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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Daphne Greenwood presents the first comprehensive introduction to pluralist labor economics. She expands the economics toolbox with theories taken from institutionalist, feminist, social, ecological, and stratification economists. Pluralists, she explains, focus on how formal and informal institutions affect the distribution of productivity dividends—and how this has evolved over time. Pluralists are concerned with job quality as well as financial compensation. They acknowledge the modern-day abundance created by technology, but advocate for institutional changes to direct it in equitable and sustainable ways.
Building on the work of many heterodox economists, Greenwood introduces wage and employment models that are embedded in the economy, environment, and society. Beginning with evidence on work and pay in the US today, she explains why tools for analyzing commodity exchange are not sufficient for analyzing labor relationships. She brings bargaining power to the fore, analyses dynamic monopsony, and looks at the role of wealth as well as income in framing opportunities. Throughout the book, Greenwood addresses threats to sustainability and equity from unpaid social costs; institutional changes such as financialization and fissured workplaces; as well as race-ethnicity and gender. Among the possibilities explored for improving work and pay are sectoral bargaining, job guarantees, worker-owned cooperatives, and universal basic income.
The first undergraduate-friendly book on its topic, Work, Pay and Sustainability is an important resource for students and scholars alike.
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CONTENTS
Cover
Table of Contents
Dedication
Title Page
Copyright
Preface and Acknowledgments
Abbreviations
Introduction
Three Fundamental Shifts
The Us Economy … a Look Back
Summary and Looking Forward
Note
1 Work, Pay, and Sustainability: Taking a Pluralist Approach
The Evolution of Economic Thinking on Work and Pay
Sustainability and Economics
Technology and Technological Change
Externalities and Social Costs
Sustainability and Justice
Summary and Looking Forward
Notes
2 Labor Has Three Faces, Unlike Broccoli
Work Before Industrialization and Market Economies
The Institutions of Employment Relationships and Wages
Labor is Very Different From Oil or Broccoli
Three Faces of Labor: Producer, Provisioner, and Sustainer
Labor and Sustainability
Freedom and Justice in Labor Markets
Summary and Looking Forward
Note
3 Labor and the Web of Working Rules
Economic Institutions Affecting Work and Pay
Work and Pay in the American Legal System
Summary and Looking Forward
Note
4 Wages and Why They Vary: The Big Picture
The Distribution of Wage and Salary Earnings
Productivity and Compensation
Bargaining Power in the Workplace
Summary and Looking Forward
Notes
5 Wages and Why They Vary: Demand and Supply
The Competitive Labor Market Model
Labor as Input to Production: The First Face
Provisioning for Human Needs: The Second Face of Labor
Competitive Markets: Scarce Resources Follow Wage Incentives
Summary and Looking Forward
Notes
6 How Market Structures and Firm Characteristics Affect Pay
Wage Variation by Industry and Firm Characteristics
Imperfect Competition: Monopsony and Oligopsony
From Internal Labor Markets to Fissured Workplaces
Subcontracting, Supply Chains, and Franchising
Collective Bargaining: Monopoly Power or Levelling the Field?
Summary and Looking Forward
7 Inside the Pyramid: Three Faces and Dual Markets
Gender and Race-Ethnicity in the Occupational Pyramid
The Social Face of Wages
Economic Rents
Secondary Labor Markets
Social Costs of Economic Rent and Discrimination
Motivations for Discrimination
Summary and Looking Forward
Note
8 Rising Economic Inequality
A Quick Review
A Changing Wage Distribution
Rising Income Inequality
Economic Mobility: A Proxy for Opportunity
Social Costs of Economic Inequality
Other Policies to Reduce Economic Inequality
Summary and Looking Forward
9 Job Quality: Beyond Pay and Benefits
What is A “Good Job?”
Making Good Jobs the Norm
Summary and Looking Forward
Notes
10 Work and Pay: New Challenges, New Solutions
A Smaller Share of Adults Working … and More Needing Care
The Brave New World of Ai
An Economy that Sustains the Environment
Addressing Care, Ai, and Climate with Fewer Work Hours
Summary and Looking Forward
11 Work, Pay, and Well-Being in a World of Abundance
Abundance: Enoughness or Satiation?
An Ethical Foundation for a True “Right to Work”
Guaranteed Jobs: An Employer of Last Resort
A Universal (or Guaranteed) Basic Income
Education in a World of Abundance and Automation
Summary and Looking Forward
12 Taking a Pluralist Approach to Work and Pay
The Evidence
Pluralist Analysis of Work and Pay
Negotiating a New Order: Pluralist Policy Recommendations
References
Glossary
Index
End User License Agreement
List of Figures
Chapter 1
Figure 1.1
The Blind Men and the Elephant—A Metaphor for Economic Analysis
Figure 1.2
The Circular Flow of Income and Product
Figure 1.3
Financial and Material Flows within the Economy, Society, and Environment
Chapter 2
Figure 2.1
The Three Faces of Labor: Producer, Provisioner, and Sustainer
Chapter 4
Figure 4.1
The Distribution of Weekly Wage and Salary Earnings
Figure 4.2
The Wage Pyramid
Figure 4.3
Growth in Productivity vs. Growth in Hourly Compensation
Chapter 5
Figure 5.1
Wages and Employment for Firms in Perfectly Competitive Labor Markets
Figure 5.2
Elasticities of the Marginal Revenue Product (Demand for Labor)
Figure 5.3
Shifts in the Marginal Revenue Product (Demand for Labor)
Figure 5.4
Average Time Use, US
Figure 5.5
The Economy-wide Supply of Labor
Figure 5.6
US Labor Force Growth
Figure 5.7
US Labor Force Participation Rates, Total and by Gender
Figure 5.8
Market Incentives and Labor Supply under Perfect Competition
Figure 5.9
Minimum Wages and Employment in a Perfectly Competitive Labor Market
Chapter 6
Figure 6.1
Monopsonistic Wages and Hiring vs. a Market of Competitive Employers
Figure 6.2
Totally Inelastic, Somewhat Inelastic, and Perfectly Elastic Supply Curves
Figure 6.3
Internal Labor Markets vs. Outsourcing: Effects on Work and Pay
Figure 6.4
The Effects of a Collectively Bargained Wage with Monopsony
Chapter 7
Figure 7.1
Wage Gap of Median Worker vs. White Male (Education, Experience, and Region Held…
Figure 7.2
Social and Economic Forces Affect Wages through Three Faces
Figure 7.3
Dual Labor Markets: Entry Barriers in Market A but not in Market B
Figure 7.4
Monopsonistic Discrimination Between Workers with Similar Tasks
Chapter 8
Figure 8.1
Growth in Earnings: Top 0.1 Percent vs. Bottom 90 Percent
Figure 8.2
Real Values of the Federal Minimum Wage, US
Figure 8.3
Income Shares of Top US Households vs. Those in Lower Half
Figure 8.4
The Links between Wages, Income, and Wealth of Households
Figure 8.5
Income, Wealth, and Intergenerational Mobility
List of Tables
Chapter 1
Table 1.1
United Nations Millennium Goals for Sustainable Development
Chapter 6
Table 6.1
The Monopsonists’ Rising Marginal Cost of Labor
Guide
Cover
Table of Contents
Dedication
Title Page
Copyright
Preface and Acknowledgments
Abbreviations
Introduction
Begin Reading
References
Glossary
Index
End User License Agreement
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Dedication
To all who have worked to improve the conditions and sustainability of labor.
