Since we're living in prosperous times, it may come as a surprise to some that not everyone is doing well in the new economy. Inner-city high-school dropout rates are still high and rising. The number of unskilled workers in the workforce is still large and growing. The income gap between the rich and the poor is still vast and expanding, now to the point where it is the widest it has ever been in over a century. This is the dark underside of our nation's economy, which, until recently, experienced its longest expansion in its history.
Robert B. Reich, Brandeis University professor and Secretary of Labor under President Clinton, shines new light on these and many other issues in his absorbing new book, The Future of Success. According to Reich, the encouraging news about the new economy is that American corporations have become more productive and that their goods and services are vastly improved. Technology now gives customers more choices in the market, causing greater competition among corporations that must deliver better, faster, and cheaper goods and services. But the improved commodities come at a price for the average worker. With increased competition, the demand for overtime is tremendous, resulting in employees working more overtime hours, taking fewer vacations, and generally having much less time for their families and communities. All jobs and earnings have also become less secure, with the wages and benefits of the unskilled suffering the most.
Reich has been an authority on labor issues for years and when he was a member of the Clinton administration was a strong supporter of education and job training for all workers, particularly the unskilled. In The Future of Success, Reich shares a conversation with an employee of his neighborhood laundromat that highlights many of the issues of the new economy. The employee makes minimum wage and has never had a raise, but explains that she can't demand even one penny more from her employer because the employer could easily replace her with another worker. Incredibly, Reich argues that the problem here is not that the employer is unwilling to give its unskilled workers higher wages. The problem is us. "We're not aware," he writes, "that we're demanding wage cuts [for employees] and fighting unions but that's often the effect we have when we choose the cheapest product or service. Companies can't pass on to us [customers]...wage increases in the form of higher prices as easily as they could in the old industrial economy. We have more choices now, and don't have to pay the higher wages embedded in what we buy." When a business raises its prices or does something that displeases its customers, it is now more than ever easy for the customers to take their business elsewhere. And most customers are doing just that, forcing companies to aggressively cut costs to stay competitive. Reich himself acknowledges that he would probably seek a new laudromat if his current one raised its prices.
Unlike the highly skilled, creative workers that companies pursue relentlessly, unskilled workers such as the laundress are not in high demand. In fact, unskilled workers are suffering because of the competition for skilled workers. Governors and mayors work hard to attract and retain citizens with high skills because employers need skilled employees. Employers raise salaries and boost benefit packages to attract and retain these skilled workers. At the same time, government officials are ignoring the needs of its uneducated citizens while employers are lowering their wages and eliminating their benefits. The reason, Reich explains, is the large supply of unskilled workers, primarily in urban areas. On average, only 1.6% of high school dropouts move to another state each year. This means that most states have a ready supply of unskilled workers for minimum wage jobs. This situation takes away any bargaining power low-wage workers may have with their employers, and the result is the workers are forced to keep their low-paying jobs and tolerate years of service without raises.
There is another damaging component of the new economy that Reich calls "the sorting component." Reich explains that individuals and communities, like employers, also compete for the best deals for themselves. Individuals try to get into communities that are affordable, have the best schools, and are largely crime-free. Communities compete to attract "desirable members," or ones who can give the most and take the least. "As a result," Reich writes, "the most desirable end up clustering together.... And with ever greater efficiency, they exclude those who are less valuable or more needy." The sorting mechanism is particularly hard on poor children and children with special needs. "As a result of all this sorting, poorer children who require a lot of attention from good teachers are increasingly bunched together with other poorer children who also need a lot, within schools that have relatively few resources to begin with." Gradually, low-income families are forced to live in communities with ineffective schools, few public recreation areas, unsafe streets, and many other social problems. The end result of all of this sorting, for youths and adults, often leads to not finishing high school, extreme poverty, juvenile detention centers, prison, or the streets.
The issues are different for skilled workers. While their earnings are certainly much higher (Reich states that the typical chief executive takes home 419 times the annual earnings of typical workers), they are devoting most of their time for work, leaving little time for family, friends, community service, and personal pursuits. "The rewards of the new economy are coming at a price of lives that are more frenzied, less secure, more economically divergent, and more socially stratified." Businesses must strive continuously to improve their services to retain customers. This means that workers are under more pressure and are working longer hours. The typical American now works 350 more hours a year than the typical European, more hours even than the typical Japanese worker.
What then, is the future of success? Reich attempts to push the debate beyond considerations of wealth and maintaining balance between work and family to include individual choices and community responsibility. As he says repeatedly, no person(s) or group(s) are alone responsible for the unfortunate situations described in the book. Rather, the situation developed from millions of individual decisions over many decades, many of them perfectly rational individually, aimed at improving lives, but "what's rational for individuals is not necessarily rational for society as a whole." His analysis provokes some tough questions. Would we work as many hours as we do if we understood the consequences for our personal lives and communities? Would we be willing to pay more from some goods and services if it meant workers would receive decent wages and benefits? Would we be willing to invest more in education and training for unskilled workers? Reich's account of the trends that are shaping our economy and society is engrossing, and while it probably raises more questions than it answers, it is an important and startling analysis of the new economy.
Derek Kalchbrenner coordinates the adult education program at Jobs for Youth in Boston.