The Great Recession devastated local labor markets and the national economy. Ten years later, Berkeley researchers are finding many of the same red flags blamed for the crisis: banks making subprime loans and trading risky securities. Congress just voted to scale back many Dodd-Frank provisions. Does another recession lie around the corner?
SB Left – 2 Column
Today, the U.S. Supreme Court ruled in Janus v. AFSCME in favor of the plaintiff, a local government worker who asserted that being required to pay fees to the union at his workplace violated his first amendment rights. This ruling has been anticipated for years (a similar case, Friedrichs v. California Teachers Association, was deadlocked after Antonin Scalia’s unexpected death).
The court’s decision has potentially enormous implications for the ability of public sector unions to continue to advocate for their members and the people they serve, and for the ability of workers to organize collectively.
The decision also comes at a time of resurgent public support for unions and growing labor activism both within and outside the formal structures of unions. The recent teacher walkouts in Arizona, West Virginia and North Carolina demonstrate the powerful intersection between the interests of families dependent on adequate public services and the workers who provide those services.
What does this decision really mean for the future of collective organizing, working conditions and public services?
What did the Supreme Court decide?
At stake in Janus v. AFSCME is the constitutionality of state laws that require public employees to pay a fee to the union that represents them at their workplace. No public worker in any state can be required to join a union. But once a majority has voted to have a union at the workplace, unions in 23 states are allowed to charge a “fair share” or “agency” fee to workers who are covered by the contract but choose not to become members. This fee, which is usually slightly less than full member fees, covers the costs to the union of providing the services involved in representation. (Note that at least nine states put some limitations on the ability of state and local workers to organize at all.)
These fee requirements are intended to compensate unions for the cost of representation because under current law (and affirmed by the Alito opinion), unions must represent all of the workers who would be covered by a contract, whether or not those workers actually become members.
Mark Janus, the plaintiff in this case, argued that because the union’s contract with the state government is inherently political, being required to pay the fee violates his first amendment right to free speech. The ruling overturns a decision that has stood for more than 40 years: Abood v. Detroit Board of Education (1977) which upheld a Michigan statute requiring agency fees.
(Strictly speaking, this finding only applies to state and local public-sector workers, but the implications for private-sector workers and other membership organizations are by no means certain.)
How will public-sector workers respond?
Even if workers support the union at their workplace, they may decide not to join because they can now get all the benefits of being a union member without having to pay anything. They will still be covered by the contract: They get the same wages and benefits as members, and the union is required to represent and protect them in proceedings.
Because workers can now get this representation for free, the percentage of public workers choosing not to be members may increase, since the savings are now substantial. Workers may choose not to be members even if they support and value the union’s representation: “If an individual chooses not to pay for something that will be provided to them for free, that does not mean they do not value it.” Economists have a name for this: the free rider problem. Earlier this year, 36 top U.S. economists—including Berkeley faculty Jesse Rothstein (director of IRLE and professor of economics and public policy), and Professors of Economics David Card and Brad DeLong—signed an amicus brief filed in support of AFSCME on this issue.
We have recent information about how the free rider concept applies to union membership. In Iowa, a 2017 law required public workers to recertify their union with every contract negotiation; in one union, 83 percent of employees covered by the agreement voted to recertify the union; yet only 29 percent of those employees actually joined the union. In other words, at least 50 percent of the workers chose to be free riders in a union they voted for: benefiting from the union, but paying nothing toward the costs.
If more workers choose not to join, the union will have fewer resources but still be required to represent the same number of workers, making it difficult for unions to do a good job representing workers without raising dues for members. This could weaken public workers’ ability to negotiate for good wages and benefits over the long term.
How could the decision affect wages and the economy?
The ruling in Janus puts all state and local workers in the same situation as private-sector workers in so-called “right to work” states. Twenty-nine states are now considered “right to work states,” in which private-sector workers can form unions but cannot require membership as a condition of employment or charge a fair share fee. Seven of those states have become right to work since 2000 (six since 2012): West Virginia, Indiana, Michigan, Wisconsin, West Virginia, Kentucky and Missouri. These states provide a kind of laboratory for how “right to work” laws affect wages and labor markets.
A follow-up study of the impacts of “right to work” legislation in Indiana, Michigan and Wisconsin found that the legislation had reduced unionization by 2 percent over a six-year period, and reduced wages by nearly 3 percent. They find that there are wage consequences for middle-class workers in the three states, specifically in the industries of construction, protective services, office support jobs and those with two- and four-year college degrees. Researchers analyzing the difference between collective bargaining and right-to-work states projected that the passage of right-to-work legislation in Illinois would harm the Illinois economy, lower its capacity to provide essential public services, and degrade the quality and condition of the state’s labor force.
