The safety net and unions

The Paul Krugman column that I wrote about previously is as much about the value of a strong safety net and unions as it is about his belief that we have exaggerated the value of a college degree. Krugman argues that the current politics of weakening both the safety net and unions will lead to a declining standard of living for many – if not most – Americans.

Krugman writes: So if we want a society of broadly shared prosperity, education isn’t the answer — we’ll have to go about building that society directly. We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen.

Obviously I disagree with Krugman on the value of education attainment, but agree with him on the consequence of weakening unions and the safety net. If we want a rising standard of living for all Americans it almost certainly will come through some combination of the three.

The economy we have been transitioning to – from factory-based to knowledge-based – has seen the virtual disappearance of low education attainment, high paid work. That route to the middle class is gone forever. Our guess is that about 40% of American jobs will be both lower skill and lower wage. Workers in those jobs and retirees from those jobs are not going to be in the middle class without a safety net (both government funded income assistance and health care) and/or stronger unions. Basically end of story!

Less clear is how many of the workers in the 60% of the jobs requiring higher skills will earn middle class wages and benefits. Our guess is most will. The most threatened component for them is health care. Which employers, at all skill levels, have been reducing or eliminating. Krugman is right on when he argues that health care is the core of an adequate safety net.

We can argue whether unions and/or government funding for health care and income assistance inhibits economic growth. Clearly unions are a mixed blessing. And we can argue about how large a safety net we can afford. And we need a debate about how much of the safety net we can afford should go to those over 65 compared to the rest of us. But I think the evidence is pretty overwhelming that without unions and an adequate safety net the number of middle class jobs in America will decline.

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