Trade Unions and Amazon – the case for a ‘high wage’ economy

Workers at Amazon in the US and UK have for some time been struggling to establish trade union representation in order to secure improved wages and working conditions. The retail behemoth has been resisting. Clearly management is worried that this will threaten its ability to keep prices low and ensure rapid delivery to customers. Any firm will have more customers than employees and can make the argument that the former comes first. But this falls down when one applies it to all firms, and the economy as a whole. The majority of consumers at the national level are in work and are therefore also producers in a workplace. Low wages and poor working conditions eventually impact on health and well-being and, I will argue, on productivity and workplace efficiency. There is therefore a progressive case for an economy which boasts ‘high wages’ and high quality working conditions. But this is unlikely to happen in the absence of sufficiently strong trade unions and other supportive labour market institutions and government policies. Workplace ‘culture’ is not produced naturally, and can be changed through particular policies and institutions in ways which enhance economic performance. There is thus a potential progressive win-win for society and the economy.

Production in any firm entails a tension between the interests of employers and employees. On the one hand, there is an asymmetry in the balance of power between the owners of the firm and their employees, and the potential for conflict over the distribution of income between profits and wages. On the other hand, employers and employees have a mutual interest in maximising firm performance and total income, which requires cooperation between the two sides in the workplace. There is thus the potential for both conflict and cooperation. Poor performance can lead to greater workplace conflict and the withdrawal of cooperation by either or both sides, a breakdown in trust, and a downward spiral of economic failure. There is thus a case for the existence of collective institutions such as trade unions and employers organisations, which play a role in balancing power across society and the economy, in resolving disputes, and in establishing the conditions for effective cooperation and enhancing economic efficiency.

High wages and demand

High wages can improve economic performance via both demand-side and supply-side channels. In the case of demand, they support consumption spending and enlarge the scale of the market. This will be the case when demand is ‘wage-led’ rather than ‘profit-led’. If the latter is the case, then higher wages will squeeze profits and reduce investment and economic growth, so that lower wages can actually increase investment and growth. This is more likely to be the case for small economies that are very open to international trade. In this case, lower wages can not only boost profits, but also allow exporting firms to reduce prices and increase their output. But such a strategy cannot work for the world economy as a whole, in which there will be clear limits to squeezing wages for all countries taken together. It will constrain consumption and therefore reduce the need for producers of goods intended for consumption to invest in the new capacity which would have served production for the larger consumer market. All this means that it is vital for the rules governing the international trade and financial system to prevent individual economies and the firms within them from competing through the lower prices enabled by keeping wages down. The latter will likely result in a low-road to competitiveness and to global economic stagnation.

High wages and supply

Higher wages and improved working conditions can also work on the supply-side of the economy by encouraging greater work effort by employees and the reorganisation of production and greater investment by employers and managers in order to increase ‘X-efficiency’. They help to prevent firm strategies which rely on cutting wages and poor working conditions. While this may help individual firms in the short run, this cannot be a successful strategy for all firms taken together and for the economy as a whole. This supply-side form of a low-road to competitiveness can lock whole sectors and economies into a low-wage, low-productivity equilibrium and even a downward spiral of poor performance. The contrasting outcome of a high-wage, high-productivity equilibrium and a potential upward spiral of improved performance across the economy may therefore need to be encouraged through government policies and supportive institutions, including trade unions.

A tight labour market that results from relatively full employment may be created by active macroeconomic, industrial and labour market policies which support aggregate demand and the restructuring of the economy associated with rising output and productivity. By reducing the ‘reserve army’ of the unemployed, it will likely make the sack less of a threat to employees, and shift bargaining power towards them and away from employers, supporting the maintenance of high wage strategies and making low wage strategies more difficult. If this change can be exploited by employers to improve workplace performance then capitalism will have undergone a significant transformation.

Potential problems

The promotion of a high wage economy requires sufficient political will on the part of governments at the national and international levels. But this may not occur in the absence of a relatively strong labour movement to begin with. Vested interests among the elite status quo may be reluctant to acquiesce in policies which change the balance of power on society by promoting greater equality, even if they result in improved economic performance. Attempts to alter the structure of a society’s established hierarchy may meet with fierce political resistance.

In addition, as mentioned above, policies and institutions which promote higher wages and increase the bargaining power of employees may at some point squeeze profits across the economy and therefore reduce investment, harming economic performance. Having said that, a profit squeeze can itself promote industrial restructuring in order to restore profitability and create the conditions for a renewed phase of economic growth. Thus while there are ways in which high wages can improve economic performance and create more progressive social conditions, it is likely that there will be limits to this, depending on the historical path of the economy, society and politics, and the institutions and policies which result. The balance between the forces of conflict and cooperation will vary over time and help to shape the dynamism or otherwise of the system as a whole. It is not only Amazon management and employees who are engaged in workplace struggles over union representation, but the outcome of this particular battle could be a significant bellwether.