Image by ChatGPT after being asked to render AI interacting with AI.

Regular readers know that I am skeptical that AI will lead to a massive uptick in productivity growth, and therefore large-scale job loss (as is the Congressional Budget Office), but it is important to realize we have been here before. Specifically, we have had long periods where productivity grew rapidly. It did not lead to mass unemployment or growing inequality. It led to broadly shared prosperity. That was because we had institutions and legal structures in place that promoted equality, instead of inequality.

This is important to realize, since most of the policy discussions by the AI believers seem based on the idea that we have never before seen technologies that lead to rapid gains in productivity, which is what AI-caused job loss means. From 1947 to 1973, productivity grew at an annual rate of roughly 3.0 percent. Instead of causing mass unemployment, this resulted in rapid gains in wages and living standards for the vast majority of the population.

It would be very impressive if AI leads to 3.0 percent average annual productivity growth over the next decade, but even if it somehow led to even faster growth, with the right institutional structure we would have no problem ensuring the gains were broadly shared. In the post-World War II golden age, many countries in Europe enjoyed even more rapid gains in productivity. These countries also had widely shared prosperity.  If AI does produce an unprecedented boom, we do know how to structure the economy so that the benefits are widely shared. We did it before.

Unions: The Key Institution

The most important of the institutions ensuring productivity gains were widely shared was unions. Roughly a third of private sector workers were in unions in the 1950s and 1960s. Unions acted to ensure that workers shared the benefits of higher productivity in higher pay and benefits. Today, just over 6 percent of the private sector workforce is in unions. As a result, relatively few workers have the bargaining power to secure wage gains in line with productivity growth.

The plunge in unionization rates did not happen because workers suddenly decided they no longer felt they needed representation in dealing with their employers. It happened because the laws were deliberately structured to make it far more difficult for unions to organize and bargain effectively.

Probably the most important change was the Taft-Hartley Act, passed in 1947. This law severely restricted freedom of contract so that companies and unions could no longer sign agreements requiring that everyone represented by a union pay a fee for their representation. This scheme, misleadingly labeled “right-to-work,” eventually allowed workers in most states to freeload on those that chose to pay to support the union. That made it far more difficult to organize and sustain a union.

In addition, the mechanism for enforcing worker rights, the National Labor Relations Board, became a virtual joke in dealing with employer law-breaking. In other areas of law, say a company fails to carry out a contract, there are clear and serious legal penalties. However, even in cases where companies egregiously violate the law, say by firing workers for leading an organizing effort, the penalties are trivial. In a context where there is no serious consequence, companies have become far more aggressive in fighting unionization even when it means violating the law.

It is easy to see the extent to which the decline in unionization is driven by laws and institutions, not technology and workers’ tastes. Canada, which has a very similar culture and economy, has not seen a remotely similar decline in unionization rates over the last half century.

If we want to raise unionization rates in the United States, we can adopt similar policies to Canada — most importantly, requiring first contract arbitration. Many unions never get a first contract because companies just stall rather than negotiate seriously. Having recourse to arbitration will give companies real incentive to negotiate in good faith and ends in a contract if they don’t.

Higher Minimum Wages

From 1937 to 1968 the minimum wage increased roughly in step with productivity growth. This had a huge impact not just on workers getting the minimum wage, but also for workers considerably higher up the wage ladder. This did not lead to mass unemployment. The unemployment rate in 1968 was under 4.0 percent.

If the minimum wage had continued to rise in step with productivity, it would be close to $28 an hour today. That would put it above the current median wage. This means that more than half of the workforce would be directly getting higher pay. Another 20-30 percent could expect to see wages increased through a spillover effect. This step alone would go far towards addressing the rise in inequality over the last half-century.

Shorter Workweeks and Work Years

Perhaps the most painful aspect of our great minds’ pontifications on the AI-driven job loss is that they seem unable to comprehend that the length of the workweek/work year is not fixed. To put this as simply as possible: 150 million jobs at 40 hours a week, 50 weeks a year, involve equivalent work to 300 million jobs at 20 hours a week, 50 weeks a year. That is probably too simple for people in high-level debates to understand, but most ordinary people can get it.

We made the 40-hour workweek the standard with the 1937 Fair Labor Standards Act. That was almost 90 years ago. It is reasonable that if we really see a massive AI productivity boom, to shorten the workweek further, say to 36 hours, 32 hours, or even less. We can also mandate vacation time, as every other wealthy nation has done. Fewer workdays, like shorter workweeks, spread work among more workers.

AI Productivity Growth is Not a Problem

It’s entertaining to see the country’s great minds struggling with how to deal with the fallout from an AI productivity boom that may never occur, but the reality is that we have known for many decades how to ensure that the gains from productivity growth are widely shared. We need to teach our elites a little history, not reinvent the wheel.

We also should stop pursuing policies designed to redistribute income upward, like longer and stronger patent and copyright laws, private equity-friendly bankruptcy laws, and special protections for huge social media platforms like Facebook and X. The key point is that the policies needed to reverse inequality and ensure broadly shared prosperity are easily identified. We shouldn’t let the great minds appear to struggle with the problem, as they wring their hands and pretend otherwise.

This first appeared on Dean Baker’s Beat the Press blog.