More evidence that markets don’t work

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Updated: August 01, 2021 6:57 PM

If it did, frontline workers—healthcare professionals, gig-workers, logistics workers, etc— would have been paid better, not merely applauded during the pandemic. Thankfully, in the West, the trend is towards unionisation of labour

The truth is the only thing it reduces is corporate profits; the flip-side is that it increases growth significantly in the largely consumer-spending driven economies we have today.The truth is the only thing it reduces is corporate profits; the flip-side is that it increases growth significantly in the largely consumer-spending driven economies we have today.

During the worst of the pandemic, everybody was ever so grateful to ‘front-line workers’, who were thanked personally and applauded nationally (in many countries). If markets worked properly in terms of rewarding value, nurses and health professionals, police, municipal workers, store clerks, delivery people, gig workers, among others, would have seen an immediate and huge jump in their salaries. Instead, the likes of Uber, Lyft, Amazon, etc, continue to use millions of people—including the celebrated front-line workers—off-payroll and without benefits; there are reportedly 55 million gig workers in the US alone, about 17% of the population.

The double tragedy is this market-knows-best approach is not only unfair, it reduces growth. For example, Amazon currently has about 800,000 employees who earn a median salary of $27,000 a year; this means that half of its employees earn less than that—let’s say the lower half average $20,000 a year. Amazon also proudly reports that it pays a minimum wage of $15/hour, which translates to $31,200 for a full-time worker. Thus, if the below-median employees came up to the $15/hour wage for full-time work, it would increase spending power in the US economy—and, consequently, growth—by nearly $4.5 billion per year. Amazon’s income would decline by as much. And this is just one company and it does not include its gig workers, who generally make 30-50% less and are without any benefits.

The pandemic has brought this injustice and macroeconomic foolishness into focus, and there is a fresh burst of energy towards unionisation. US President Joe Biden has come out strongly in support of unionisation, in what some have called “…the most pro-Union statement from a president in US history.” The US labour secretary is aggressively focused on increasing workers’ protections and pushing companies to make gig workers full employees with health and other benefits. Clearly, a new wave of unionisation is on the cards in the US.

Corporate America is certainly not going to roll over and play dead; indeed, an attempt to unionise Amazon workers at a warehouse in Alabama failed, largely due to hardball tactics used by Amazon, best described by a notice the National Labor Relations Board compelled Amazon to put up at its workplaces, which included points like: We will NOT threaten you with the loss of your job if you are a union supporter, We will NOT interrogate you about the union, We will NOT engage in surveillance of you while you participate in union activities, We will NOT threaten you with unspecified reprisals because you are a union supporter, We will NOT threaten to “get” union supporters.

While I am using Amazon as an example, even in liberal corporate circles—an oxymoron, if there ever was one—believe that unionisation reduces productivity. The truth is the only thing it reduces is corporate profits; the flip-side is that it increases growth significantly in the largely consumer-spending driven economies we have today.

The battle will be long and hard because US Inc, particularly the ‘new economy’ titans, have huge political power. (This may be why China appears to be smashing its tech sector; in addition to recognising that these companies produce little of value to the real economy relative to the profits they rake in, China may also be trying to prevent them from getting to a point where they can dictate to the government on so many issues, as the FAANGS are already doing in the West). But it will be won.

There will be significant rationalisation of earnings for genuine value delivered, much of which will hit corporate bottom lines, and some of which will affect government deficits—public sector health workers, municipal workers and the police. In the US today, police officers on average make $53,500 a year, fully 70% more than the median income ($31,300); median incomes will certainly rise and if we assume that in tandem police salaries rise by a minimum of 50%, it would hit the US government deficit by only about $20 billion.

Another intriguing idea, in line with the trend towards consolidation of labour, is for more active unionisation of the police. This is even more critical in countries like India, where the police force is completely under whatever political thumb is prevailing. The parallel with poorly-paid, poorly-treated labour is very clear—on average police officers make Rs 31,000 a month, a pathetic 5% more than the median income. Bringing police wages up to the US standard of being 70% higher than the median income would cost a whopping Rs 48,000 cr a year, which isn’t going to happen.

This opens up an opportunity for left-leaning political parties need to organize police constables to press for better wages and working/living conditions. Significantly, the idea of police as labor could have far-reaching political impact, particularly in making the justice system more responsive to the needs of the people.

The author is CEO, Mecklai Financial
www.mecklai.com

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