And to Glennis Hickman, who helped make this book possible.
Work, Pay, and Sustainability
A New Economics of Labor
Daphne T. Greenwood
polity
Copyright © Daphne T. Greenwood 2025
The right of Daphne T. Greenwood to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.
First published in 2025 by Polity Press
Polity Press65 Bridge StreetCambridge CB2 1UR, UK
Polity Press111 River StreetHoboken, NJ 07030, USA
All rights reserved. Except for the quotation of short passages for the purpose of criticism and review, no part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.
ISBN-13: 978-1-5095-3676-4
A catalogue record for this book is available from the British Library.
Library of Congress Control Number: 2024939573
The publisher has used its best endeavors to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.
Every effort has been made to trace all copyright holders, but if any have been overlooked the publisher will be pleased to include any necessary credits in any subsequent reprint or edition.
For further information on Polity, visit our website:politybooks.com
PREFACE AND ACKNOWLEDGMENTS
Why I Wrote this Book
I began this book while teaching both labor economics and ecological economics. I noticed that many students were concerned with climate change and sustainable development. But far fewer thought about social costs related to labor. They seemed to accept that economic laws drove whatever happened in labor markets. With available texts becoming increasingly neoclassical, it was difficult to introduce social costs and sustainability into a labor course. After experimenting with a smorgasbord of readings, I decided to integrate them into a single book. That worked far better for undergraduates.
What’s Different About This Book
This book starts with some of the big issues in work and pay today. It presents the historical and institutional framework of laws and customs in which economies operate, and an actual wage distribution before discussing demand and supply. Each chapter introduces principles and models that pluralists use when analyzing labor relationships and outcomes. It periodically compares these, and their implications, to the more well-known neoclassical approach based on microeconomic theory. Examples are primarily from the United States, sometimes with comparisons to other affluent nations.
An introductory knowledge of microeconomic and macroeconomic principles is assumed. Early chapters look at the history of work—including serfdom and slavery, industrialization, and the development of institutions, including the legal system. That’s because one theme of this book is path dependence—the influence of earlier outcomes and processes.
Another important theme is bargaining power. I look at how it’s been affected by changes in finance and industry, social attitudes, and technologies—as well as laws, regulations, and unions. A third theme is labor’s multiple roles in economies and societies. A fourth is externalities, social costs, and their impacts on economic and social sustainability.
The book is not intended to fully examine all approaches within pluralist economics. Instead, I used those I have found most useful for explaining labor dynamics at the undergraduate level. And instructors wanting a deeper dive into neoclassical labor economics have many excellent books available to them—so my summary is brief.
People to Thank
I owe a particular debt to Deb Figart, Ellen Mutari, and Marilyn Power for their “three faces of wages” model, which is extended and illustrated in this book. Ellen gave detailed comments that improved Chapters 2 and 4. Deb did the same for Chapter 7. Richard Freeman’s America Works (2007), Dell Champlin and Janet Knoedler’s The Institutionalist Tradition in Labor Economics (2004), Juliet Schor’s Plenitude: The New Economics of True Wealth (2010) and David Weil’s The Fissured Workplace (2014) were also particularly important resources.
Some of these ideas were developed while working with Ric Holt on two books and numerous journal articles. I appreciate Ric’s willingness to comment on the proposal and first chapter and his continued encouragement. I learned a great deal from the work of Dell Champlin and Bruce Kaufman, as well as from their insightful comments on the proposal and manuscript. Rick Adkisson shared valuable perspectives on a related conference paper. Janice Peterson was a continual source of encouragement. I also appreciate helpful comments from students—especially Philip Polacek—on earlier drafts. It was a pleasure to teach them and learn from them.
I am grateful to Kenneth McLaughlin for sharing his methods for constructing a wage distribution and Cade Easton, research assistant, for translating that into reality. Jackie Crouch of the University of Colorado, Colorado Springs’ Faculty Resources Center tutored me in the art of creating PowerPoint graphs and using manuscript tools. The Economic Policy Institute (EPI) graciously shared several of its graphics.
Toni Knapp was an extremely patient reader, editor, and encouraging friend through many rewrites. Tom McCormick went quickly from being an excellent student to a first-class research assistant. He wore many hats as the book took final form. Queries from Toni and Tom helped improve the clarity of many a sentence.
We all stand on the shoulders of more great scholars than we remember. I particularly want to acknowledge intellectual debts to John R. Commons, William Darity, John Kenneth Galbraith, William Kapp, Lloyd Reynolds, Amartya Sen, Lester Thurow, and Thorstein Veblen—as well as the “grandfather” of pluralist economics, Adam Smith. They all shaped my thinking on work and pay.
Lastly, I am grateful to anonymous reviewers of the book proposal for helpful comments and suggestions, the Elizabeth Cushman Public Policy Fund at the University of Colorado for financial support, and the editorial team at Polity Press—especially Ian Malcolm and Ellen MacDonald-Kramer.
It’s been a labor of love to write this book.
