Inequality

Introductory remarks :
- Broader trend of inequality
- End of World War II into the 1970: the us economy was very successful, substantial economic
growth and broadly shared prosperity.
- 1970 onwards: economic growth slowed, and the income gap widened.
- Political dimension: neo-liberal, prelevant view: “equality of opportunity” … contrasts with
social-democratic tradition in Europe: “equality of outcomes”
- =determines to what extent political is taken
- Social mobility: up or down social mobility

Paul Ryan, speaker of the House of Representatives : “ in our country, the condition of your birth
does not determine the outcome of your life.” Sept. 2017

U.S has highest level of income inequality among G7 countries.

Gini coefficient of gross income inequality, latest year available :

U.S: 0.434
UK: 0.392
Italy: 0.373
Japan: 0.363
Canada: 0.352
Germany: 0.351
France: 0.326

Explanatory factors:
A- Rising gap in pay between firms:

 Boosting salaries to recruit top talent or to add workers with sought-after skills.
 Highly skilled and well-educated workers go to companies that can afford to offer generous
salaries, benefits… and create momentum.
 Employees in less-successful companies: poorly paid and their companies fall further behind.
B- Outsourcing and automation:

 Example of General Electric (Nicholas Bloom, Harvard Business Review):

1960s: employed manufacturing workers, line managers, executives, janitors, administrative staff,
and many other type of workers
 Then: automated or outsourced a wide range of functions
 Yet, during that time: constant at about 300.000 employees
 = GE has hired more engineers and coders, doubling down on its core competency, and
outsourcing for tasks
 Companies focused on their core competences and outsourced noncore work.
 Consequently: division between knowledge-intensive companies such “Apple” and labor-
intensive companies such as “Sodexo”
 Education and skills training are clearly part of the solution (problem of college fees)
C- Decline in union membership:
  Existence of wage premium for union workers, more pronounced for lesser skilled workers,
and spilling over the benefit of non-union workers as well.
Example: according to the Economic policy institute, a “high school graduate whose workplace is
not unionized but whose industry is 25 percent unionized is paid 5 percent more than similar
workers in less unionized industries”
 Since the 1930s: unions raised the wage floor but also lowered the ceiling (moderation of
compensation of executives at unionized firms)
 Exerted political influence: sustained other political and economic choices that reduced
inequality: job-based health benefits, social security, high marginal tax rates…

Minimum wage: the states with higher union density (e.g. New York, California, Alasaka) tend to be
the states that have minimum wages that are higher than the federal minimum wage 7.25 dollars
 Questioned by those who consider that it could cause job losses and does not help to reduce
poverty levels.
 Loss of traditional union manufacturing jobs has contributed to the decrease in union
membership.
 But also: evolution of labor law and employers’ attitude
 1989s: neo-liberalism is Reagan period :” union bashing” and use by employers of regulations
( against existing unions and preventing new ones)
 Current period: example od Starbucks in Buffalo
 Procedure: US specificity: certification election
 An employer can voluntarily recognize a union- if not : workers who want to unionize must
appeal to the NLRB to vote on unionization ( can take more than a year)
 Pro-union bill: protecting the Right to Organize Act (PRO Act): introduced in 2019 by House
Education and Labor Committee Chairman Bobby Scott (D-VA)
 Union membership: decline from 33 percent in 1956 to just 10 percent in 2018 ( historical
low)
 Passed in House of Representatives in 2021: waiting in Senate.
 (1) Bolstering Remedies and Punishing Violations of Workers’ Rights (2) strengthening
Workers’ Right to Stand Together and negotiate for better working conditions (3) restoring
fairness to an economy that is rigged against workers (US congress)
 Employers also would not be allowed to misclassify employees as supervisors or independent
contractors to prevent them from being union-eligible/ employers would not be allowed to
force workers to attend anti-union meetings/ would not interfere with election/ heavy
sanctions for violations of rights.
 Seen by opponents zs devaluing workers.
 Eliminates right-to-work laws: historical background of right-to-work laws: 1947 Taft- Hartley
Act:
 prohibited arrangements where employers agree to hire only unionized workers (“closed
shop”)
 Implicitly encouraged “right-to-work” laws: section 14(b) allows state to enact laws that
undermine union security and that prevail over federal laws.
 Justification of right-to-work laws: criticism of the following practice: Federal law prohibits
forcing someone to join a union so… Employers who refuse to join the union but benefit from
 the union’s negotiations pay the fees associated with the costs of workplace bargaining
(agency fee) without being forced to contribute to the union’s political activity .

