A Labor Policy Strategy for Transforming the American Workplace

by Thomas Kochan

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President-elect Barack Obama has pledged to take immediate actions to respond to the deepening economic crisis and to embark on an ambitious strategy to transform the American economy to once again make it work for all Americans. Such a transformation will require significant changes in the American workplace to create and sustain jobs that fully utilize workers’ knowledge and skills, drive innovation and productivity and ensure workers share equitably in the prosperity generated. The central task of the Obama Administration’s labor and employment appointees is to facilitate this transformation. This will require a coordinated effort across all labor and employment agencies, hard work with the Congress to achieve a set of necessary legislative reforms, and leadership in engaging business, labor, and community groups working with government toward this common goal.

We are at one of those historic moments in which there is a dire need and a rare opportunity to both reverse the downward spiral in the economy and lay a foundation for a sustainable recovery. It is equivalent to the situation Franklin Roosevelt encountered as he entered the White House in 1933. Roosevelt’s first steps were to stabilize a collapsing economy by declaring a bank holiday and implementing a regulatory structure to secure our financial institutions. But then, and for the next several years, the Roosevelt Administration and Congress invested in job creation and enacted the labor policies that gave workers the tools needed to lead a sustained economic recovery. Unemployment insurance, minimum wages, the right to form a union and engage in collective bargaining laid the foundation that allowed workers to receive a fair share of the economic progress they helped to create.

Barack Obama will face a similar challenge and opportunity when he takes office in January 2009. An equally bold set of innovations in labor market policies and administration will be needed to give today’s workforce the tools to contribute to and share in the benefits of a sustained economic recovery. This paper lays out an agenda for doing so starting on Day One of the Obama Administration. It incorporates policies he has endorsed and builds on his strategy for creating good sustainable jobs.

The Challenges

The major challenges facing the American workplace given the current economic crisis and following the neglect and direct harm inflicted by the Bush Administration include:

  1. Reversing the rising unemployment, negative job growth and the massive job losses likely to come in the months ahead, and the growing number of discouraged, marginally engaged, and underemployed workers. This will require an immediate economic stimulus package focused directly on job creation and a workforce and workplace strategy that ensures the new jobs pay good wages, allow workers to make full use of their skills and ideas to drive productivity and innovation, and provide workers the bargaining power and voice they need to ensure they share equitably in the economic gains they help produce.

  2. An equally pressing, longstanding, issue is the failure of wages to increase roughly in tandem with increases in aggregate productivity. Between 1980 and 2005 productivity grew by more than 70 % while average compensation grew only about 5 %. Even these modest compensation gains are now eroding as inflation has surged and is well above the growth in wages. The full set of labor and employment policy initiatives must support the goal of once again having wages move in tandem with productivity growth.

  3. The modern workforce has changed dramatically over the years with the growth in the labor force participation of women and mothers. Our workplace policies and practices, however, still don’t provide family and medical leave or paid sick days to about half of the workforce. All our labor market policies need to be modernized to better respond to the changes in the labor force created by the “two-income” and the “single parent” family, and the increased interdependence between family and work responsibilities.

  4. An economy that wants to be competitive and to rebuild and sustain a middle class must rely upon a highly educated, skilled, and mobile labor force. Yet America’s investment in workforce development and training lags far below that of other advanced economies (among OECD countries we rank at or near the bottom in terms of percent of GDP invested in training and workforce development). Increased public and private investment in workforce development and related labor market adjustment services will be needed to permit us to adapt to changes in the types of employment available to our citizens. Unemployment and trade adjustment programs need to be modernized and integrated to support all workers in moving to new jobs regardless of the reason for their job displacement.

  5. Employees have lost their voice at work. Labor law is so broken that few workers can hope to gain access to a union and collective bargaining by following the procedures provided under labor law. Moreover, labor law and practice continues to be mired in adversarial principles and relationships that are an anathema to the productive, innovative, and cooperative relationships workers want and the economy needs. Fixing the basics of labor law and putting labor-management relations on a more innovative and cooperative course are necessary first steps in transforming America’s workplaces.

  6. The Bush Administration has undermined the effectiveness of the agencies responsible for enforcing and administering workplace policies and regulations. Bush appointees to OSHA, Wage and Hour Administration, the NLRB, the National Mediation Board, the Federal Mediation and Conciliation Service, EEOC and other employment agencies often do not believe in the missions they are charged to carry out and have acted repeatedly to weaken and discredit their agencies. Appointing knowledgeable and trusted professionals to the “workplace” agencies is a necessary first step toward rebuilding confidence in their work and one that must be carried out promptly if these agencies are to have any impact upon the current economic climate.

  7. Trade policy stands at an impasse in large part over the question of whether, and if so, how to link labor standards’ protection abroad and employment opportunities at home to trade agreements. Breaking this impasse will require new principles both for holding trading partners accountable for meeting basic labor standards and improving wages in line with productivity growth in their countries and for new strategies here at home for enforcing and upgrading our own labor standards.