ABBREVIATIONS
AI
Artificial Intelligence
BLS
Bureau of Labor Statistics
CBO
US Congressional Budget Office
DOJ
Department of Justice
DOL
Department of Labor
EITC
Earned Income Tax Credit
ELR
employer of last resort
ERISA
Employment Retirement Income Security Act of 1974
Fed
Federal Reserve System
FLSA
Fair Labor Standards Act of 1938
GDP
gross domestic product
GHG
greenhouse gasses
ILM
internal labor market
LFPR
labor force participation rate
MC
marginal cost
MLC
marginal labor cost
MPP
marginal physical product
MR
marginal revenue
MRP
marginal revenue product
NCA
noncompete agreement
NCE
neoclassical economics
NLRA
National Labor Relations Act of 1935
OSHA
Occupational Safety and Health Administration
PBTC
power-biased technological change
SBTC
skill-biased technological change
TAA
Trade Adjustment Act
TANF
Temporary Aid to Needy Families
UBI
universal basic income
UI
unemployment insurance
UK
United Kingdom
ULC
unit labor cost
UN
United Nations
US
United States
INTRODUCTION
This book is focused on work and sustainability, particularly in affluent nations. Examples are primarily from the United States (US). The terms “work” and “labor” are used interchangeably to refer to all productive activities—paid or unpaid. A great deal of housework and caring labor is still unpaid, although much has been marketized in modern affluent economies.
Paid work can be analyzed from three different vantage points. The first two are familiar: what workers want from their jobs and what employers want from workers. But all societies must prepare the next generation for life and work in the community—economic, social, and as concerned citizens. Since workers are also the unpaid parents, family members, and neighbors who do that, it’s important to consider how work and pay affect them in those roles.
Throughout the book we focus on central issues in work and pay today—especially in the US—and how to use pluralist economic analysis to better understand them. One issue is why pay, opportunities, and working conditions are less equal among US workers today than in the mid-twentieth century. Collective bargaining play an important role and is addressed in multiple sections across chapters. Another issue is why the US has higher inequality than other affluent countries today—across workers regardless of race-ethnicity or gender. The particular barriers and different outcomes of female and non-White male workers are addressed not just in one chapter, but throughout the book.
To move toward a sustainable workplace, we must explore what’s behind differences in working conditions and pay in general. How much influence does gender, race-ethnicity, or parents’ social and economic status have on opportunity? Is greater pay equity consistent with economic efficiency? How will workplaces adapt to social and technological (think AI) change? How will environmental pressures and mitigation affect workers’ standard of living—which includes non-market aspects of quality of life (see Greenwood and Holt 2014a [2010])). Some of these come from the natural, built, or social environment. Others depend on quality of the workplace and the particular job.
THREE FUNDAMENTAL SHIFTS
As we deal with these issues, keep in mind three fundamental shifts that have affected work and pay. The first is a reversal of what is abundant and what is scarce. For the last hundred years, technological advances and education have massively increased the amount that a worker can produce in an hour. US per capita gross domestic product (GDP) is now over four times what it was in 1950, after adjusting for price changes. It’s good news that starvation and malnutrition around the world are no longer inevitable (Dugger and Peach 2009). Countries can now increase wealth through higher productivity (output per worker hour) and international trade. For much of human history, the primary method was seizing territory. That hasn’t ended, but it’s less common than in the past.
The bad news is that although coal and oil helped produce an abundance of market goods over the last century and a half, their carbon waste now overloads natural clean-up capacity. Economic processes must adapt to the new scarcity of many formerly “free goods”—clean air and water—and the abundance of traditionally scarce manufactured outputs. It’s hard for many people to shift from seeing fossil fuels as creators of abundance to recognizing that they create environmental scarcities—even with cheaper renewable energy sources. Support systems from extended families and communities are also more “scarce” in modern economies. We’ll explore why social and economic insecurity—along with environmental degradation—has increased even as production has become more abundant.
The second fundamental shift has been in business. From 1947 to 2017, the financial sector grew from 10 to 21 percent of GDP. It’s now larger than the trade or manufacturing sectors (Witko 2016; Sundaram and Hui 2019). Equally important, it’s much more active in business decisions than traditional banking. This financialization of the economy has led to “money manager capitalism” during the last forty years (Palley 2007; Baranes 2022). It means more focus on short-term profits, more outsourcing, and less security for workers. Business investment decisions, plant closures, and layoffs are now often made by private equity and institutional investors (Applebaum and Batt 2014; Lazonick 2009). Milton Friedman argued that corporations don’t have social responsibility. Their sole responsibility is maximizing shareholder profits (1970). This argument dominated financial and mainstream economic thinking for half a century. It’s now widely questioned—even by many business leaders.
The third shift is a change in corporate leadership. More come from finance and marketing backgrounds, fewer started in engineering. Their behavior has also changed. During the Cold War with the Soviet Union (1950s–1980s), many sought to demonstrate that capitalism was better for workers than communism. They pursued long-term profits, were concerned with consumer and worker loyalty, and often worked with unions rather than opposing them. Universities and cultural institutions in communities with headquarters and major plants often received large corporate contributions. Journalists wrote about “people’s capitalism” thirty-two times in the New York Times alone in 1956 (Yarrow 2010, 124). That phrase would be confusing today.
THE US ECONOMY … A LOOK BACK
Let’s turn now to how some basics have changed since 1980. Real gross domestic product (GDP) per capita more than doubled by the end of 20231—from slightly above $31,000 per person to almost $68,000. Per capita real growth reflects increased productivity, or average output per hour of work. Historically, this leads to increased profits and real wages. When President John F. Kennedy called economic growth “a rising tide that lifts all the boats” in the 1960s, that was true—and had been for several decades. But things began to change in the late 1970s. Average hourly pay increased by under 12 percent between 1979 and 2019, less than one-sixth of the 70 percent productivity increase over that thirty-year period.
How did families maintain living standards when costs for housing, health care, and higher education rose more rapidly than worker pay? At first, more second earners joined the workplace. But that strategy had limits. Median household income growth lagged inflation from 1999 to 2015. It has risen since, but real wage gains were mostly in the top 5 percent of households—especially the top one percent in most years.
