Introduction: Labor in the United States, 1800-2000
INTRODUCTION: LABOR IN THE UNITED STATES, 1800-2000
As the American labor force grew from perhaps three million at the beginning of the nineteenth century to nearly 200 million at the beginning of the twenty-first century, the character of the work it performed changed as dramatically as the numbers. In 1800 most American workers were farmers, farm laborers, or unpaid household workers. Many were bound (as slaves in the southern states and indentured servants in the North). Most of the others were proprietors of family businesses. The majority were of British, German, or African origins. Many workers received housing, food, and goods as part of their pay. A large percentage were unaware of labor market conditions in other states or regions and had no reason to take a greater interest: competition was limited by geography, slow and costly transportation, and seemingly unchanging technologies.
Two hundred years later, farm labor had become insignificant, employees vastly outnumbered the self-employed, bound labor had disappeared, and child and unpaid household labor had declined greatly. Family and other social ties had become less important in finding work or keeping a job, large private and public organizations employed more than a third of all workers and set standards for most of the others, the labor force had become more ethnically diverse, labor productivity and real wages were many times higher, wage contracts and negotiated agreements covering large groups were commonplace, and workplace disputes were subject to a web of laws and regulations. Increasingly American workers competed with workers in Mexico, Southeast Asia, or China.
The changing character of work was closely related to the classic technological innovations of the nineteenth century. Changes in energy use were particularly influential. Thanks to the availability of numerous waterpower sites in New England and the mid-Atlantic region, American industry developed rapidly after the American Revolution. By the 1820s, the massive, water-powered Walthan Mills of northern Massachusetts and southern New Hampshire were among the largest factories in the world. By midcentury, steam power had become widespread in manufacturing as well as transportation, and steam-powered factories had become the foundation of the industrial economy. The advent of electrical power at the turn of the twentieth century had an even greater impact, making possible the giant manufacturing operations of the early twentieth century; the smaller, more specialized plants that became the rule after the 1920s; the great versatility in machine use that characterized the second half of the twentieth century; and the mechanization of stores, offices, and homes.
Steam and electrical power and related innovations in machine technology not only made it feasible to create large organizations but also gave them an economic advantage over small plants and shops. Workers in the new organizations were wage earners, usually not family members, and often were not even acquainted outside the plant. They rejected payment in kind or in services (company housing and company stores in isolated mining communities became a persistent source of grievances), started and stopped at specific times (the factory bell tower remained a powerful symbol of the new era), and became accustomed to rules defining their responsibilities and behavior. Mechanization was also a stimulus to specialization. Elaborate hierarchies of pay and status grew out of the new ways of work.
The industrial model soon spread to the service sector. Railroad corporations created hierarchical, bureaucratic structures with even stricter lines of authority and more specialized tasks. Insurance companies, department stores, mail-order houses, and large banks followed this pattern, though they typically used simple, hand-operated machines. The growth of regional and national markets (a result of technological innovations in transportation and communication as well as the expanding economy) made the hierarchical, bureaucratic organization profitable even when power-driven machines played little role in production.
Although almost one-fifth of the U.S. population was not free at the beginning of the nineteenth century, the institutions and practices that had made unfree labor economically advantageous in earlier centuries soon came under attack. Indentured servitude was a victim of changing market conditions and falling transport costs. It had barely survived the turmoil surrounding the American and French Revolutions and died in the 1820s as immigrants who financed their own transportation replaced bound servants. Slavery was more entrenched and continued to be profitable to many slave owners through the first half of the century. Northern states abolished slavery with minimal controversy, but southern cotton, rice, and sugar growers remained intransigent. They devised elaborate rationales for slavery and used their political power to thwart reform, foreclosing the possibility of a repetition of the northern experience. Antislavery agitators succeeded in making abolition an increasingly important and contentious political cause. More moderate opponents stressed the ill effects of slavery on free labor. By the end of the 1850s the impasse between proslavery and antislavery groups had produced a political and constitutional crisis that quickly degenerated into war.
The Thirteenth Amendment to the Constitution (1865) formally abolished slavery in the United States, but neither it nor the Reconstruction measures that accompanied it effectively addressed the social and economic legacies of slavery. As a result, the South remained an isolated, economically stagnant region, and most southern workers, white and black, remained significantly poorer and less mobile than workers of other regions until the twentieth century.
