Taking the High Road

| Tue Jun. 13, 2006 5:50 PM EDT

In the middle of Nathan Newman's great primer on unions and why they're important, there's an interesting discussion about the various "high road" and "low road" strategies corporations often adopt, and what that means for organized labor:

The commonest metaphor for how unions strengthen the economy is that they force employers on to the "high road" of production-- concentrating on innovation rather than sweating workers, promoting skilled work versus unskilled low-wage labor, and encouraging investment in long-term productivity rather than short-term profits.

Especially in a world of global competition, "low road" companies will inevitably lose to firms in developing nations which can always undercut them on price, so forcing companies into long-term investments in "high road" production is the only way US economic growth will sustain itself in the longer term. I'd suggest a good example here—New York's garment industry, which, in the postwar era, focused on lowering production costs by colluding with corrupt unions and the Mafia to slash wages and set up sweatshops. But now the industry, whose main selling point is its low prices, faces competition from overseas, where wages are even lower. By contrast, Northern Italy's garment industry—where workers get paid two to three times what they do in New York—has long competed on quality and innovation, and faces somewhat less overseas pressure (although there's still a fair bit). So I think there's something to Nathan's point.

The post also brings to mind an interesting paper by Roberto Fernandez, who looked at what happened when a food reprocessing plant in the Midwest when it "retooled" and upgraded its production equipment. Not surprisingly, the new technology increased wage inequality within the firm: those workers who could do the new, more complicated jobs requiring greater education saw a leap in pay, and those who didn't were left behind. It's evidence that technological change can and probably does lead to greater wage inequality in the United States (although I doubt it's the whole story).

But. There's a "but" here. One noteworthy thing about the plant was that it was unionized, and thanks to that, the plant owners agreed not to fire any workers prior to retooling but instead to retrain them for their new jobs (in this, they were helped by state programs to pay for retraining). Although this didn't eliminate the adverse impact of the retooling on inequality (especially on racial and gender inequality), it greatly reduced it. More to the point, it worked out well for the firm too, since "workers fretting for their jobs or wages can undo many of the benefits expected from new technology." So score one for unions.