Two forces drove increased wage inequality. The first was a shift in how the pie was split between labor and capital. In the post-World War II decades of the late 1940s to the 1980s, labor’s share of total national income varied cyclically (i.e. with the state of the economy) between 62 and 66 percent. Since 2000, it has fallen sharply, and now moves between 58 and 60 percent of GDP. In 2022, it was at its lowest level since the 1930s’ Great Depression (Karabarbounis 2023). In an economy of more than twenty trillion dollars a year, a change of 4 to 6 percentage points is not chump change!
The second factor was that within labor’s share, earnings from work rose most at the top. The lower 90 percent of workers experienced little or no real wage growth, with many seeing declines and fewer benefits. As workers from marginalized groups became a larger share of the workforce, their lower opportunities and outcomes were part of this—despite new doors being opened through equal opportunity laws.
In many higher paying jobs, benefits expanded to include paid parental leave, athletic facilities, or tuition assistance. But the share of jobs without basic benefits—like medical or retirement insurance—has increased since the 1980s. The COVID-19 pandemic revealed how many lack paid sick leave. It ramped up discussion of whether it should be universal across all US workplaces, as in most Western European countries. The pandemic also highlighted the issue of family leave to care for seriously ill family members, as well as young children or aging parents.
Working conditions also showed a great divide. On the one hand, there is more awareness of long-term dangers from chemical exposure or repetitive motion. Some workplaces have adopted ergonomic equipment to minimize worker strain, as well as serious policies regarding sexual or race-based harassment. But in others, the rules are weak—and frequently violated. Laws and their enforcement also vary considerably between states and industries. Penalties and enforcement are often lighter for firms than individuals.
New York Times columnist Jamelle Bouie has observed that if someone is caught shoplifting at Walgreens (for example), there’s a penalty beyond returning the item or promising never to do it again. But, if the same firm requires off-the-clock work that isn’t compensated, they often escape penalties or sanctions just by promising to do better and restoring back pay.
Work schedules have also changed considerably. With more two-worker and single-parent families, flextime and paid family leave help work–life balance. “Just-in-time” scheduling and unpaid overtime does not. This is especially hard on workers who piece together several part-time jobs to make full-time. The COVID-19 pandemic jolted many workplaces into allowing or even requiring more remote work. Will that continue in a post-pandemic world? In 2023, 28 percent of US work days were remote—four times the share before COVID—according to the US Bureau of Labor Statistics (BLS).
A broader look at working conditions considers “job quality”—job security, on-the-job training, advancement opportunities, and work satisfaction. As the average time at any one job has declined, and non-standard work arrangements—temporary, contract, or parttime—have increased, there’s less employer investment in training and advancement opportunities for workers. The “Great Resignation,” or Great Re-Shuffling—or whatever we want to call the surge in job quits late in the pandemic—seemed to reflect a greater than usual frustration with working conditions. We’ll return to that and how to improve work and pay in later chapters.
SUMMARY AND LOOKING FORWARD
Today’s problems of work and pay in the US are often blamed on technological change and globalization. But all countries are affected by both of those. Comparing institutions and policies across time and between countries should help us better understand how we got where we are today. Our pluralist approach builds on ideas from economists as far back as Adam Smith—including many alternative, or heterodox, schools of thought today. It’s organized quite differently from a standard introduction to labor economics.
Chapter 1 reviews how economic ideas evolved along with changes in society and production techniques. It introduces a model of the economy incorporating society and the environment that’s central to pluralist labor economics. We’ll learn why pluralists value all the capital stocks and are concerned about cost-shifting to people or nature. And, since people care about fairness and the future along with efficiency, pluralist economics balances attention to all three. Pluralists believe that good economics must be evidence based, but that it’s impossible for economics to be value-free.
In the next six chapters, we look at real-world outcomes of work and pay and the economic theories and models developed to illustrate them. Chapter 2 starts with work before industrialization and the development of employment relationships. We’ll explore how labor differs from commodities and the many social forces affecting workplaces. We’ll see that labor has three “faces”—input to production, source of income, and member of society. All of these matter for sustainability.
Chapter 3 focuses on the formal institutions surrounding work and pay. In the private sector, the structure of business, industry, and unions matters. The public sector is where more than 15 percent of all workers are employed. It’s also where laws and regulations determine rights and responsibilities for all employers and workers. In addition, public policies—particularly macroeconomic—affect demand for labor and unemployment levels.
In Chapter 4 you’ll find a distribution of US wage and salary earnings and examples of where particular jobs or occupations rank on a “wage pyramid.” To explain these differences, we first examine productivity and compensation for working conditions. We’ll also look at the role education plays in productivity and pay, and why relative bargaining power varies.
Chapter 5 shows how demand and supply are applied to labor markets under the assumption of free competition and equal bargaining power. You’ll see why economists who depend on this model to explain wage determination often oppose minimum wages and collective bargaining. We’ll contrast the competitive model with real world conditions to see why actual minimum wages and union contracts often produce different results.
Chapter 6 examines firm-specific forces and institutions that affect wage-setting in real-world labor markets. The same job often pays differently at different employers. Firm size explains a lot of this variation, but—somewhat surprisingly—profitability or location do not. Firms with internal labor markets have more equal pay structures across jobs than firms reliant on outsourcing or subcontractors. Firms with fewer competitors in their labor market pay less and hire fewer workers. We’ll see how a minimum wage or collective bargaining affects work and pay quite differently when there is less competition for workers.
Chapter 7 uses dual and segmented labor market theories to explain economic rents in some markets and overcrowding in others. We’ll see how statistical discrimination and the “three faces of wages” model explain discrimination on non-economic characteristics, how race-ethnicity and gender affect position in the wage pyramid, and how to separate the effects of discrimination from wage variation based on skills.
In Chapter 8, we apply models and theories from this book to explain changes in US wage distribution since 1980. We’ll examine links between wage dispersion, the distributions of income and wealth, and intergenerational mobility. Family wealth affects opportunities for the next generation—their ability to pay for advanced education or to start a business.
Chapter 9 looks at work and pay in a sustainable economy. That means one in which “good jobs” are widely available. We explore what characteristics beyond financial compensation make a job individually and socially desirable. Then we look at ways to channel productivity growth into improving work and pay.