A Transformational Strategy

Addressing these challenges will require, in addition to strong and clear leadership on the part of the President and his appointees to key positions in his Administration, (1) a short but strategic legislative agenda to be pursued at the very outset of the new Administration, (2) a new approach to rebuilding the labor and employment regulatory agencies, and (3) a clear set of principles to guide all of our trade agreements.

Top Four Legislative Priorities

  1. Senator Obama has put forward a bold economic stimulus plan calling for a $2,300 human capital investment tax credit for firms creating jobs in America. He has also proposed to create new jobs in key sectors such as renewable energy, infrastructure repair, and health care. The plan also calls for extension of unemployment benefits for those who have exhausted their current benefits and for eliminating income taxes on these benefits. These are necessary first steps to jumpstart economic recovery. An even bigger job creation program may be needed if, as now expected, job losses continue to spread in large numbers across the economy. Whatever the size and targets of the stimulus package, it needs to be complemented with the labor market legislative and administrative initiatives outlined below to ensure these investments lead to a sustainable, worker led recovery.

  2. long side the stimulus package, equal priority should be given to passing the Employee Free Choice Act to restore workers’ ability to form unions and gain access to collective bargaining, and to engage workers and their unions to achieve the innovation and productivity growth needed to get wages moving in tandem with productivity. The Employee Free Choice Act should be treated not solely as an effort to restore workers’ rights but also as a key element in the President’s economic strategy for both rebuilding the middle class and transforming the American economy and American workplaces. To achieve these latter objectives, provisions should be added to the current draft of this bill to give the Secretary of Labor the discretion to approve and fund experimental and demonstration projects in key industries aimed at building the 21st century workplaces that fully utilize workers’ skills, knowledge, and capabilities to drive improvements in productivity. This flexibility is critical to implementation of a new regulatory/enforcement model and development of a forward looking workforce strategy.

  3. Another early legislative initiative should be the expansion of the Family and Medical Leave Act to provide paid leave for all workers to deal responsibly with the addition of a new child or to care for themselves or close family members in case of serious illness as well as the enactment of the Healthy Families Act to provide seven paid sick days for all workers as a first step in supporting those who are striving to meet their dual work and family responsibilities.

  4. Increased funding for employment and training, tax credits for private sector investment in training and development, and reforms of unemployment insurance to support worker mobility across jobs should be built into the first Administration budget submitted to Congress. The Labor Department’s budget for employment and training now totals approximately $5.5 billion, compared to the peak level expenditure in 1979 of $17 billion. Adjusted for growth in the labor force this amounts to about an 87% reduction as a percent of GDP. Even returning to peak levels would keep the US ranked at or near the bottom of all OECD countries (and well below the 4 percent of GDP of the benchmark country, Denmark). But government funded training and labor market adjustment services should be matched by and coordinated with private investments by firms and unions.

These and other workforce/workplace issues clearly warrant legislative action. However significant progress can be achieved on this transformation agenda through administrative actions. An administrative strategy for doing so is outlined below.

Administrative Reform Model

Effective enforcement of workplace laws and regulations should begin by appointing highly respected and knowledgeable professionals to direct the key regulatory agencies. These appointments must be made immediately or meaningful change cannot take place before the mid-term election cycle looms. The Administration must signal on Day One a clear break with past lax enforcement policies and must cope with a number of immediate challenges to its initiatives. (e,g,, the negotiation of new labor agreements in the oil refining industry (January 2009) and of multiple labor agreements in the airline industry (2009 and early 2010)).

While budget resources will be limited, there is an urgent need to reverse the cuts in staff and budgets of a number of key agencies (OSHA, Wage and Hour, and others), The increased resources that are available, however, will never be sufficient to do the job of assuring compliance with, much less upgrading of, our current workplace standards. A new approach to enforcement is needed in which the traditional enforcement tools are targeted on the most egregious violators, and employees, unions, community advocacy groups, and progressive employers are engaged to supplement traditional enforcement efforts. The role of progressive employers is especially key. The “best practices” of these employers should be viewed as industry benchmarks for others to learn from, both to upgrade their employment practices and to foster innovation, productivity growth, and improved quality of service.

Better coordination across agencies is also needed. The Secretary of Labor will need to work in close coordination with the various labor agencies—the Federal Mediation and Conciliation Service, the National Mediation Board, the National Labor Relations Board, and the Federal Labor Relations Authority as well as the civil rights agencies—to ensure that they are working without unnecessary duplication and, consistent with their statutory responsibilities, to ensure safe, fair workplaces that promote innovation, productivity and improved service.

Data from individual enforcement agencies should be integrated to make information on firms’ compliance records public and transparent and to showcase employers with exemplary workplace practices. Workers should have an easily accessible “one-stop” complaint capability in which they can access enforcement of their safety, wage and hour, equal employment opportunity, and/or labor relations rights. Federal enforcement efforts need to be better coordinated with state-level efforts.

