The collective bargaining institutions, government regulations, and social safety nets that capitalist economies use to constrain market forces and ensure a minimal level of economic well-being are weaker in the United States than in other high-income countries. As a result, working in this country is more important to the economic life of individuals than it is in the European Union (EU), Japan, or even America’s kissing cousin, Canada. With limited unemployment insurance...

  7. Chapter 2 When Markets Drive Outcomes
    (pp. 20-40)

    At the turn of the twenty-first century, the U.S. labor market did better in two important ways than the labor market of most other advanced countries. The United States generated rising employment relative to the working-age population while European Union countries were mired in low employment and lengthy spells of high unemployment rates. The United States also generated large gains in productivity as it moved into a more knowledge-based “new economy.” The combination of rising employment per adult and increased productivity brought about a substantial growth in GDP per capita that could have improved the living standards of all U.S....

  8. Chapter 3 Distribution Matters
    (pp. 41-57)

    Americans are traditionally less concerned about income distribution than persons in other countries. As long as wages and incomes rise for everyone, why worry that Bill Gates makes more than all the other Bills in the country taken together? Economists generally stress the fact that inequality—differences in earnings between economic activities—are an incentive to workers. High rewards in some occupations or industries signal workers to shift into those occupations or industries. Labor economists further stress that when workers do so, this eventually reduces the initial inequality. If professional wrestlers earn more than curlers, some curlers will put down...

  9. Chapter 4 Why Americans Work and Work
    (pp. 58-74)

    Americans work more hours than persons in any other advanced economy. In 2005 American adults averaged 1,804 hours worked over the year compared to 1,638 hours worked by Europeans and 1,775 hours worked by Japanese.¹

    The difference between workaholic Americans and persons in other countries was vividly brought home to me when I helped direct a team of American and Swedish economists analyzing the Swedish welfare state. Sweden had experienced a major economic meltdown in 1991 and 1992 and was struggling to recover. The team met in Chicago in the spring of 1992 to plan our joint work over the...

  10. Chapter 5 Where Have All the Unions Gone . . . Long Time Passing?
    (pp. 75-92)

    Trade unions are the primary worker institution in capitalist economies. They replace market wage setting with collective bargaining and management control over workplaces with “industrial jurisprudence”—rules and negotiated procedures to deal with workplace problems. They guarantee workers a voice at the workplace and make sure that management hears workers’ views on issues.

    For the past half-century, unions have been dying in the United States. Year after year, the proportion of wage and salary workers in unions has fallen. In 2005 union density in the private sector was 7.9 percent of employed wage and salary workers—comparable to the level...

  11. Chapter 6 Regulating the Unregulated Market
    (pp. 93-108)

    The boss walks into your office and yells, “You’re fired!” Why? Because Donald Trump’s television show inspired her. Legal or illegal?

    Management restructures the pension plan so that you get less and top management gets more. Legal or illegal?

    Your supervisor gives you one last assignment before sending your job to Bangalore: train your replacement. Legal or illegal?

    Changes at your workplace endanger safety. You protest. The firm fires you and hires temps to take your job. Legal or illegal?

    Most Americans believe that unfair actions like these are illegal. The United States has the full panoply of labor regulations...

  12. Chapter 7 Management in the Driver’s Seat
    (pp. 109-127)

    With unions in abeyance and weakly enforced government regulations, management determines what happens at most workplaces. The well-being of workers depends on how management organizes work, deals with problems at the workplace, and divides revenues among workers, shareholders, and managers.

    The “invisible hand” model gives management little independent say in how it treats workers or in other critical business decisions. Your boss’s behavior, be it wonderful or horrid, reflects market conditions. If the market for people is tight and you can readily leave for a new job, your boss will either treat you well or pay you a lot for...

  13. Chapter 8 The Great Doubling: Is Your Job Going to Bombay or Beijing?
    (pp. 128-140)

    Before the collapse of communism in the Soviet Union, China’s movement toward market capitalism, and India’s decision to undertake market reforms and enter the global trading system, the global economy encompassed roughly half of the world’s population—the advanced OECD countries, Latin America and the Caribbean, Africa, and some other parts of Asia. Workers in the United States, other higher-income countries, and market-oriented developing countries such as Mexico did not face competition from low-wage Chinese or Indian workers, nor from workers in the Soviet empire.

    Then, in the 1990s, China, India, and the ex-Soviet bloc joined the global economy. Few...

  14. Chapter 9 Helping the Invisible Hand Do Better
    (pp. 141-148)

    Nothing irritated John Dunlop, former secretary of Labor, dean of faculty at Harvard, and my mentor as labor economist at Harvard, as much as academics tacking obiter dicta policy suggestions on to the end of their specialized analyses without giving them the critical attention that they had given to the rest of their study. When I was a student, Dunlop would rail about research that focused on one aspect of a problem but ignored other aspects, that failed to consider the political realities in changing policies, and that ignored the problems of implementation. He viewed ideas by academics that bore...

  15. Notes
    (pp. 149-166)
  16. References
    (pp. 167-180)
  17. Index
    (pp. 181-194)