Chapter 10 considers upcoming challenges—demographic, environmental, and technological—in work and pay. What is the best way for a sustainable economy to address these? We’ll examine likely effects on labor from aging baby boomers, artificial intelligence (AI), and environmental threats. One proposal that’s gaining momentum is to shorten the standard work week. Spoiler alert … it’s related to each of the new challenges.
Chapter 11 recognizes the abundance in affluent countries today. That makes it possible to deal with Chapter 10’s big challenges in ways that further human as well as planetary well-being. We’ll contrast a guaranteed jobs program with a universal basic income and with lifelong access to education and training.
In Chapter 12, we’ll return to the tenets of pluralism and their usefulness in analyzing work and pay. With work and pay in flux after COVID-19 and “baby-boomer” retirements it’s difficult to predict how much the problems of the future will resemble those of the recent past—and how much they will take new forms. One big question is the role of pre-distribution (changes in institutions that affect work and pay) vs. redistribution (transfer payments or tax credits that bolster income).
Throughout the book, you’ll encounter a broader set of topics than usual for a labor economics course. We look at older forms of work—feudalism and slavery—and keep them in mind as we address their modern-day vestiges. We’ll examine other forms of work today—self-employment, “gig” employment, and other non-standard varieties. We include work outside the market, particularly caring for others at home. Rather than separate chapters on unions, we’ll examine their role in work and pay throughout the book, particularly in Chapters 2, 3, 6, and 9.
We’ll return frequently to issues of sustainability and how they are affected by the processes and outcomes of work and pay today. One of these is equal treatment regardless of race-ethnicity or gender. Another is how private and social costs of production are likely to be affected by AI, environmental sustainability, and changing demographics. Economic terms used throughout the book are italicized and defined when first introduced and easily available in the glossary.
Full disclosure: Pluralism is exploratory, trying out new perspectives and models to see if they better explain what’s around us as well as shaping policies. Each chapter will introduce or apply new pluralist models to better understand the facts on the ground about work, pay, and sustainability. We’ll also explore the history behind today’s realities. You won’t be able to rely only on the economics you may have learned in a principles course … so, hang on to your hat if that sounds like a bumpy ride!
NOTE
1.
This includes a dip in economic activity during the COVID-19 pandemic, followed by a rebound
1WORK, PAY, AND SUSTAINABILITY: TAKING A PLURALIST APPROACH
“No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable.”
Adam Smith, 1776
We all think we know what work is, and we’re pretty sure about pay. But how do they relate to sustainability? What’s a pluralist approach? Pluralist economics challenges many assumptions of dominant economic thinking but builds on earlier economic analysis going back to Adam Smith. To understand it better, we’ll take a brief trip through the histories of work and economic ideas. Next, we’ll explore the relationship between economics and sustainability, and see how to make the circular flow model more holistic—reflecting an interdependent economy, society, and environment. Social and economic institutions affect economic behavior, along with environmental forces. We’ll see that pluralist economics recognizes multiple capital stocks, sees applied human knowledge (technology) as the driving force of change, incorporates social as well as private costs, and emphasizes fairness—sometimes called justice or equity.
Virtually all spiritual and ethical traditions emphasize that human well-being depends on relationships with others as well as material goods. Some traditions differ greatly in specific beliefs and practices. There may be a great deal of argument about those—even leading to outright war. Despite this, major religions and ethical systems are remarkably similar in emphasizing trust, kindness, reciprocity, and just treatment of one another—extending into the workplace. Many emphasize a duty to protect the natural environment for future generations.
THE EVOLUTION OF ECONOMIC THINKING ON WORK AND PAY
People have always had to feed, clothe, and shelter themselves, so we’ve always had work and economies. But the study of economics emerged relatively recently—first called political economy. That name reflected the importance of political institutions to economic behavior and outcomes. Adam Smith’s Wealth of Nations (1776) was the first comprehensive attempt to explain how people make a living or “provision” for themselves in a modern economic system. Often quoted—and misquoted—Smith was a wide-ranging and complex thinker who wrote about more than the “invisible hand.” He attributed productivity growth to specialization and the division of labor, and “established the primacy of labor as the ultimate source of economic wealth” (McNulty 1980, 38–42). Smith has been called the first labor economist, based on his concern for how the new factory system would affect workers (Stabile 1996, 13–27). He provides “a superb example of a pluralistic approach to labor” (Champlin and Weins-Tuers 2009, 174). The economists following Smith and his approach are called classical economists—but none were as pluralist.
As industrialization increased, the costs imposed on society were front and center for Karl Marx, often called the last of the classical economists. His labor theory of value came from Adam Smith, but Marx used it to defend workers’ right to the rewards from production. Few economists today accept labor as the only source of value—although it’s true that manufactured capital results from applying human ingenuity and work effort to resources in nature. But we’ll return later to Marx’s theory of worker alienation from the products it creates under wage labor. Through introducing an economic interpretation of history and philosophical perspectives like alienation, Marx had more influence on later economists than many admit.
Later in the nineteenth century, a new approach to economic analysis became known as neoclassical economics (NCE). Alfred Marshall, Vilfredo Pareto, and Léon Walras and their followers sought to identify universal economic laws applying in every time and place—like gravity. Simplified assumptions about human goals (such as maximizing utility or profit) allowed them to develop formal models producing universal “economic laws.” In a static model, most factors are held constant (ceteris paribus or “everything else equal”)—making it easier to reason through complex economic processes. NCE equates value to market prices or wages—set by demand and supply and based on independently determined and rational choices of thousands of individuals. That’s the core of mainstream economics today—in which all prices, including those for labor and natural resources, are analyzed using microeconomic principles.
Around the same time, two American economists—Thorstein Veblen and John R. Commons—laid the foundation for institutional economics. Both studied NCE but rejected many underlying assumptions and methods. They believed human preferences and decisions were highly influenced by social laws and customs. Veblen is most well known for identifying conspicuous consumption—done primarily to signal status and gain approval—in his Theory of the Leisure Class. But his contributions go far beyond that.