Many studies have shown that there is a relationship between declining unionization, stagnating wages and rising inequality. Berkeley economist David Card found that the decline in unions from the mid-1970s to 1990s explained 10-20 percent of the rise in male wage inequality; within the public sector, he found that unions were a significant force in slowing the rise in wage inequality. Researchers in 2011 found that from 1973 to 2007, private-sector union membership in the United States declined from 34 to 8 percent for men and from 16 to 6 percent among women. Inequality in hourly wages increased by over 40 percent in this period. The authors argue that unions helped institutionalize norms of equity reducing the dispersion of nonunion wages in highly unionized regions and industries. Accounting for the effect of unions on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality—an effect comparable to the growing stratification of wages by education. Researchers from the Institute for the Study of Labor (IZA) drew similar conclusions based on Gallup survey data. A 2018 study by researchers from Princeton and Columbia found that unions have had a significant equalizing effect on income distribution in the U.S. As the share of union households has fallen, income has become increasingly concentrated at the top.
If Janus does lead to reduced union membership—in the public or private sector—the ensuing suppression of low- and middle-income wages also means there is less money circulating in the economy and greater pressure on the safety net. Rising inequality can also suppress economic growth in countries like the U.S.
Supporters of AFSCME in the Supreme Court have argued that collective bargaining and public sector unions both play in a central role in increasing public health and safety, raising the quality of public services, providing stability to large urban service areas, and promoting labor peace and democratic governance. Labor markets function better with strong institutions and market intermediaries, and the public sector labor market has particular implications for continuity and quality of services people’s lives depend on.
How will this decision affect disadvantaged workers?
Public sector workers don’t match the demographics of the private sector labor force: they are more likely to be female and non-white, and are underpaid relative to workers with similar credentials in the private sector. Workers of color make up almost a third of state and local government workers represented by a union. Public sector employment has long been an avenue to the middle-class for workers who are more likely to be discriminated against in wages and employment in the private sector.
Among public workers, unions have helped reduce the persistent wage gaps that keep women and people of color from achieving economic parity. For example, Sylvia Allegretto of IRLE’s Center on Wage and Employment Dynamics found that teachers without a union contract are likely to be paid 25% less than workers with comparable credentials; union teachers fare much better, getting paid just 6% less than comparable workers. Unions have also been at the forefront of building institutions and mechanisms for protecting workers against discrimination.
A brief signed by The Center on Reproductive Rights and Justice at UC Berkeley School of Law argues that the benefits enabled by fair share laws have led to increased opportunity for women and people of color, and that permitting free riding will diminish this critical path to the middle class. The public sector is the single most important source of employment for African Americans: before and after the onset of the Great Recession, African Americans were 30% more likely than other workers to be employed in the public sector.
IRLE’s Center for Labor Research and Education recently published research that found women, immigrants, and people of color received a greater boost in wages and likelihood of having health and retirement benefits from union membership. Unionization for these groups of workers has been a key mechanism for reducing the income gap.
What does the decision mean for the labor movement?
Janus is one of several recent court decisions that have diminished the rights of workers to organize collectively. Just last month, the Supreme Court held in Epic Systems Corp. v. Lewis that workers who had signed contracts with arbitration clauses could not join class action lawsuits for workplace violations, such as sexual harassment and discrimination, even when those violations were systemic at the workplace. These decisions come as state legislatures and labor agencies in labor-friendly states like California struggle to protect workers in the face of continual efforts by employers to remake the traditional employment relationship, leaving workers vulnerable to wage theft, unpredictable scheduling, and other forms of exploitation. The need for strong labor policies and resources to enforce them only grows as labor unions are weakened.
There are powerful political and economic dynamics underlying the focused (and well-funded) effort of undoing workers’ rights through legal challenges like Janus v. AFSCME. Those dynamics cannot be understood separately from the steady devolution and shrinking of the public sector—the evisceration, in some places, of public service funding and the safety net. This decision also cannot be separated from the racial histories embedded in our labor markets, as several petitioners argued. Our core labor legislation was shaped by a long history of racist employment practices: jobs performed primarily or entirely by Black or immigrant workers remain partially or entirely exempt from minimum wage and other federal labor protections. The new organizing models created by Justice for Janitors and UNITE HERE, and the collaboration of Fight for $15 with Black Lives Matter, suggest that the time may be ripe for workers to find new legal and policy avenues for collective action.
UC Berkeley itself has been home to plenty of research that suggests we should not underestimate the capacity of workers to carve new paths for organizing, or the importance of the right to organize to other elements of our democracy. Kim Voss in Sociology has written volumes about the renewal of the labor movement. Harley Shaiken in Education has studied the importance of a strong labor movement to the preservation of a democratic society. Catherine Fisk in the Law School has studied the expansion of social movements focused on expanding the rights of marginalized workers, even as union density decreases.
