Doing More than Damage Repair

Jared Bernstein responds to Nick Hanauer’s idea for “progressive labor standards.”

By Jared Bernstein

Tagged EconomicsLabormonopsony

Read Nick Hanauer’s essay on progressive labor standards here.

According to Wikipedia, Nick Hanauer is “an American entrepreneur and venture capitalist.” True, but very incomplete. Hanauer is also a prominent progressive thinker, advocate, funder, and writer. I’ll get to the purpose of this post in a moment, but I’ve long appreciated Hanauer’s ability to frame economic problems and solutions in ways that both make common sense and point the way forward toward bolder policies than many of us tend to come up with.

Probably the most prominent example of his work—no less than President Obama used to reference it all the time—is Hanauer and Eric Liu’s “middle-out economics,” a concept that puts the middle class, not the wealthy, at the center of the economy:

It is time to kill the myth of trickle-down economics — and to replace it with the true story of middle-out economics…Middle-out economics argues that national prosperity does not trickle down from wealthy businesspeople or corporations; rather, it flows in a virtuous cycle that starts with a thriving middle class.

Amen! But beyond not doing the obviously wrong thing—cutting taxes for the wealthy—what are some specific examples of policies that would promote middle-out economics?

How about “progressive labor standards?”

In this new piece, Hanauer looks closely at an area of public policy that is essential for pushing back on the increasingly disproportionate power of capital: labor standards or regulations that protect vulnerable workers from employer exploitation. Their long erosion is one reason why worker bargaining clout is so low, and it is neither an accident nor a benign act of nature. It’s an explicit part of the anti-worker, anti-union conservative project.

Based on this recognition, Hanauer lays out a counter-agenda that goes much further than many of us in the labor standards debate who seek mostly to repair the erosion and prevent egregious maltreatment of vulnerable workers—to adjust the federal minimum wage for inflation, to prevent wage theft and misclassification of regular employees as self-employed. Basically, we’re playing defense.

Hanauer plays offense. He calls on progressives to go outside the box and ramp up labor standards to curb corporate power, especially that of large companies whose increased concentration within their industries is raising employer—over worker—power even further. Though I offer caveats below, it’s refreshingly bold stuff!

Hanauer adds an important dimension to the inequality diagnosis that sets up the piece. It’s no longer adequate to consider only the widening distributions of wages, income, and wealth between households. Certain firms now dominate their industries, where they can set prices and wages (importantly, these so-called “monopsonist” firms have tended to hold down wages but not to raise prices). Geographical inequality is another key dimension, as the individuals and companies benefiting the most from the consolidation of income and wealth are highly geographically concentrated, leading to rising spatial inequality between prosperous tech hubs and the rest of the country.

Market concentration is a key target of progressive labor standards:

74 percent of e-books are sold by Amazon, 75 percent of candy is sold by Mars and Hershey, and 86 percent of basketball shoes are sold by Nike. Retail is particularly concentrated, with 69 percent of the office supply market controlled by Office Depot and Staples, 90 percent of the home improvement store business by Lowes and Home Depot, and an astounding 99 percent of the drug store market dominated by just CVS, Walgreens, and Rite Aid.

The key to progressive labor standards is to not merely establish a set of workers’ benefits, but to scale the benefits to employer size. The minimum wage might start at a “regionally adjusted” $15 and hour but go as high as $22 an hour, based on an employer’s size and market power: “Just like a progressive income tax employs multiple tax brackets to levy higher tax rates based on the size of one’s income, a progres­sive minimum wage might apply multiple “wage brackets” based on the size of a company’s workforce.”

Hanauer proposes a graduated scale to cover the full spate of labor standards, including retirement and health benefits, paid leave, and overtime policies. Presumably, fines for violations would be scalable as well, so wage theft and misclassification would be much costlier to Apple than to the guy with an apple cart.

Ok, how could this go wrong? One issue is measuring and thus penalizing labor exploitation. A metric that has surfaced in this evaluative space is: “Do employees receive public benefits?” Trust me, I understand the problem of large, profitable firms whose workers don’t earn enough to avoid collecting public benefits. But to ding companies who hire such workers threatens to both vilify benefit receipt and engender an unintended version of “statistical discrimination,” where employers are careful not to hire workers who look to them like someone who might draw public assistance. Let’s work to raise wages, not to expose benefit recipients to potential discrimination.

Second, it is harder than it sounds to surgically target one type of firm over another, in no small part because to do so creates an incentive for a targeted firm to make themselves look like a non-targeted firm. Hanauer’s aware of such gaming potential and offers a good idea to prevent it, a “whichever is larger” rule, meaning the progressive standards get applied to workers based on the largest entity in the employment relationship. Thus, an employee outsourced from a small firm who works at a large firm is under the standards of the latter. Still, my experience is that carefully defining and enforcing such rules can be hard, which is one reason why raising taxes on those at the top of the income and wealth scale is a straightforward, progressive complement to these ideas, one Hanauer is fully signed on to.

Finally, while Hanauer wants to rebalance power between small and large businesses, I also worry about progressive standards leading to a real division between good jobs at large employers and much less good ones at small employers. Clearly, he’s justly proposing to raise labor costs at firms whose industry power allows them to set wages too low. But I can imagine a local labor market where this creates some weird competitive pressures. This is why economists tend to prefer uniform regulations that don’t create competitive disadvantages for one firm over another. That said, Hanauer’s goal here is to offset some of the evolving advantages of larger, powerful firms.

But all big ideas come with big challenges and none of these are insurmountable. Moreover, many of us on the progressive left tend to fall into a trap Hanauer avoids: negotiating with ourselves. Given the deep-pocketed, relentless opposition from the forces of inequality, to start out where we want to end up is formula for consistently under-delivering. To do so invokes significant negative consequences for both the effectiveness of our policies, while reducing the political support from the many voters who long for a true progressive agenda, one that doesn’t nibble at the edges of power, but takes big bites out of it.

In other words, let us continue to look for the boldest ideas we can come up with in the pursuit of middle-out economics!

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Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and was formerly chief economist to Vice President Joe Biden.

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