While all thinkers have to make unrealistic assumptions “the test of an assumption is its usefulness.” To Veblen, the most important economic question was how change occurs over time. His answer? It’s due to an “interplay of human nature, institutions, and technology” in which work and existing social structures shape human character. He observed that NCE’s static models built on ceteris paribus and marginal responses could not explain economic change. (This paragraph draws from Stabile 1996, 140–141.)
Commons focused on how laws and “working rules” developed to resolve conflicts. He emphasized that economies need institutions—but ones that evolve along with technology, economic realities, and social values. Commons studied patterns of wage-setting and working conditions first-hand before developing theories about them. He concluded that collective action—through unions or government—was often needed to protect the public interest in ensuring fairness in the workplace (Stabile 1996, 146–147).
In the twentieth century, Kenneth Boulding, John Maurice Clark, John Kenneth Galbraith, Karl William Kapp, Gunnar Myrdal, and Karl Polanyi built on Veblen and Commons’ ideas to create what is now called original institutionalist economics, neo-institutionalism, or evolutionary economics.2 We’ll be exploring contributions they made to understanding work and pay.
Social economics incorporates many of Marx’s concerns about how the economy affects workers. Although secular today, it grew out of the Catholic social justice tradition and has long advocated a “living wage.” Social economists also emphasize the difference between value and price. Price comes from a particular set of market conditions, but value is based on ethical judgments. Amartya Sen, often placed in the social economics tradition, is widely known for implementing the Human Development Index at the United Nations. It’s a simple alternative to using GDP as a proxy for national well-being.
John Maynard Keynes is best known for explaining—during the Great Depression of the 1930s—why the macroeconomy does not operate on NCE principles. Instead of returning to a “natural” equilibrium, declines in economic activity can spiral downward indefinitely. Government intervention is necessary to restore anything close to full employment. We’ll see the importance of Keynesian aggregate demand on work and pay at various times throughout this book.
During the last fifty years, three emerging schools of economic thought have influenced pluralist analysis of work and pay. Feminist economists challenged assumptions about the roles of men and women and the relative value of their economic contributions. They went beyond gender issues to identify contradictions in microeconomic theory. Paula England asked why people are assumed to act cooperatively in a household but to maximize utility independently in the marketplace (1993, 37). Myra Strober (1994) questioned why NCE focuses on scarcity, selfishness, and competition—with much less attention to abundance, altruism, and co-operation.
Ecological economics developed as economists studying environmental issues—like Herman Daly and Kenneth Boulding—recognized fundamental differences between nature and commodities. These differences make economic theories designed to analyze exchange of commodities inappropriate for analyzing the environment. They also concluded that NCE attempts to be value-free have led to the destruction of many non-renewable and essential elements of nature. Ecological economists value justice as well as efficiency, in the future as well as now.
Stratification economics focuses on the intersectionality of race, class, and gender and their effects on occupational choice and pay. Rather than viewing discrimination as a “market failure,” William J. Darity (2005) sees it as critical element of the economic structure. Property accumulation from past generations shapes the distribution of wealth—and abilities to succeed in today’s labor markets. Unequal treatment has cumulative effects across lifetimes and generations that persist over time. NCE equilibrium-based models predict selfcorrection.
Pluralism in Economics
The many similarities between these alternative schools of thought led Fred Lee (2009) to advocate a pluralist approach to economics. It’s not an “add-on” to mainstream economics, but a way to integrate many heterodox alternatives. When the mainstream defines economics as the NCE method that’s “monism.”
We’ll learn more about how pluralist analysis of work and pay differs from mainstream analysis in each chapter. Let’s start with a few important principles.
For pluralists, economics is the study of the economy, or how people make a living. Economies are systems of organizing production and distribution for better human
provisioning.
That means a higher
standard of living
—which includes many non-market elements of quality of life, such as freedom and dignity. Some pluralists refer to
social provisioning—
since production depends on cooperation between individuals (Gruchy 1987).
Pluralists understand an economy somewhat like the blind men seeking to know an elephant (
Figure 1.1
). Each learned a limited truth from what they touched. But only by pooling their knowledge could they begin to understand the enormous animal. Since economies are large and complex systems, relying on any one model or metaphor is like drawing conclusions about the elephant from touching only one part (Warner 2018).
Pluralists borrow methods from many traditions, each offering “different windows on economic reality, each bringing into view different subsets of economic phenomena” (Fullbrook 2003, 8–9). Some pluralist theories substitute for NCE ones, while others are complements (Kaufman 2007a). That holds true in this book. Pluralists choose from a variety of methods, based on what’s most appropriate for the problem at hand. In contrast, some
heterodox
economists reject all NCE tools.
Pluralists don’t foreswear all abstractions and model-building. But they don’t limit analysis to what can be expressed mathematically (Reardon, Madi, and Cato 2018, 30–36). There’s less emphasis on hypothesis-testing and more on pragmatic problem-solving, in the tradition of
political economy
. Many models in this book are simplified illustrations of reality—intended as guides to understanding and thinking through complex problems rather than to producing universal “laws.”
Pluralists begin with how an economy operates, based on observations rather than
a priori
assumptions and deductive reasoning. Their models are
holistic
—recognizing that (a) the whole is greater than the sum of its parts, (b) the parts are so intertwined that their functioning depends on these interrelationships and (c) “the character of any given part is largely conditioned by the whole to which it belongs and its particular function and location in the larger whole system” (Wilber and Harrison 1978, 80–82). We’ll see an example of how holistic, dynamic models differ from a static NCE model of minimum wage effects in
Chapter 5
.
Pluralists are concerned with fairness and sustainability as well as efficiency. They see problems like discrimination and unemployment occurring frequently in a market economy—and needing solutions. In NCE, market outcomes are viewed as generally fair and efficient, requiring less policy intervention. And unemployment is either temporary or from unwillingness to accept a lower wage.
Figure 1.1 The Blind Men and the Elephant—A Metaphor for Economic Analysis
It’s always challenging to consider new perspectives. An old joke begins with “What do economists and artists have in common?” The answer is, “They often fall in love with their models.” To avoid this, the descriptions of reality in models and metaphors must be regularly compared with an ever-changing economic landscape. It’s important to not reject new evidence that doesn’t fit our preconception of what the world looks like. Learning and using models—while not falling too deeply in love with them—is a balancing act for everyone. In this book, we’ll guard against that by returning frequently to real world events, past and present.
