Corporations are incentivized to keep wages low—worker cooperatives could help


By David M. Brennan

While the pandemic presented a host of challenges for the economy, something remarkable happened to workers who were able to maintain employment during that period: Their wages rose . . . significantly.

In 2020, the median weekly wage rose $21 per week in one year. For context, it took 17 years, from 2002 to 2019, to see a comparable increase. Sluggish wage increases are the norm, yet, the pandemic provides the opportunity to see how the U.S. economy handles rising wages. 

So how did the economy respond? And what can be done to promote sustainable wage growth for workers? 

How the economy responded

As wages rose, profits fell 5.9% in 2020. Businesses raised prices in an effort to more than offset the burden of rising labor costs. In 2021, the consumer price index rose 7.1%

According to Bloomberg, “a measure of U.S. profit margins has reached its widest since 1950, suggesting that the prices charged by businesses are outpacing their increased costs for production and labor.” The results of rising prices were an increase in profits by 22.6% in 2021 and a decrease in the median weekly wage by $12. Data for the first two quarters of 2022 show that all the wage gains have been beaten back to 2019 levels. 

The inherent tension between gains for labor versus quests for profit is an underemphasized aspect of a capitalist economy. The last few years demonstrate how the U.S. economy fails to provide lasting prosperity for all. 

The “Golden Age” of U.S. capitalism (1950-1970) may have provided some fleeting hope for shared prosperity, but this was largely due to the U.S. facing little international competition, and a world partially destroyed by World War II that desperately needed U.S. goods. To be sure, this period was an exception to the norm. And it goes without saying that the horrific conditions and human loss of WWII far outweigh this era’s economic silver linings.

Workers and wages versus corporations and profits 

Ultimately, we must face a fundamental truth of accounting: Profits are revenues minus costs, and labor is a cost. This means there is an inevitable tension between workers who seek wages for their livelihoods and corporations who seek profits for their shareholders. 

Corporations are incentivized to keep wages low—worker cooperatives could help

Rising stress from ever-growing work obligations, mounting economic uncertainty, inadequate retirement funding, limited access to affordable housing and healthcare, and climbing debt are class tensions within capitalism. These tangible concerns form the underpinnings of workers’ renewed interest in unionization, a 4-day workweek, quiet quitting, and/or quitting outright.

These economic concerns and tensions often lead to political discontent.

Our federal government often strives to achieve the impossible: create lasting high wages and high profits. The neoliberal menu of policies that seek to appease business by privatizing the public sphere, cutting taxes, and reducing regulation has continued since the Reagan Administration in the 1980s. These policies have made it more difficult for the government to help workers with employment and aid. The end result is a growing federal debt.

To hide failed policies that cannot fix fundamental class conflict, politicians produce a menu of well-known scapegoats to blame: immigrants, crime, voting fraud, international trade wars, the supply chain, etc.

What can be done to promote wage growth

With very poor wage growth, rising economic insecurity, increased worker stress, and dissatisfaction over the last half century, it is time to find alternatives. 

Worker cooperatives are one option. Workers democratically direct their firms and profits. They decide on the fundamental labor issues, from work hours and pay to benefits and the distribution of any profits. 

Under cooperatives, workers also make managerial decisions on what products and services to produce and what prices to charge. Market challenges will remain, but instead of using them to undercut labor, use them to motivate employees in positive ways. 

In the U.S., more than 300 diverse worker cooperatives thrive; the largest, Cooperative Home Care Associates, has over 2,000 employees. Internationally, these enterprises exist in large regions, the Basque region of Spain, for example, and the Emilia Romagna region of Italy

Evidence shows a worker-controlled firm is just as viable as a conventional capitalist-owned firm. Cooperatives are useful for company startups, but seem best suited to existing firms looking to sell to new owners. There may be tax advantages in selling to employees, and some states—red, blue, and purple—have explicit legal provisions for cooperative enterprises. 

The primary hurdles to cooperatives appear to be a widespread lack of knowledge and cultural acceptance, which is expected since the U.S. has a long history of nondemocratic workplaces. Yet, ever-increasing employee dissatisfaction and a desperate fleeing from the “normal” working conditions compel us to consider alternatives. Worker cooperatives are an important option to consider.  

If we believe that democracy is valued in our civic lives, then why not in our places of business, where our livelihoods are earned and where much of our lives are lived? 

And if we don’t practice democracy where we work 40-plus hours per week, then we inhibit our capacity to participate in a vibrant political democracy.

David M. Brennan is a professor of economics at Franklin & Marshall College. 

Fast Company