Labor and Employment

In 1993, then-U.S. President Bill Clinton unveiled a revolutionary deal that would require Mexico to strengthen workers’ rights as part of the pending North American Free Trade Agreement (NAFTA). Previous trade agreements had been all about expanding trade; labor issues, such as wages and workers’ rights, were considered a domestic matter for every country to decide on its own. But during the 1992 U.S. presidential election campaign, Clinton had insisted on adding so-called side accords to address the trade pact’s critics—including many in his own Democratic Party—who feared NAFTA would trigger an exodus of U.S. jobs as companies fled to take advantage of lower wages and weaker regulations in Mexico. The side accord on labor practices, Clinton promised, would ensure that NAFTA was “a force for social progress as well as economic growth.” For three decades, however, those promises have been hollow. Trade between the United States and Mexico grew rapidly as tariffs disappeared; since 1994, U.S. trade with Mexico has more than tripled, outpacing the growth of U.S. trade with the rest of the world. But Mexican living standards have not risen at anything like the same pace, and the gap separating U.S. and Mexican wages is actually larger today than when NAFTA was launched. That’s one reason the U.S. trade deficit in manufactured goods with Mexico has grown to more than $100 billion per year. Last week, however, this script may have flipped. A historic vote by workers at a General Motors (GM) plant in Silao, around 200 miles north of Mexico City, could be the first step toward fulfilling Clinton’s promise: that Mexico would have to stick to its labor commitments. The plant’s 6,300 workers, who assemble the Chevrolet Silverado and GMC Sierra for export to the United States, voted 78 percent to be represented by an independent union. They kicked out the Confederation of Mexican Workers, which has worked closely with Mexico’s political and business elite to keep wages low in the auto sector. The vote at the General Motors plant happened only because the United States finally got serious about using trade threats—potentially tens of millions of dollars in punitive tariffs—to support efforts by Mexican workers to freely choose a union. It wasn’t just a victory for GM’s Mexican workers but also a huge win for U.S. labor unions, which have long argued that trade could be a powerful lever to lift up wages and workers’ rights if only the government was willing to use it. The case is a breakthrough, all but guaranteeing that Washington will push for similarly robust measures on workers’ rights and labor rules in any future trade deals. Now, finally, the United States has a big club to wield—and a president willing to use it. Although the Silao plant is competitive with the best facilities in the world, workers there start out at a wage of just over $9 per day, barely above Mexico’s minimum wage. Jerry Dias, who heads the Canadian auto union Unifor, pointed out that the typical U.S. and Canadian autoworker could buy the cars they build with about five months’ wages. “A Mexican worker in five months can only buy four tires and a steering wheel,” he said. The top wage, $33 a day, is roughly what unionized U.S. autoworkers earn in one hour. The vote at Silao came only after the U.S. government exerted the most aggressive pressure it has ever mounted against a foreign country over labor rights. Under the new U.S.-Mexico-Canada Agreement (USMCA), the result of a bruising renegotiation of NAFTA launched by former U.S. President Donald Trump, Mexico agreed to a historic reform of its labor laws, giving Mexican workers the right to organize freely and bargain collectively for better wages. Congressional Democrats—whose votes were needed for ratification—went further by insisting on a rapid response mechanism to address allegations of labor rights violations. For the first time, the USMCA gives the United States the authority to target a single plant with punitive export tariffs if its workers are prevented from organizing and bargaining freely. NAFTA’s failure to produce the convergence in wages that free trade advocates had predicted was a big reason why Americans grew increasingly skeptical of global trade, which in turn played a substantial part in why Trump was elected president in 2016. The reasons why Mexico failed to live up to those hopes are complicated; they include two major financial crises and growing competition from China that reduced Mexico’s advantages in exporting manufactured goods. But a big reason Mexico did not do more to help its own workers is that, despite Clinton’s lofty promises, the United States never pushed very hard. The most powerful Mexican unions are closely allied with the government and big companies; workers who tried to organize and join independent unions to fight for better wages and working conditions were suppressed, sometimes violently. For a long time, U.S. administrations looked the other way. Republican presidents opposed the idea of linking labor rights with trade, whereas Democrats were torn between their corporate and union backers. Although some two dozen cases were investigated under the old NAFTA mechanism, many of which alleged serious workers’ rights violations, not a single punitive tariff, fine, or other sanction was ever imposed against Mexico. Now, finally, the United States has a big club to wield—and a president willing to use it. U.S. President Joe Biden’s trade