Wisconsin’s Raw Deal Reversal of the New Deal: ACT 10 Labor Law. Don’t Let Your State Legislature Do This to You.

Photograph Source: Tony Webster – CC BY-SA 2.0

Wisconsin, once a paragon of New Deal values that transformed workers into a middle class, changed when a Republican legislature and governor passed Act 10 a dozen years ago, reversing a century of progress. The legislation choked wage growth for all Badger State workers, public and private sector alike.

In normal labor markets workers often see pay rise above inflation in fat years, with pay held down in lean years. The average over good and bad years translated into wages keeping pace with inflation and a bit more on top of that to account for increasing productivity gains in the economy.

The law subverted this normal market practice by legislating wage decline. During rough times worker pay still fails to rise. But in good years pay for state public workers could only increase to the rate of inflation by law. Thus, over time pay drops and can never keep pace with inflation let alone productivity growth in the economy under Act 10.

Now, some in the private sector might wring their hands and say “tough break, but what does it mean for me?” Well, public and private sector workers alike exist in a common labor market, driving down the wages of one, drives them down for all. By pushing down worker pay in the public sector, private sector enterprises could pay all workers less.

Wages in Minnesota Show Negative Impact of Act 10

Comparing Wisconsin to our neighboring state Minnesota, we can see how massive a hit our workers took on median household incomes. In 2012, when the law took effect our median household incomes were $53,079 while neighboring Minnesota’s were $61,759. But a decade after Wisconsin’s anti-worker Act 10 was implemented, that spread grew from $73,330 in the Badger State to a whopping $90,390 in Minnesota. A median household income spread of $8,000 and transformed it into a $17,000 gap between our states.

When Wisconsin workers get paid less, so do our small businesses. Labor uses most of its cash for necessities. If they have discretionary income it goes to corner taps and restaurants, hairstylists and barbers, landscapers, sports shops selling hunting rifles, fishing rods and bait, etc. In short, the velocity (circulation) of money in the economy increases, thus boosting the fortunes of Wisconsin’s small businesses. But if workers did not get this money the past decade, who did? Chiefly, to use a popular term, the “1%.” Money not paid to labor could be pocketed by big business.

Moreover, “savings” from Act 10’s anti-market legislated wage restraint reduced government budgets permitting tax cuts benefiting those who already have the most. Why does this matter? In addition to slowed worker pay increases, the wealthiest don’t spend as much of their money locally as workers. Extra money goes to vacations abroad, luxury consumption on fancy cars made in Europe and personal jet transport, and money parked in investments the world over. In short, the money leaves Wisconsin and our small businesses see less of the cash workers might otherwise spend at home.

In addition to legislating anti-market inflation-adjusted wage decline for public sector workers, thus reducing wage growth for private sector workers given the common labor market, the law also addressed health benefits for public workers. Chiefly, it limited what government would pay for them. Up to the passage of the law, public worker benefits were no doubt good. This largely resulted from public workers preferring more benefits over larger pay increases. As private sector worker health benefits declined resentments arose over the solid ones enjoyed by workers in the public sector. Over time increasing health costs have been a real burden on government budgets.

Unions Unfairly Blamed for Rise in Health Care Costs

But the culprit here is the US healthcare system not labor unions. We spend far more as a percent of GDP on health in the US while having shorter lifespans. We live 6 years less than top performing countries, while often paying twice per capita as they do as a percent of GDP. Restricting health benefits for public workers under the law was nonetheless politically popular and should be retained. Public and private sector workers alike can find common cause in state and national health benefits reform while in the short-term getting higher wages to compensate for increasing benefit expenses.

Regardless, Act10’s solution of merely shifting more of this failing system’s costs onto workers to support outsized profits for Big Insurance and Big Pharma is not the answer. Moreover, the same politicians legislating less pay for labor can’t claim to be saving Wisconsin money when they made the state one of only ten in the US (the others mostly in the deep South) having rejected the return of some $2 billion of Wisconsin’s tax dollars from Washington, DC to expand healthcare over the past decade.

Wisconsin is not “saving money” with Act 10. It is shrinking wage and small business growth while waterboarding the 1% with cash taken from its workers. This raw deal legislating low wages runs contra to the great New Deal that expanded our middle class. It’s more than time for Wisconsin’s State Supreme Court to reverse it.

This article originally appeared in the Milwaukee Journal Sentinel.

Jeffrey Sommers is Professor of Political Economy & Public Policy in the Department of African &African Diaspora Studies and a Senior Fellow, Institute of World Affairs, University of Wisconsin-Milwaukee. His book on the Baltics (with Charles Woolfson), is The Contradictions of Austerity: The Socio-economic Costs of the Neoliberal Baltic Model.