= “right-to-work” laws aimed at defending business and employees’ freedom.

Right-to-work states, 2020:

 In states without Right-to-work laws: workers covered by a union contract can refuse to join
the union and pay agency fee without being forced to contribute to the union’s political
activity.
 In states with Right-to-work laws: require union contracts to cover all workers, as required by
federal law, not just the ones who are members of the union, without them paying the
agency fee.

- Business groups:
 “The PRO Act is bad for workers, employees and the economy. The bill includes a number of
anti-worker and economically harmful provisions that worked force employers to hand over
personal information about employees without their consent, restrict flexible work,
arrangements, penalize productive and beneficial business relationships, and undermine
private ballot “elections.”
US chamber of commerce
 “we’ve been engaged with our coalition partners, coordinating lobbying visits on the Hill,
talking to Democrats and Republicans about the harm this bill would do to the workplace and
how misguided it is. We’re all communicating with our grassroots and making sure that
employers don’t take this for granted”
David French, senior vice president for government relations at the National Retail
Federation, pat of the coalition for a Democratic Workplace
- White House at the time of Trump presidency:

the legislation would “take the country in precisely the opposite direction from the presdient’s
successful deregulatory agenda, which has produced rising blue-collar wages and record low
unemployment” (statement of administration policy, February 5, 2020)

- Biden campaigned as the “most pro-union president”:

“For decades, abuse employers have been able to violate federal labor laws with relative impunity,
making it more difficult for workers to organize and negotiate for fair pay, benefits and working
conditions.”

Excerpt from letter of the American Federation of State, County and Municipal Employees wrote in a
letter to Congress.

-Biden’s December 2022 speech:

- Appointed Martin Walsh as Secretary of labor = first union member to serve in this role in nearly
half a century

- Raise federal minimum wage to 15 dollars (currently 7.25 dollars and not raised since 2009) , but
criticized by Republicans (job losses, credibility…)

- Since January 2022: 15 dollars minimum wage for federal and contractors
 Monetary Policy

What is at stake :
Action on :

 Unemployement rate
 Growth rate
 Managing covid-19’s consequences for the economy
 Monetary stability (inflation rate

How?

Federal funds rate

Institutional organization:
First attempts:
 1791-1811: first Bank of the US
 1816-1833: second bank of the US
 Both are not renewed because of fear of a structure above states.
But: major crisis in the US in the late 19 th century

Creation of the Federal Reserve System = the Fed

 Federal reserve act: December 1913- established the Federal Reserve System
 The framers of the Federal Reserve Act rejected the concept of a single central bank.
 Instead: central banking “system”
 Combination of independence and supervision
 Structure
 A central governing Board in Washington, DC
 A decentralized operating structure of 12 Federal Reserve banks
 The Federal Open Market Committee (FOMC)

 The federal reserve system is composed of:

- A central governing board
- A decentralized operating structure of 12 federal reserve banks ( districts not corresponding
to state borders)

The board of Governors:

 Seven members, or “governors”, who are nominated by the President of the US and
confirmed in their positions by the US Senate
 Oversees the operations of the 12 Reserve Banks and shares with them the responsibility for
supervising and regulating certain financial institutions and activities
 Provides general guidance, direction on activities of Reserve Banks

The FOMC
  12 voting (14-year term): the 7 members of the Board of Governors + the president of the
Federal Reserve Bank of New York
 +4 the remaining 11 reserve bank presidents, who serve one-year terms on rotating basis
 Sets monetary policy at the federal level.
 Tool: the federal funds rate (= the interest rate at which depository institutions lend to each
other)
 Also responsible for:
 The size and composition of the Federal Reserve’s asset holdings
 Communications with the public about the likely future course of monetary policy
 Federal reserve Chairman: Jerome Powell
 Moderate Republican appointed by Donald Trump in 2017
 Reappointed by Joe Biden in 2021: period of uncertainty, need for stability.
 Political independence of the Fed
 Objectives:
 Fed’s mandate by law (=its goals)
 Maximum sustainable employment
 Stable prices
 Moderate long-term interest rates
 Traditional trade-off: inflation vs unemployment

Political independence
Definition:

 Appointment of members of the Board of Governors: by the President with the advice and
consent of the Senate, and the Federal Reserve Banks and Branches.
 Appointment of Chairman/Chairwoman chosen by the President with the consent of Senate
 Political orientation?
 But legally bound to make a semi-annual report to Congress= democratic accountability