representative, Katherine Tai, launched the Silao case in May 2021 after allegations that workers at the factory had been prevented from exercising their collective bargaining rights. In response, the United States temporarily suspended GM’s ability to export trucks from the plant duty free; failure to resolve the case could have resulted in a 25 percent punitive tariff on every truck exported from the plant to the United States, potentially adding up to tens of millions of dollars. That massive threat quickly led to an agreement between the Biden administration and the Mexican government, which ordered the GM plant to permit new votes on union representation by the workers without tampering or interference. The rest of the world will be closely watching the case. Few countries have shared the United States’ enthusiasm for marrying trade and labor rights; most developing countries see the initiatives as disguised protectionism designed to weaken one of their most important competitive advantages. And there are legitimate charges of hypocrisy. The United States, especially its southern states, is mostly hostile to union organizing; workers at an Amazon warehouse near Birmingham, Alabama, are currently holding a second vote on whether to unionize after Washington ruled that Amazon had illegally tampered with a similar vote last year. But there is also a desire, especially in Asia, to bring the United States back to trade negotiations as an economic counterweight to China. Trump pulled out of the Trans-Pacific Partnership trade deal with Pacific Rim countries in 2017, responding in part to union complaints that the pact’s labor provisions were too weak. Since then, labor rights have become ever more central to the U.S. trade agenda. The USMCA, for which Trump administration officials worked closely with Democrats on Mexican labor provisions, passed the House of Representatives in an overwhelming 385-41 vote just before Trump left office. Clinton’s original NAFTA, in contrast, barely squeaked through the House on a 234-200 vote. After three decades of failure, the United States may have found a way to make good on its long-standing promise of using trade agreements to improve wages and working conditions around the world. By showing how it can be done and setting a new trend, the Silao case could have profound effects. The case is likely to be the first of many in Mexico’s export industry; another case involving workers’ rights at Tridonex, which makes auto parts, was also resolved quickly. This will encourage further actions. The Biden administration is also set to unveil new plans for reengaging on trade in the Asia-Pacific region and has made it clear it wants stronger labor rights on the agenda. Whether other countries like it or not, linking trade to workers’ rights is no longer just a good intention.

The response to disruptions caused by globalization and technological advances have been "walls" of protection that diminish economic dynamism. What is needed are "bridges" that connect individuals to participation in the economy.

For half a century, America’s wage problem has also been the world’s trade problem. Since the mid-1970s, the United States has stood out among rich countries for its high percentage of low-wage workers, nearly one-quarter of the total workforce. That is three times the rate of France and more than twice that in Japan. And that high percentage has knock-on effects far into the middle class: Many better-paid U.S. workers—especially those in trade-exposed manufacturing industries—have had good reason to fear they are just one layoff away from being thrown into a huge pool of workers competing for poorly paid jobs in retail, health services, and fast food chains. That worry explains in part why Americans have voted for leaders who promise to protect industries such as steel and automobiles, which offer a dwindling number of good jobs. The COVID-19 pandemic, however, may turn that story on its head, with lasting consequences both for the U.S. labor market and for trade relations with other countries. There are signs that, after decades of anemic wage growth, low-wage workers in the United States are finally making significant gains. In November 2021, wages for hospitality and food service workers were 13.4 percent higher than they were one year earlier; in transportation and warehousing, pay rose by 10.4 percent. Further, most of those gains are coming in service sector industries that are not exposed to international competition. The result could be higher incomes and a greater sense of security among U.S. workers who have had little of either for decades. If better jobs become more abundant in these domestically oriented sectors, the political pressure to protect trade-exposed industries should also weaken. The post-pandemic future of the U.S. worker should therefore be of acute interest to the United States’ trading partners as well. The United States is in the midst of what has been dubbed the “Great Resignation.” Workers are quitting their jobs in record numbers; some 4.5 million workers walked away from their jobs in November 2021 alone, the highest recorded since the U.S. Bureau of Labor Statistics began tracking these figures in 2000. Americans are especially leaving jobs in hospitality, food services, health care, transportation, and warehousing—all sectors in which face-to-face work is required and that are often poorly paid. An astonishing 6.9 percent of those in hospitality and food services quit in November