Most workers who filled nonexecutive positions in the new industrial organizations of the nineteenth century were European immigrants or their children. The rapid growth in the demand for labor (interrupted by periodic economic downturns and mass unemployment, notably in the 1870s, 1890s, and 1930s) attracted a swelling tide of newcomers. At first it included many skilled workers from the British Isles and Germany, but by the latter decades of the century most immigrants were from the economic and technological backwaters of Europe and filled the low-skill jobs that better-situated workers, native and immigrant, scorned. By the early twentieth century more than a million people were arriving each year, the majority from eastern and southern Europe.
An obvious question is why ill-paid American agricultural workers, especially those in the South, did not respond to the opportunities of industrial and service employment. Several factors apparently were involved. The regional tensions between North and South and the post-Civil War isolation of the South discouraged movement to northern industrial centers. Racial prejudice and lifestyle decisions were also important. In the midwestern states, where industry and agriculture developed in close proximity, farm workers were almost as reluctant to take industrial or urban service jobs. Consequently, a paradox emerged: American farm workers seemed content to make a modest living in the country, while European agricultural workers and their U.S.-born children filled new jobs in industry and the services.
Mass immigration was socially disruptive. Immigrants faced many hazards and an uncertain welcome. Apart from the Scandinavians, they became highly concentrated in cities and industrial towns. By the early twentieth century, most large American cities were largely immigrant enclaves. With few exceptions, immigrants and their children made up more than 60 percent of the population, and in extreme cases, such as Milwaukee, the total was over 80 percent. To visitors from the countryside, cities were alien places with a hodgepodge of different languages and mores. It is hardly surprising that observers and analysts bemoaned the effects of immigration and especially the shift from "old" northern and western European to "new" southern and eastern European immigrants.
In the workplace, native-immigrant tensions took various forms. The concentration of immigrants in low-skill jobs created a heightened sense of competition—of immigrants driving out old stock or "old" immigrant workers—and led to efforts to restrict immigrant mobility. One other result of these divisions may have been a lack of solidarity in industrial disputes. The relatively low level of labor organization and the particular character of the American labor movement often have been explained in part as the consequences of a heterogeneous labor force.
The end of traditional immigration during World War I and the low level of immigration during the interwar years eased many of these tensions and encouraged the rise of "melting pot" interpretations of the immigrant experience. World War I also saw the first substantial movement of southern workers to the North and West, a process that seemed to promise a less tumultuous future. In reality, the initial phases of this transition increased the level of unrest and conflict. Part of the problem—repeated in the early years of World War II—was the excessive concentration of war-related manufacturing in a few congested urban areas. The more serious and persistent irritant was racial conflict, with the poorest of the "new" immigrants pitted against African-American migrants from the South. Though the violence waned after 1921, tensions lingered. In most northern cities African-American immigrants were more likely than any immigrant group to live in ethnically homogeneous neighborhoods.
By midcentury most Americans looked back at immigration as a feature of an earlier age and celebrated the ability of American society to absorb millions of outsiders. Yet at the same time, a new cycle of immigration was beginning. It had the same economic origins and many similar effects. Most of the post-World War II immigrants came from Latin America and Asia rather than Europe. By the 1990s the movement of Hispanics into the labor force was reminiscent of the turn-of-the-century influx of eastern Europeans. They settled overwhelmingly in the comparatively vacant Southwest and West, areas that had grown rapidly since World War II. In contrast, the Northeast and Midwest, traditional centers of industrial activity, attracted fewer immigrants. Most of the newcomers were poorly educated and filled low-skill positions, but there were exceptions. Among the Asian immigrants were many well-educated engineers, technicians, and professionals, who quickly rose to important positions, a development that had no nineteenthcentury parallel.
Though managers of large organizations had enormous power vis-à-vis their employees, they also were dependent on them. Turnover, absenteeism, indifferent work, and outright sabotage were significant threats to productivity and profits. Conversely, highly motivated employees could enhance a firm's performance. Uncertain about how to respond, nineteenth-century employers experimented widely. A handful introduced elaborate benefits, such as company towns; others devised new forms of "driving" and coercion. Most simply threw up their hands, figuratively, and delegated the management of employees to first-line supervisors, who became responsible for hiring, firing, and other personnel functions. The results were wide variations in wages, working conditions, and discipline; abuses of authority; and high turnover rates. Friction between supervisors and wage earners became a common cause of labor unrest.