You’ll learn more about where new models are needed—as well as about NCE economic tools—through the chapters that follow. Let’s look next at institutions and why pluralists emphasize them.3
The Importance of Institutions
While natural laws of physics, biology, and chemistry govern the environment, human laws, organizations, customs, and habits control the transmission of knowledge, skills, and values between individuals today and to the next generation. Within the same country (or state, city, or neighborhood), we take for granted that many things will operate much the same from day to day. That stability and predictability allows trade and specialization of labor to flourish. Viewers of old Westerns know that it wasn’t until the sheriff and the schoolmarm came to town that it was possible for ordinary people to make a living there. Under the “law of the six-gun,” someone with a faster gun could take the wealth you created. The lack of formal institutions rewarded talents for sharp shooting rather than for working the land or setting up a business. This still holds true in many war-torn countries or “failed states” today, where force overrules law and other institutions.
“Market forces” can only operate within a set of rules. Customs are still important today, but laws and regulations even more so. Business relationships thrive when there are enforceable contracts between buyers and sellers. However, all institutions tend to become more rigid over time. In order to serve the common good, they must evolve with technological, social, or economic change to reflect contemporary values and needs. But there is a natural tendency toward path dependence—the influence of earlier outcomes and processes on present day decisions. You’ll see lots of evidence of path dependence in this book.
Rather than developing theoretical models that hold institutions constant, pluralists examine how and why particular institutions developed, their influence on labor issues, and how changes might improve their functioning. They view individual preferences and judgments as interdependent with the beliefs and behaviors of others, rather than innate. Pluralists focus more on the dynamics of change and less on static “partial equilibrium” models like demand and supply. While it yields certain insights, pluralists assess that model as “seriously incomplete” and “misleading” when it comes to wage determination and other important labor outcomes (Kaufman 2004, 25). In this book, we focus primarily on US institutions and how they affect work and pay.
Let’s look next at another aspect of pluralism: its concern with sustainability.
SUSTAINABILITY AND ECONOMICS
What is sustainability? The most widely used definition says it “takes account of economic, social, and environmental interactions so as to allow future generations the opportunity to have the same standard of living as today’s generation” (United Nations Brundtland Commission 1987). In this book, we also follow the UN goals and address sustaining people—particularly workers.
Many people associate the word sustainability with nature and “going green.” Let’s look at how it applies to economics, especially work and pay. Throughout history and around the world, people have always needed to ensure sustainability. They had to choose how to produce and consume in the present—while preserving natural and humanly made resources for their children and grandchildren.
Adam Smith and other classical economists were concerned that wages must at least cover labors’ subsistence costs. Today that’s called a self-sufficiency or “living wage.” Smith advocated higher wages and was concerned that “mentally numbing conditions” would prevent workers from taking their full place in society (Stabile 1996, 21–31). We’ll address sustainability for workers and families throughout this book.
Today, with population over seven times what it was at the dawn of the Industrial Revolution (Bolt and van Zanden 2013), and much more intensive use of natural resources per person, many life-supporting elements of the environment also need protection. However, limiting climate change or reversing land degradation isn’t costless. It will require changes in production techniques that sometimes raise prices and change consumption patterns. Despite all the “win–wins” new technology brings, only a Pollyanna could claim there won’t be tradeoffs.
The UN goals for sustainable development in Table 1.1 don’t set nature against human well-being (UN 2017). They contain more goals directly related to people than to nature—including ending poverty and hunger (1 and 2), ensuring equal treatment by gender (5), and reducing economic inequality (10). Goal number 8 is full and productive employment, with decent work for all. Other goals like safe cities, access to justice, and lifelong learning are also about what a well-functioning economy should deliver to sustain its members.
Table 1.1: United Nations Millennium Goals for Sustainable Development
End poverty in all its forms everywhere.
End hunger, achieve food security and improved nutrition and promote sustainable agriculture.
Ensure healthy lives and promote well-being for all at all ages.
Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
Achieve gender equality and empower all women and girls.
Ensure availability and sustainable management of water and sanitation for all.
Ensure access to affordable, reliable, sustainable, and modern energy for all.
Sustained, inclusive, economic growth, full and productive employment, and decent work for all.
Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation.
Reduce inequality within and among countries.
Make cities and human settlements inclusive, safe, resilient, and sustainable.
Ensure sustainable consumption and production patterns.
Take urgent action to combat climate change and its impacts.
Conserve and sustainably use the oceans, seas, and marine resources for sustainable development.
Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, halt and reverse land degradation, and halt biodiversity loss.
Promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable, and inclusive institutions at all levels.
Strengthen means of implementation and revitalize global partnership for sustainable development.
The UN goals came after a long negotiation process between stakeholders from all around the world, and in many walks of life and economic circumstances.4 It’s clear that many people of all income levels value nature itself, along with the ways it serves human needs (Greenwood and Holt 2014b, 4–11; Sen 1999). Taking a longer view over our lifetimes and into future generations, environmental preservation is necessary to maintain a good standard of living.
Let’s turn to a widely used model of how the economy works. Then we’ll see how it can be modified to reflect sustainability.
The Circular Flow of Income and Product
The circular flow of income and product (Figure 1.2) illustrates the interdependence of a market-based economy. People receive income for selling their labor services, along with any interest, rents, or profits if they own property. They spend the income on goods and services that others produced, and vice versa. In a simplified economy where all firms are individually owned, the money amounts on both sides are always equal—since the entire sale value is distributed to individuals. If business firms produce $1,000 in goods and services, they will also generate $1,000 in wages, rent, interest, and profits for households. That’s the basis of Say’s Law, that “supply creates its own demand.” The market-based economy always generates enough income to purchase its total output of goods and services.
The national income accounts—including GDP—were developed almost one hundred years ago to measure market-based production. They’ve been very useful to private businesses, banks, and many levels of government. With a better understanding of macroeconomic realities, the Federal Reserve and Congress have done a better job of stabilization than before we had these measures. But we’ll see later why GDP isn’t a measure of well-being.