alone. The reasons are varied. In hospitality and food services, millions of workers were temporarily laid off when the pandemic hit in March 2020 and the country went into lockdown. As those businesses reopened, some workers were reluctant to come back, fearing the health risks of face-to-face work, or were stuck at home tackling the challenges of child care and remote schooling. The generous pandemic benefits approved by the U.S. Congress in early 2020 helped cushion the blow. Those who did return to work often found themselves overburdened as consumer demand surged, while the pandemic multiplied pressures on health workers. Even as the economy has recovered, the U.S. workforce participation rate remains well short of pre-pandemic levels. The result is that low-wage workers have more power than they had in decades. A new Brookings Institution report shows that most of the Americans quitting their jobs in such high numbers are quickly finding better ones. The Brookings authors argue that the pandemic has caused a “reallocation shock”—a sudden economic change that usually hurts workers but this time is helping them. In a typical shock, workers lose their jobs because of a recession, automation, outsourcing, or trade competition. In those cases, they must scramble to find new work at different companies or in different sectors, which may involve costly relocation or retraining—and they often fall to a lower rung of the economic ladder. In this case, the shock has had the opposite effect, creating acute labor shortages in the low-wage sectors that require face-to-face work. The sectors with the highest quit rates—hospitality and food services—have also seen the biggest wage gains, nearly twice the gains of workers in any other sector in the nine months from February to November 2021, according to the Brookings report. Other sectors that have seen especially strong wage growth include retail trade, transportation, health services, and warehousing, such as the growing number of Amazon fulfillment jobs. The fierce competition for these employees is evident, with fast food chains such as McDonalds and Chipotle raising wages to try to lure those workers back. The growing bargaining power of workers is also evident in the rising number of strikes and other job actions. Labor activists dubbed last October “Striketober” after some 25,000 Americans walked off the job, more than double the rates of earlier in the year, while tens of thousands more won generous new contracts by threatening to strike. Labor union actions were commonplace in the United States through the 1970s, with between 1 million and 4 million workers walking off their jobs in a typical year. But since the 1980s, strikes have been exceedingly rare, with employees more concerned about job security than fighting for better wages and benefits. Now, union organizing is starting to creep into service industries that have long struggled to organize: In December, a Starbucks store in Buffalo, New York, became the first branch of the company in the United States to unionize successfully after years of failed efforts. Others are set to follow. Labor historian Joseph McCartin thinks the pandemic has produced conditions for worker militancy that the United States has seen only three times in the past 100 years—after the two world wars and during the Great Depression. Each time, he said, Americans believed they had made collective sacrifices and deserved to be rewarded with better pay and working conditions. “I think a similar feeling pervades the American workforce today,” he told NPR. Public support for labor unions—with 68 percent of Americans saying they approve of unions—is at its highest since 1965. For the rest of the world, the recovery of U.S. worker bargaining power—if it persists—should be good news. When Americans are more secure in their jobs and real wages are rising—as in the 1960s and the 1990s—U.S. trade conflicts with the rest of the world tend to wane. Those were also the periods in which the United States was most enthusiastic about additional trade liberalization. In periods where workers are struggling—in the 1970s, early 1980s, and after the 2008-2009 financial crisis—those conflicts multiply, and U.S. protectionism grows. Much of the anger in the United States over trade is also rooted in fears that the small number of higher-paying manufacturing jobs that don’t require a college education have disappeared because of outsourcing to Mexico or cheaper imports from China. As long as these kinds of jobs are primarily located in trade-exposed sectors, the demand for protectionist trade policies will remain. If traditionally low-wage jobs in health care, retail, warehousing, and other services become better jobs with higher wages and benefits—whether through expanded unionization, persistent labor shortages, or both—the connection between trade competition and the loss of good jobs should weaken. There is much that could go wrong, of course. The current bargaining power of workers could be a blip, a temporary condition created by very strong consumer demand and the pandemic fears that are still keeping many off the job. Inflation in the United States, which hit 6.8 percent for the year in 2021, has already eroded much of the wage gains workers are making by quitting bad jobs and finding better ones. But for a country where low-wage workers have struggled for many decades, there are small signs of hope and progress. The rest of the world should be cheering them on.