Much of the American workforce is high school graduate with no college degree. They were falling behind economically for well over a generation: their median real wage has fallen by 12.3% since 1979, while the median wage of those with a college degree has increased by 14.4%. Overall, barely a third of those without a university education earn the national average wage.
During the presidential campaign, President-elect Biden made a pledge relief to this demographic with corporate behavior change guidelines. Biden fully recognizes that corporate boardrooms are responsible for the plight of the American working class. His success in delivering on this promise depends on how effectively he improves the governance of U.S. companies by requiring them to give workers a seat at the table.
Corporate boards and wage suppression
A central practice on US boards of directors since the Reagan era has been wage suppression to maximize stock value. Features of this shareholder capitalism include outsourcing and the kneecap of collective bargaining at home during (since Maquiladora decades ago) Offshoring well-paying jobs to low-wage producers in Mexico and Asia.
The alternative to this model is Stakeholder capitalismWhere company boards have policies that benefit local communities and employees in addition to shareholders. Biden picked up on stakeholder capitalism in a speech in July. He remained silent, however, about the mechanism that the rich democracies of Northern Europe use to create stakeholder capitalism – a mechanism that economists call Co-determination. With codetermination, management and employees work together in decision-making, in particular by representing employees on boards of directors.
Minority Leader Charles Schumer and 13 others Senate Democrats have rightly advocated participation: it is the only version of capitalism that has been proven effective in improving the economies of non-college workers along with other stakeholders. Just like in Northern Europe, a hug from the Biden administration for codetermination can turn U.S. corporate boards from predators to advocates for working-class Americans.
Northern Europe’s renaissance of the working class
Codetermination is the reason why northern European nations have been successful where the US has failed to create high-wage jobs that successfully integrate men and women without university degrees into their economies. According to the OECD, workers in this population group are paid in Northern Europe closer than those of their US counterparts at national medians and 80% to 85% of them were employed in 2017, compared with just 70% of American non-college workers in the same year.
The rich democracies of Northern Europe have implemented stakeholder capitalism in the last half century with reforms of codetermination, according to which a large part of company leaders must represent the interests of workers and local communities. In Germany, for example, 50% of the directors on the boards of the roughly 2,000 largest companies are elected by employees and not by shareholders. With these powerful companies that include well-known names such as Adidas, Bayer, Daimler and AEONHalf of the board members are employee representatives. Multiple analyzes, also from the National Bureau of Economic Researchhave confirmed that participation benefits workers as well as business investment and bottom line.
For many decades, codetermination has proven to be a systemic, market-based means of countering wage suppression along the lines of the US model. That is why the wages are in Germany and its neighbors throughout Northern Europe higher than US wages according to the Conference Board. In addition, their policies have led to a disproportionate share of production in Northern Europe produced from highly skilled industries that have high wage jobs at home. However, the 30 largest German companies (members of the DAX 30) only sell 21% of their global production in Germany 36% their global workforce is there. Only 15% of Daimler sales are German, for example, but more than half of the global workforce is there. And Volkswagen only sells 9% 40% of the global workforce is there.
Workers move in opposite directions
The focus of corporate executives with codetermination on highly productive product lines has made the aggressive qualification of domestic workers necessary. Because the share of the workforce with a university degree in Northern Europe in countries like the Netherlands (37%) is far lower than the proportion of employees in qualified occupational areas (53%) Companies reach deep into the ranks of men and women without a college degree so that workers can be upgraded.
This is in sharp contrast to the customary wage suppression that the US Share of jobs According to the OECD, the decline in the US between the mid-1990s and mid-2010s is considered “qualified”. However, the proportion of such jobs has increased sharply in every northern European economy, including a huge jump of 21.8 percentage points in the Netherlands and a jump of 20.8 points in France. That was the case back in 2006 share Across Northern Europe, including Norway (48%), Germany (44%) and the Netherlands (53%), the share had exceeded the US (39%). This transformation came despite the enviable advantage of Silicon Valley and the dominant role of the US in global information technology.
Worse still, board members’ downgrading of U.S. workers is systematic: while the proportion of high-skilled jobs declined, the proportion of all low-skilled U.S. jobs increased 3.3 percentage points over that period. In contrast, co-determination companies have cut low-wage jobs abroad: for example, the share of low-skilled domestic workers fell by 7.8 percentage points in the Netherlands and by 6.4 percentage points in France.
Employee empowerment is a good policy
Aside from the economy, there are domestic political considerations that justify a Biden co-determination initiative. First, it is what the most ardent proponents of the Democratic Party expect that the party will prioritize policies that benefit those who are economically lagging behind. Along with higher minimum wages, stronger collective bargaining, and college debt relief, participation can improve opportunities for those on less than $ 100,000, union members, minorities and youth – the core of the party, many of whom are hit by the pandemic.
Second, codetermination is a bridge to the segment of Trump voters who are primarily concerned with economics rather than immigration, law and order, or social issues like abortion. This segment certainly includes numerous economically stressed men and women without a university degree, a demographic group overrepresented in U.S. counties that backed Trump in November. And it’s considerable. Separate exit surveys indicated that profitability was either the most important issue Influencing Trump voters or second to fight terrorism. Overall, 35% of voters cited business as the primary reason for choosing a candidate, and 83% of those voters voted for Trump. The traits that come with participation – higher wages, cessation of job offshoring, and increased employment – are sure to make their lives better.
The real test of Biden’s commitment to the American working class and the expansion of the Democratic Party will be his willingness to support codetermination. Biden praises evidence-based medicine. He should apply evidence-based economics to the plight of Americans without a college degree.
Codetermination alone is capitalism’s most powerful mechanism for improving the economy of the working class. It strengthens market capitalism. And it’s the only option that has been proven to widen opportunities and reduce economic inequality by re-integrating men and women without college degrees back into America’s economic mainstream.
President-elect Biden should seize the moment.
George Tyler is a former Deputy Assistant Secretary of the Treasury and World Bank official. He is the author of books including Billionaire democracy and What went wrong.
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