The devil is always in the details, so let’s look at each of the leakages from the circular flow on the left-hand side and each injection back in on the right. Not every household spends all it receives. Some save a portion, and that savings is a leakage from household consumer spending. Usually, there are plenty of potential borrowers to put that money back in—including businesses wanting to invest in manufactured capital equipment and home buyers taking out a mortgage.
Taxes are a second leakage from the circular flow. They can be more or less than government purchases (a second injection to the flow), because governments also borrow from the pool of savings. (They also sell bonds to finance deficit spending, then pay off debt when there’s a budget surplus.) A third leakage from the circular flow occurs when consumers, businesses, or government buy goods and services produced abroad (imports in the left-hand box). But exports (sales to other countries in the right-hand box) represent another injection of dollars to the flow.
Figure 1.2 The Circular Flow of Income and Product
When total leakages are balanced by an equally large injection of spending from outside the circular household flow of income and product, the level of income and output (GDP) will be maintained. Otherwise, sales, employment, and incomes will fall. The circular flow illustrates how businesses and workers are financially interdependent in two ways. First, employers need workers to produce, while workers need to earn income. Second, workers in modern economies buy many of the goods and services they use in the marketplace, while businesses depend on workers to buy their products.
There’s a story about Walter Reuther, head of the autoworkers’ union, being shown through the Ford Motor plant in Cleveland in 1954. A company official proudly pointed to some new automatically controlled machines and asked Reuther: “How are you going to collect union dues from these ?” Reuther replied: “How are you going to get them to buy Fords?” (UAW-CIO 1955).
If businesses cut production costs by lowering pay or hours, they risk a downturn in consumer demand unless some other spending takes up the slack.5 While the circular flow model of Figure 1.2 emphasizes this interdependence, it’s divorced from material realities. Since production requires many natural resources, the economy is embedded in society and the environment (Figure 1.2). Since neither businesses nor individuals can function without services from society and the environment, economic models must be holistic to be substantively realistic. In turn, society and the environment are inevitably affected by many economic activities.
EXERCISE: Using the example from the paragraph above, add several arrows representing initial and feedback effects to Figure 1.2. How would these be different if businesses raised pay or added hours? Why?
Figure 1.3 Financial and Material Flows within the Economy, Society, and Environment
Figure 1.3—from ecological economics—shows a simplified circular flow of income and product within planet Earth and its surrounding atmosphere. The economy is an open system with complex interactions and feedback effects between it, society, and the environment. Production takes material inputs to make items for consumption. It also generates waste that is disposed of in society and the environment. Obsolete or used-up consumer goods have the same fate, since there is a limit to recycling. Figure 1.3 illustrates the “take-make-waste” method that dominates modern economic systems (Hawken 1999).
The environment is governed by natural laws very different from humanly made laws. Money can circulate continuously between firms and households, but many natural resources move in only one direction. Energy can’t circulate perpetually like money does. The first and second laws of thermodynamics are that (1) matter and energy can change form but neither can be created or destroyed by human beings, and (2) both follow the law of entropy, moving in only one direction—from order (useful states) to disorder (waste, a non-useful state). For most of history, natural forces like forests, soil, rivers, and oceans have absorbed waste from used-up matter and energy. But too much waste—such as greenhouse gasses accelerating global warming—exceeds nature’s clean-up capacity. Even when waste can be recycled the process uses energy.
EXERCISE: Think of some feedback effects to society or the economy from dumping waste. Do they affect health, household needs, or firm costs? How might this influence prices or wages? Draw some arrows in Figure 1.3 illustrating your argument.
The COVID-19 pandemic was an example of how natural forces—a new virus—impact society and the economy. The pandemic also demonstrated how human responses—from individuals, businesses, governments, and nonprofit organizations—affect economic systems. In this book, we’ll focus more on flows between economy and society and how they affect economic and social sustainability. (You may already be thinking of some analogies in which the market economy pays for labor services from society and then disposes of people once they are no longer useful.) We’ll address that in later chapters as we deal with how costs and benefits of production are allocated. In later chapters we’ll also learn how moving the economy and society toward environmental sustainability will likely impact workers.
Let’s look now at why sustainability requires taking a different perspective on the economy and capital stocks.
Sustainability and Capital Stocks: A Broader Vision
Getting on a sustainable path requires organizing production and consumption so that the elements needed for a good standard of living are preserved—or enhanced. NCE focuses on ensuring enough savings to at least replace old equipment—and preferably finance new. GDP and the traditional circular flow of Figure 1.2 only address the annual flow of investment spending on private manufactured equipment—not on other forms of capital. Let’s look at those now.
Ecological economists call the stock of natural resources “natural capital.” People often create new economic resources from nature, such as ways to concentrate solar power. But they are limited to operating within physical laws that govern the universe—like the movement of energy from usefulness to waste.
Some natural resource inputs are privately owned, so their use counts in costs of production. But many natural resource services don’t show up as costs because they are provided freely. The air and atmosphere—necessary for maintaining life as we know it—are non-excludable public goods. Many other elements of natural capital also have no substitutes. We can produce substitutes for wood as an input, but not for the carbon-absorbing and habitat services of forests. Conservation of a scarce input, like timber or oil, can be encouraged by higher prices. But a market for non-excludable services like carbon absorption can only develop if some authority (a government) “puts a price” on carbon. Otherwise, there’s no value in trading it.
Next in time and importance are people’s accumulated skills and knowledge—“human capital” in NCE. This capital is social in several ways. First, much of it is provided in the home and through public schooling at little or no cost to the recipient. That provides the foundation of health, basic skills, and socialization. Later on, individuals may pay for more education or training—directly or through lower pay in interns and apprenticeships.
Second, returns on human capital accrue to society as well as the individual. Thirdly, the body of knowledge is social (Neale 1984). Knowing how to hunt, skin, and prepare a deer was widely valuable in many earlier societies, but much less today. Instead, it’s valuable to be an electronic media guru. Little of our food comes from wild animals, but many people participate in computer and internet-based technologies.
In NCE, scarcity leads to increased value. But knowledge is not necessarily subject to diminishing returns. It’s cumulative, building on what prior generations knew and what others know today. Knowledge sometimes increases in value when more people have access to it. That’s an example of a network effect. From Neale’s perspective, much of what’s commonly called a return to individual investment in human capital is actually a return to the entire economy or society. That makes it part of social capital.
