The American worker
A blueprint for restoring the middle class
Key takeaways
Economic Decline and Stagnation: Since the 1970s, globalization, the decline of unions, and unskilled immigration have led to stagnant wages for American workers, contributing to the erosion of the middle class.
Rising Living Costs: The cost of living has outpaced wages, making it increasingly difficult for a single income to support a family, pushing more families into financial hardship.
Blueprint for Revival: To restore the middle class, this article proposes implementing a universal tariff, modernizing union models, and enacting comprehensive immigration reform.
Erie, PA – 1974
The steel mill in Erie, PA, like many others in the industrial Midwest, faced closure in 1974 due to global competition, leading to layoffs. 500 workers would lose their jobs and 500 families would be devastated. In the years to come, many would leave Erie, leaving a hole in the local economy. The city would lose a major source of tax revenue and would have to cut services, like policing. Crime would increase, making Erie unattractive to new businesses, triggering a municipal doom loop.
The social fabric of Erie was deeply affected by the mill’s closure. Some of the unemployed, mostly men, eventually stopped looking for new work and became permanent dependents on welfare. An epidemic of what public health experts call “deaths of despair” spread- deaths caused by drug overdoses, suicide, or alcohol. Erie wasn’t alone, the same story could be told across what we now call the Rust Belt. By the 2010s, the life expectancy of males without a college degree was actually decreasing – before COVID-19.
Today, lots of attention is placed on the “working-class” but little is done to actually implement policies to improve their lives. In this article, I’m going to explore the stagnation of financial life for working-class Americans, describe how hard life has become financially today, and propose a handful of policy solutions to reinvigorate the American Dream. Not so long ago, workers could consider themselves middle class, and can do so again.
Stagnation
Since the 1970s, wages for hourly workers have stagnated, despite workers being able to do 3.53x more.
This divergence, not seen for white-collar workers, has 3 causes: globalization, the decline of unions, and unskilled immigration.
First, advances in information technology and containerized shipping led to the greatest wave of globalization in world history. Firms faced competition from foreign companies with lower labor costs and unburdened by costly environmental and safety regulations. Simultaneously, large firms could offshore their operations and gain from “labor arbitrage”, substituting expensive Americans for cheap foreigners. In both scenarios, workers lost their jobs.
Second, union membership declined precipitously. In the past, unions guaranteed good wages for their members but in a globalized world, unions became noncompetitive. The labor movement lost its political strength and by the 2020s the primary union drives came from journalists and baristas.
Finally, increased unskilled immigration in the wake of LBJ’s 1965 immigration reform bill grew the labor supply and allowed employers to pay hourly workers less. A report by the Brookings Institution[i] suggests that an influx of low-skilled immigrant workers from 1990 to 2006 reduced the wages of low-skilled workers by about 4.7%. This effect is primarily observed among workers who are in direct competition with new immigrants for similar jobs.
Cost of thriving
The result of stagnating wages has been that a single job can’t cover all of a family’s expenses: food, housing, healthcare, transportation, and education. To make ends meet, workers have had to get a second job or a spouse who would otherwise prefer to stay home with the family had to get a job. The think-tank American Compass has developed a Cost of Thriving Index[ii], which shows how average wages and typical expenses for a family of four compare. In the mid-1980s, a single middle-class income could support a family of four, with a little left over to save. By 2000, a single average middle-class income could no longer support a family and today it takes 119% of an average middle-class wage to support the same family.
Restoring worker power
The blueprint for rebuilding the middle class should address the three root causes of its demise: globalization, the decline of unions, and unskilled immigration.
First, America can’t retreat from the world nor has globalization been all bad. As argued for previously, America should institute a universal tariff to decrease the competitiveness of imports and boost domestic jobs.
Second, some college-educated knowledge workers, statistically liberal, are trying to recreate the greatest hits from 20th century Democratic Party union politics. This is misguided. Plant-by-plant unions are outdated 20th century labor policy. What is needed is a 21st century labor model for a globalized economy. Entire sectors should be able to bargain at the national level for traded industries, like aerospace manufacturing. This is how they do it in Germany, an industrial powerhouse. Labor should hold one seat on the boards of public companies. Lawmakers should also pass worker-friendly employment law, such as the recent ban on noncompete contracts (though this ban should be passed by Congress, not an Executive agency).
Finally, comprehensive immigration reform is needed. The 1990-1997 Commission on Immigration Reform, also known as the Jordan Commission, conducted a thorough study of federal immigration and naturalization policies. Led by Barbara Jordan, a Democrat, the commission’s recommendations were bipartisan and included securing the border, limiting unskilled immigration, while increasing high-skill H1B immigration.
Restoring the American middle class requires addressing the root causes of its decline: the impacts of globalization, the reduction in union power, and the influx of unskilled immigration. Implementing a universal tariff can protect domestic jobs, while modernizing union models to allow for national-level bargaining for entire sectors can empower workers in a globalized economy. Additionally, comprehensive immigration reform based on the Jordan Commission's recommendations can balance the labor market by limiting unskilled immigration and promoting high-skill immigration. By taking these steps, we can rebuild the middle class and reignite the American Dream for future generations.
[i] https://www.brookings.edu/articles/what-immigration-means-for-u-s-employment-and-wages/
[ii] https://americancompass.org/2023-cost-of-thriving-index/