Finally, labor and employment policy needs to inform and be coordinated with the strategies of other parts of the Administration’s economic, trade, transportation, and health care policies. To achieve its transformational objectives, the Administration needs to follow the example of leading firms that integrate and coordinate their human resource strategies and policies with their key business strategies and policies.

Labor Standards and Trade

The debate over trade needs to be reframed to one that actually embeds a clear and effective means of enforcing and upgrading basic labor standards.

  1. We should hold our trading partners to the same social contract that we establish for the US economy. Trade agreements should both require compliance with the ILO’s core labor standards and require trading partners to demonstrate on an annual or bi-annual basis that median wages are increasing in tandem with growth in labor productivity.

  2. Our government should fund technical assistance (perhaps in conjunction with the ILO) to upgrade the enforcement capabilities of our trading partners. The same enforcement model proposed for enforcing labor standards and regulations in the US should be adopted as part of trade policies, i.e., enforcement targeted on businesses with the worst records coupled with advice and assistance in upgrading practices that improve performance and labor conditions for those firms demonstrating a willingness to implement such practices and conditions.

  3. US transnational firms should be held accountable for monitoring and demonstrating compliance with minimum labor standards throughout their full supply chains. A number of leading firms have been working with NGOs and host countries to implement codes of conduct and monitoring mechanisms. We can learn from these experiences and hold all US firms accountable for developing and implementing equivalent mechanisms.

Workplace Innovation Strategies to Support Public Investments

The Administration will be investing significant public resources in a number of strategic industries to stimulate job creation—to promote development of alternative energies, repair the nation’s infrastructure, and provide universal, high quality, cost efficient health care. Each of these initiatives requires a workforce strategy to realize its objectives and expand middle class jobs.

  1. Investment in Alternative Energy. Creation of good, sustainable jobs is an important aspect of these investments along with reducing America’s dependence on fossil fuels and imported oil. We must have in place a workforce strategy to assure that these investments pay off in good, productive, and sustainable jobs. The default result (i.e., if there is no explicit e strategy in place) will be a no-win, predictable debate over prevailing wage or Davis-Bacon rules for setting wages. The Administration will need to be clear that it stands behind and will enforce the principle that these jobs should pay at least prevailing wages. In addition, policies should be put in place to hold business and labor accountable for creating jobs and workplaces that not only comply with all workplace laws and regulations, but that build the knowledge-based work systems and labor management relationships necessary to achieve high productivity and high wages. This means requiring those receiving federal funding to respect workers’ right to organize by not using any government funds to deter unionization and holding both management and labor unions accountable for building state of the art high performance workplace relationships and practices. To do so the Secretary of Labor should be authorized to create industry councils to identify, learn from, and diffuse practices needed to build and sustain high performance workplaces. Investment funds should be allocated and/or reallocated to provide incentives and to reward those firms that have state of the art practices in place.

  2. Infrastructure Repair. The same approach as outlined for investment in alternative energies should be followed for investments targeted for repairing the nation’s infrastructure. In addition, where feasible business and labor unions involved in infrastructure repairs should be encouraged to negotiate project labor agreements to promote efficiency, avoid work stoppages, and resolve any representational and jurisdictional issues as they come up. Pres. Bush rescinded the Executive Order authorizing Project Labor Agreements on federally funded projects. President Obama should reissue this Executive Order on day one of his Administration.

  3. Health Care Reform. Whatever health care reforms are enacted will require a well developed workforce strategy that insures the needed numbers of well educated and qualified health care workers are available to meet expanding demand. As with the principles outlined for investments in renewable energies there should be a prohibition on the use of federal funds to oppose unionization and provisions to hold employers and unions accountable for engaging and coordinating the health care workforce in ways that improve the quality and control the cost of health care.

Summing Up

If communicated clearly, forcefully, and widely to the public and to the business, labor, NGO, and community groups directly involved in employment relations today, the strategy laid out above would contribute to transforming both the American economy and American workplaces in ways that would create new, sustainable jobs, strengthen our competitiveness, and provide working families a path to a middle class standard of living. But this transformational strategy will require leadership from key labor policy appointees and strong support from the President. The President and his appointees will need to mobilize and bring together all these groups to focus on the objective of making the economy work for the common good. I believe this is not only essential. It is also possible at this unique moment in history, given the broad recognition of the challenges facing the economy in general and working families in particular.

It would be a mistake to treat labor policy as a backwater—something that needs to be done to satisfy a political constituency but that is kept at bay from the rest of economic and social policy making in the Administration. That would frustrate all parties—the President and other Administration policy makers and the labor movement. It would also miss a unique opportunity to change the direction of work and employment policy and, indeed, to change the direction of the economy and the country.

November 7, 2008
Thomas A. Kochan, the George Maverick Bunker Professor of Management at MIT's Sloan School of Management and Co-Director of both the MIT Workplace Center and of the Institute for Work and Employment Research, is the Treasurer of the Steering Committee of Catholic Scholars for Worker Justice. Email: tkochan@mit.edu.

     Catholic Scholars for Worker Justice