New Canadian study explains why working class should be angry

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November 13, 2016.   By KARL NERENBERG

An angry (white) working class, which has not experienced the benefits of trade and globalization, provided Donald Trump with his margin of victory in a few key states that had not voted Republican in decades.

That’s what most who analyzed the results of last Tuesday’s vote are saying.

Highly unionized populations in places such as Erie County Pennsylvania and Macomb County Michigan were so disaffected and angry that they threw their lot in with a bizarre billionaire, whom they don’t particularly like.

Trump’s claim that he cares about the forgotten people, who have been penalized by bad trade deals, Wall Street and shadowy elites, may sound entirely disingenuous to many of us.

Nonetheless, it somehow worked with voters to whom the other side offered scant hope, once Bernie Sanders was out of the picture.

A newly released study by the Canadian Centre for the Study of Living Standards (CSLS) might explain some of that working class anger.

The study’s innocuous sounding title is: Labour Productivity and Real Earnings in Canada, 1976-2014. But its conclusions are almost explosive.

It shows that in Canada, the productivity of labour — the amount workers produce per unit of effort — went up by over one per cent per year over the 38 years between 1976 and 2014.

The average worker’s earnings, however, barely budged over that same period. The rise in wages was less than one-tenth of one per cent per year. Put differently, the rise in productivity was more than 10 times that of earnings.

In the U.S., the annual rise in productivity over the past three decades has been 1.63 per cent. During that same period, earnings, as in Canada, rose at a fraction of one per cent per year, at 0.15 per cent per year to be exact.

Hollowing out of the middle class
“Canadian labour is more productive than ever before,” the CSLS study says, “But there is a pervasive sense among Canadians that the living standards of the ‘middle class’ have been stagnating.”

The study’s authors identify two factors that explain the gap between rising productivity and stagnant incomes.

One is the hollowing out of the middle class. For the period 1976-2014 there was a measure income growth, but it was almost all at the bottom and the top of the earnings ladder. The vast majority in the middle were left out.

The other factor is that the bosses have been keeping an increasing share of enhanced productivity for themselves. As the study puts it:

“Between 1976 and 2014, labour’s share of aggregate income declined from 59.9 per cent to 53.3 per cent. This decline was accompanied by a corresponding increase in capital’s share of income.”

The study’s authors say that the concrete causes of these phenomena are outside their scope, but they do offer what they call plausible explanations for the hollowing out of the middle-income group and the decline in labour’s share of total income.

They put the blame on globalization, technological change and institutional changes.

The growth of globalization has “allowed capital to seek the highest returns globally and, at the same time, has brought workers in Canada’s traded goods sector into competition with the workers of low-wage countries.” In other words, trade deals do indeed benefit corporations, but they often also weaken workers’ rights with a race to the bottom.

Robotics and computer technology, the study’s authors note, have tended replaced people with machines, eliminating production-line work, “computation-intensive white-collar work” and other routine technical tasks that once provided good middle-income jobs. Technological change has also weakened the bargaining power of workers, leading to an increasingly part-time, Uber-ized world.

And one of the biggest institutional changes has been a sharp decline in the unionization of workers. That decline has been steady in Canada, but much steeper and more dramatic in the U.S.

Forces behind stagnating middle incomes are not likely to disappear

The Centre for the Study of Living Standards points out that the unequal distribution of income growth is neither an inevitable nor irreparable fact of life. The Centre’s economists argue that it is not too late for “policy to be used to adjust that distribution.” And the fact that productivity is growing, the study’s authors say, should make the task of devising new policies easier, not harder.

“It is easier,” the study says, “to ensure that everyone receives a larger slice of the pie when the pie itself is growing.”

But that hopeful conclusion comes with a big caveat. The forces that cause stagnating middle incomes are, the study tells us darkly, “unlikely to disappear in the near future.”

In the authors’ words:
“If anything, the possibilities for further substitution of capital for labour are likely to expand with the advent of self-driving vehicles, self-service technology in retail, automated fast food preparation, and so on. At some point, policymakers will have to grapple with the implications of these changes for the living standards of the middle class.”

The policy challenge the CSLS identifies is a serious one, which demands a multi-faceted response.

In the U.S., many voters were sufficiently impressed with the Trump campaign’s brutal and frank description of their economic malaise that they convinced themselves that Trump has serious solutions — although the real estate developer and reality television personality never enumerated a single one. Rather than policies, he had a slogan: “Make America Great Again.”

It will be interesting to see how Trump’s working class voters react when he gives key roles in his administration to Wall Street insiders, corporate shills and neo-con ideologues, and then proceeds to implement one of his only tangible ideas: deep tax cuts for upper-income earners and corporations.

In Canada, we can still hope that when confronted with evidence of the sort we find in the CSLS study politicians might make an effort to come up with something more serious.

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