Thursday, July 22, 2021

Hourly Workers -- The Short End of the Stick


Cross-Posting by Blair Reeves, Executive Director, Carolina Forward

When we were discussing what topic to tackle for Carolina Forward’s first big policy paper project, we kicked around a lot of ideas. After all, our state hardly suffers for want of big, pressing public policy challenges. We wanted to study and address something relevant - a deep, fundamental issue that touched lives all across North Carolina. Since big issues like gerrymandering and Medicaid expansion have already been studied half to death, my co-author Alexander Jones and I decided on something new: North Carolina’s hourly workers.

Nearly half of North Carolina’s total workforce is employed on an hourly basis. They work the jobs, mostly very low-paid, that make our society run. During the COVID pandemic, the critical role of these workers was made so plain that people began calling them “heroes.” Often at very real risk to their personal health, these women and men (though mostly women, who are a consistent majority of hourly workers) kept working, primarily because they couldn’t afford not to. A few of them received bonuses and extra protections, but most didn’t. Republican state leaders flatly refused to help, and as a result, hundreds of hourly workers died unnecessarily of COVID.

In Our Daily Bread - The Hourly Workers Package, we took a broad view to answer a couple of fundamental questions: who are North Carolina’s hourly workers? What do they struggle with? And most of all, what specific, practical measures can our state leaders take to help? We distilled our recommendations into six key areas:

  1. Raise the minimum wage

  2. End wage theft

  3. Guarantee fair scheduling and paid leave

  4. Fix unemployment insurance

  5. Guarantee worker mobility

  6. Strengthen worker power through unionization

There is one important element to this question that we didn’t get to address in the paper, but which remains salient: the role of labor market competition in self-correcting what ails the hourly workforce.

There is a romantic, if not precious, notion that all labor market transactions can be neatly encapsulated as a specific exchange of value between employer and employee. This theory says that the employer offers a wage for an employee’s services, and s/he is welcome to accept it or not. The labor pool’s collective decision-making shapes the market-clearing wage, and that is that.

In the economics literature, this is called “perfect competition,” and it is a standard assumptive model. It assumes things like perfect knowledge -- that I know what wages all my coworkers make, as well as what wages are available across town -- and worker mobility -- the ability to pick up and go elsewhere if I don’t like the deal I’m offered. It also assumes that workers do not need a job any more than employers need a worker. This is not, of course, how the real world works, but it makes theoretical models much cleaner and easier to explain, which is why it’s the basis for pretty much every Economics 101 class.

Unfortunately, that is where most politicians’ understanding -- let alone interest -- in economics stops. (Actually, it would probably be a big improvement if all of our leaders were required to take even Economics 101.) 

Here in the real world, what we are seeing right now in the “labor shortage” discourse is a staunch refusal by employers to freely negotiate wages. Indeed, many employers in industries with a heavy share of hourly workers feel strongly entitled to cheap labor, going so far as to insist that a $300 unemployment insurance benefit - or about forty bucks a day - is a powerful factor in preventing them from finding workers. Such is the power of the big business lobby in our Republican legislature that compliant politicians rushed to pass a bill ending the supplemental benefit, which was later wisely vetoed by Governor Cooper.

Yet businesses in highly price-sensitive industries like restaurants do have some legitimate concerns: namely that in famously low-margin businesses, increased labor costs must be passed on to the consumer, with potential implications for competition. This is doubtlessly sometimes true, though in other cases, such as Chipotle’s much-publicized price increases, are fig leaf excuses for planned increases. In these cases, setting a common wage floor with a reasonable minimum wage is a highly effective way to remove uncertainty and downward wage pressure due to competition. If all competitors must pay $15 an hour for labor, then there’s no incentive to undercut the competition by reducing wages. It’s a win-win for employers and employees alike.

Like most North Carolinians, we consider ourselves to be business-friendly. A healthy and thriving business environment is a very good and important thing. Yet we cannot define prosperity simply by measuring the profit margin and stock price of our biggest corporations, nor the incomes of our most affluent neighbors. A healthy business environment is one that serves the needs of our entire community - employers and employees. A business climate that privileges the profit margins of big, out-of-state corporations over the legitimate needs of North Carolinians is not one worthy of our support.

We hope you’ll enjoy Our Daily Bread - The Hourly Workers Package, and let us know what you think.

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