June 2006 – US employment trends force rethink on jobs

If you asked any mother or father about their hopes and aspirations in life, one priority for most would be to see their children growing up in an environment that could provide every opportunity to reach a higher standard of living than their parents.

It made me sit up, therefore, when Tom Kochan, a professor at the MIT Sloan School of Management, confessed a real worry last week that without a remodelling of the labour market and the institutions that serve it “we will be the first generation in a long time that will leave our kids in a worse position than our parents left us.”

Prof Kochan was discussing themes in his latest book, Restoring The American Dream, A Working Families’ Agenda for America. Although, as the title suggests, the book is focused on the US, he believes that labour market reforms are going to be needed across many more western industrialised economies.

Most employment mechanisms, he argues, were created in a different era when families were supported by a single breadwinner. This was a time - before the advent of the so-called “knowledge economy” - when the majority of people worked in manual jobs, often in factories.

In this world of labour-intensive manufacturing, economists would use terms such as the “lump of labour”. Today there is no lump and the word “labour” itself seems antiquated in markets characterised by service jobs, organisational skills and know-how.

The transition from labour-intensive to knowledge-intensive work, often involving job losses, restructurings and, in the US, cuts in both wage rates and benefits, he argues, have undermined “deeply held values of justice, fairness, family and work.”

He writes: “Somehow, American business, labour and government have lost sight of their responsibilities to workers and their families.”

Many working people, he notes, are no longer in control of their destinies. Some face real uncertainty over the prospect of a pension at the end of their careers. The decline of trade union power and influence means that the independence of workers has been compromised. What some in trade unions refer to as employee “voice” is much weaker than it was.

As I have reported in previous columns, in recent years employee satisfaction has not improved in line with economic improvements. Nowhere is this more apparent than in the US. A survey carried out by the Conference Board in 2003 showed falling satisfaction since the mid 1990s among workers in the US with their pay, health insurance and retirement savings.

While full-time employment prevails it seems that in relative terms it is returning less than it was in pay, working conditions and other benefits. This has led to increasing pressure on American two-parent families that on average increased the hours they devoted to paid work by about 15 per cent between 1985 and 2000. Today the parents in these families are working more than 3,800 hours a year, the equivalent of two 40-hour a week jobs.

At the same time many US workers have seen significant declines in their retirement plans. The overall value of pensions, writes Prof Kochan, has fallen by $7bn since 1990 while health insurance costs have spiralled leaving 45m Americans without coverage. While benefits have decline, pay has stagnated. “The median US wage earner in America today is in about the same position as he or she was a generation ago,” he says.

Then there are the 34m US citizens classed as “working poor”, earning too little to raise themselves out of poverty. Prof Kochan goes on to list various other groups of employees who have not faired well since corporate re-engineering policies scythed through workforces during the 1990s. These include the information technology workers who lost jobs in the dotcom downturn and subsequent moves to take many technology jobs offshore.

Declining trade union power, he says, means that collective bargaining can no longer move workers and families in to the middle classes as they did in the past. An estimated 40m workers would join a union were they given a chance but widespread management opposition has curbed the kind of union organising that would have happened two or three decades ago.

A report published by The Commission on the Future of Worker Management Relations – a policy study group set up during the first Clinton administration – found that some 10,000 people a year were being dismissed from their jobs for trying to organise themselves.

In this respect American labour laws offer far less protection of workers’ rights to join a trade union than those in the European Union. No wonder an MIT student, responding to one of Prof Kochan’s papers wrote: “I can’t help but conclude that every generation is ‘living to work’ a little more and “working to live’ a little less.”

Prof Kochan believes that politicians and economists can no longer treat employment and the demands of daily life as separate concerns. “We have to start by taking seriously the need to reduce the stresses on working families. This requires seeing work and family for what they are today, namely tightly coupled issues,” he writes.

Seen from a historical perspective his arguments make sense. Just as full time working at workplaces outside the home, supported by a single male breadwinner came to characterise work in the industrial era, so more flexible patterns are beginning to intercede to today.

It is easy to forget that factory working has a history of less than 250 years. Before that time many jobs were home based. In 1820 there were about 250,000 handloom weavers in England, making cloth in their cottages. By 1856 their numbers had dwindled to 23,000. In the meantime mass employment began to dominate textile manufacturing. In the US manufacturing began to proliferate in the late 19th century creating the same trends.

Today far larger numbers of women have entered the workplace creating new social issues. Some women are delaying starting their families. Childbirth has declined all over the western world.

Faced with a continuing squeeze on pay and gradually increasing pressure on working hours, we should not wonder that family sizes are falling. Employers need to learn again the lessons discovered by Henry Ford in 1913 when he stepped up the wages of his employees from an industry average of $11 a week to $5 a day. The move was heavily criticised but the ripple it created across industry created the spending power and thus the market for thousands of mass produced products.

Today the reverse is happening in manufacturing. As Prof Kochan points out, many of the service jobs replacing the dwindling number of blue collar jobs do not pay as well as the manufacturing jobs that have been displaced.

To deal with these issues he says that governments will need to instigate more policies that promote the integration of work and family life. The education system will need to adjust in order to deliver lifelong learning. Employers will need to become more accountable to employees who need to recover their collective voice. Pensions and benefits will need to be portable and transparent. Why can’t every employee see – and top up if they choose to do so - their individual pension pots? In the US, as in the UK, politicians have been slow to respond to these changing needs.

The danger is that those at the top of companies and at the head of other institutions will fail to heed the reality of declining well being among large sectors of society. If good jobs are becoming scarce the market must find new ways to recognise, reward and promote good work. People still need to earn their living. That remains an economic and human imperative.

Restoring The American Dream, A Working Families’ Agenda for America, by Thomas A Kochan, is published by The MIT Press.