Although the short-term effect of today’s decision is to throw 17 million public sector workers into uncertainty, it is also possible that Janus v. AFSCME will serve as a turning point for both a reinvigorated politics of labor and a revitalized conversation about the importance of the public sector to our social compact. Both our economy and our democracy depend on what happens next.
The Earned Income Tax Credit (EITC) is now the primary anti-poverty program in the U.S., but it has not kept up with wage stagnation. Berkeley faculty recently proposed an increase in the federal EITC, California has adopted an expansion of its own state EITC, and Congress passed a tax bill that fails to help EITC recipients.
Detroit is the urban question America has been asking itself for decades. Over the past century, the city has symbolized American prosperity and the power of unions; the stark gap between Black and white urban experience; the fiscal and economic failure of the postindustrial city; and now the dystopia of large-scale urban abandonment. The Detroit that Kimberly Kinder describes in DIY Detroit is a city in which vast spaces are ungoverned by functional property markets and unserved by city workers or infrastructure.
Hinkley, S. (2018). DIY Detroit: making do in a city without services. Urban Research & Practice, 11 (2), 284-287. April 2018.
#MeToo and #TimesUp protests about the treatment of women in the workplace have brought renewed attention to gender pay equity. This brief looks at three legislative solutions that aim to close the gap by increasing pay transparency and pushing employers to set salaries to the position, not the history of the person doing the job.
Across the world’s most industrialized economies, the financial crisis of 2007 caused a contraction of state budgets and stimulated attempts to reform debt-burdened governments. In the United States, a system of fiscal federalism meant this turn towards austerity took a uniquely fragmented and geographically diverse form. Drawing on case studies of recent urban restructuring, Cities under Austerity challenges dominant understandings of austerity as a distinctly national condition and develops a conceptualization of the new US urban condition that reveals its emerging political and social fault lines.
The contributors empirically detail the restructuring that is taking place across the United States, its underlying logics, its local impacts and the ongoing processes of challenge and resistance that influences how it is shaping the lives of citizens. The new American political economy, it is argued, needs to be understood as composed of a mosaic of urban experiences that both build upon a differentiated foundation and creates new divergences.
As state reforms continue to interact with this diverse urban political economy of the United States, this collection provides a state-of-the-art survey on how postcrisis convergences and divergences in urban economies and urban politics have laid the foundations for the new political geography of the United States.
Hinkley, Sara. “Austerity as the New Normal: The Fiscal Politics of Retrenchment in San Jose, California.” In M. Davidson & K. Ward (Eds.), Cities under Austerity: Restructuring the US Metropolis. Albany, NY: SUNY Press. 2018.
The Great Recession unleashed a wave of fiscal stress in the USA, with austerity measures such as spending cuts, service reductions and privatisation predictably taking centre stage. Decades of federal withdrawal from urban policy and funding, combined with state retrenchment, have contributed to a landscape of urban fiscal stress exacerbated by the prolonged effects of the post-2007 recession. This article examines the experience of fiscal crisis in four US cities (Detroit, Dallas, Philadelphia, and San Jose), focusing on the narratives used by city and state government leadership to publicly describe local crises. Shared elements of the framing of urban fiscal crisis in this diverse set of cities provide insight into the unfolding of austerity in local politics. Blame for the crisis has centred less on social spending than in previous crises, and more on local governance failures, public pension commitments, and ongoing global economic precarity. Crisis governance has become widespread, even in fiscally resilient cities, driven by a vision of lean government in a ‘new normal’. While retrenchment effectively shrinks the state through spending cuts and privatisation, the governing power of cities is also being diminished by the narrative of fiscal responsibility reflected in the national move toward public pension restructuring and expanded state interventionism.
Hinkley, Sara. “Structurally adjusting: Narratives of fiscal crisis in four US cities.” Urban Studies, 54(9): 2123-2138. July 2017.
The Participatory Budgeting Project has a guide for communities that want to participate in decisions about the use of funds from Tax Increment Financing districts. The governance structure associated with Tax Increment Financing varies by state (and not all states have TIF), but there are potentially significant amounts of funding at stake. TIF districts capture the increased property tax increment in a set geographic area and use it to finance private or public projects. They use of funds often lacks transparency, and is often predetermined when the district itself is created.
I’ve been following the move to participatory budgeting for a while, and this is an important acknowledgement by PBP that a lot of public money is outside even the difficult-to-engage standard budgeting process.
Download their guide here: PB with Tax Increment Finance Funds