Henry Ford had two great ideas. One was the creation of the first factory assembly line with a conveyor belt. It cut the time to produce a model T from about a day and a half to an hour and a half. It created a massive productivity change.
But Ford had another idea that is less discussed. He bet the company on a bizarre notion: if he doubled worker wages from $2.50 a day to $5.00 a day, he might reduce production problems, accidents and absenteeism. At the same time, worker turnover and training would be reduced. Again, productivity would increase.
The bet paid off. It made Henry Ford rich. It opened the door to careful labor force management and higher wages for many workers. It contributed to the creation of a middle class America.
I remembered this bit of history as I read Neal Gabler’s “The Secret Shame of Middle Class Americans.” The article is in the May issue of the Atlantic. It’s something everyone should read, particularly those in the top tier of corporate America.
The article explains the anger and discontent that Donald Trump has mobilized for himself, as himself, and that Bernie Sanders has mobilized for his part of the Democratic Party. After nearly half a century of slow but constant decline, a majority of Americans are angry. The root of that anger is the terms of trade for work.
Yes, you read that right— nearly half a century of decline. It has taken that long to cross all collar colors. It started in the ‘60s with the peak of power for the coal and auto unions. It spread further when the communications workers lost their power in the ‘70s. And it climaxed when Ronald Reagan broke the air traffic controllers union in 1981.
All those events marked the decline in the terms of trade for American workers. Along the way, pensions have disappeared, benefits have been whittled away, job security has vanished and wage gains have trailed inflation. According to data from the Federal Reserve Bank of St. Louis, labor’s share of the business sector peaked in 1960. It began a steep decline in 2000.
At the same time, corporate executive salaries have soared and corporate profitability, by multiple measures, has reached record levels. Much, but not all, of the gain has been achieved by exporting American jobs. Today, older Americans worry about whether their savings will ever earn an actual return. Younger Americans worry about the pressure of student loans. With rare exceptions, everyone worries about their job.
This decline isn’t a passing mood. It’s not just a bad idea we can’t get out of our heads. It’s real. One of the best demonstrations is a table on the distribution of wealth over time created by the Urban Institute from data in the Federal Reserve Surveys of Consumer Finance. The data, available as a spreadsheet download, shows how real wealth changed from 1963 to the most recent survey in 2013. Here are some of the main findings in that data.
—For American households at the 50th percentile, the median level of wealth, net worth fell from $135,858 in 2007 to $81,400 in 2013, a 40 percent decline. The level, in 2013 dollars, is about the same as it was in 1983, $80,150. That means going nowhere for 30 years.
—Net worth at the 20th percentile has fallen from $8,230 to $4,300 over the same period, a decline of 48 percent. Either way, it’s less than the value of a very used car. It’s also lower than the $6,095 net worth in 1983.
—At the 80th percentile, the other end of the scale, wealth still declined from 2007, but the decline was 23 percent, not 40 percent. And from 1983 to 2013 wealth doubled from $272,280 to $557,917. Those higher up the wealth scale do progressively better. At the 99th percentile, 20 percent of wealth was lost between 2007 and 2013 but wealth increased by 145 percent between 1983 and 2013.
There is no sign this trend will reverse. Will the solution come from Washington? Probably not. In any case, no one can hold his breath that long.
We need a 21st century Henry Ford. Shout if you see him.
On the web:
Neal Gabler, “The Secret Shame of Middle-Class Americans,” Atlantic, May, 2016
http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/
Nine Charts about Wealth Inequality in America
http://apps.urban.org/features/wealth-inequality-charts/
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(c) Scott Burns, 2020