Growing public anxiety over industrial conflict resulted in numerous policy initiatives. In the last quarter of the nineteenth century, state governments began to impose restrictions on employers, especially employers of women and children. By 1900 most northern and western states regulated the hiring of children, the hours of labor, health and sanitation, and various working conditions. During the first third of the twentieth century, they tightened regulations, extended some rules to male workers, and introduced workers compensation, the first American social insurance plans. The federal government was slow to act until the 1930s, when it embraced collective bargaining (principally via the Wagner Act of 1935), created a social security system based on old age pensions and unemployment insurance, set minimum wages, defined the workday and workweek, and restricted child labor. Nearly all of this legislation, both state and federal, was designed to set and uphold minimum standards (the "safety net" metaphor of later years was apt) rather than to supercede private decision making or to create a welfare state. It reflected both a distrust of government and a belief that individuals could and should work out better arrangements for themselves.
Many employers also responded to the problems of the new industrial economy. Beginning at the turn of the century, a few of them, mostly large, profitable corporations, introduced policies designed to discourage turnover and improve morale. One example that spread rapidly was the personnel department, which centralized and standardized many of the supervisor's personnel functions. By the 1920's, most large industrial and service corporations had personnel departments whose functions and responsibilities expanded rapidly. Also popular were employee benefit plans that provided medical, educational, recreational, or other services. The employment crisis of the 1930s gave renewed impetus to these activities. The largest employers (often responding to union-organizing campaigns or collective bargaining demands) created even more elaborate benefit programs, and smaller and less generous companies introduced rudimentary programs. The spread of collective bargaining and a more prosperous postwar economy further reinforced this trend. The years from the early 1940s to the mid-1970s would be the heyday of welfare capitalism.
The American Labor Movement
As noted earlier, the growth of industrial and service employment in the nineteenth century introduced new forms of unrest and protest. The years from the 1870s to the 1940s witnessed waves of strikes, which were widely viewed as a perplexing and troubling feature of modern society. Yet strikes were only the most visible examples of the tensions and conflicts that characterized industrial employment. In essence, dissatisfied wage earners could quit and search for more satisfying jobs, or they could try to improve their current jobs through the use of their collective "voice," that is, through protests, complaints, and negotiations. Most workers concluded that quitting was easier than trying to organize and sustain a union, the most obvious form of institutional "voice." Still, the history of organized labor (because it has been carefully documented) is the best available valuable measure of the tensions associated with modern employment and the ability of workers to express themselves.
The American labor movement began in the early nineteenth century, grew fitfully during the antebellum decades, became an important force during the inflationary prosperity of the 1860s, and flourished during the boom years of the 1880s. The people most likely to organize were "autonomous" workers, those who had substantial independence in the workplace. Most, but not all, werehighly skilled and highly paid. In any case, they were indispensable workers who could increase their influence through collective action. Their strategic roles also made employers wary of antagonizing them, another critical factor in union growth. Regardless of their particular jobs, workers were more likely to organize successfully in prosperous times and when they could count on sympathetic public officials. Prosperity and a favorable political climate were critical determinants of union growth; recession conditions and state repression often made organization impossible.
Two groups dominated the nineteenth-century labor movement. Miners were autonomous workers who, though not highly skilled or highly paid, worked alone or in small groups and faced extraordinary hazards. Organization was a way to express a sense of solidarity, increase or maintain wages, reduce the cut-throat competition that characterized their industries, and restrict the entrance of less skilled, lower-wage workers. Miners' unions began in the 1840s, flourished in both anthracite and bituminous coal fields in the 1860s and early 1870s, and emerged in the western "hard rock" industry in the 1870s. After numerous conflicts and setbacks during the recession of the mid-1870s, miners' organizations became stronger than ever. Their success was reflected in the emergence of two powerful unions, the United Mine Workers, formed in 1890, and the Western Federation of Miners, which followed in 1892. They differed in one important respect: the UMW was committed to collective bargaining with the goal of regional or even national contracts, while the WFM favored workplace activism over collective bargaining.
The second group consisted of urban artisans, led by construction workers and industrial workers, such as printers and molders. Having established the legal right to organize in the 1820s and 1830s, they became a powerful force in the rapidly growing cities of the antebellum period. Unions maximized opportunities for some workers and created buffers against excessive competition. They also played an influential role in urban politics, adding a worker's voice to local government deliberations. Citywide coalitions appeared as early as the 1820s, but neither the individual groups nor the coalitions were able to withstand the ups and downs of the economy.
In this turbulent environment, highly skilled workers had obvious advantages. The railroad workers were a notable example. Engineers and other skilled operating employees formed powerful unions in the 1860s and 1870s. The Brotherhood of Locomotive Engineers became the most formidable and exclusive organization of that era. Through collective bargaining, the engineers and the other railroad "brotherhoods" were able to obtain high wages, improved working conditions, and greater security, but they made no effort to organize the vast majority of railroad workers who lacked their advantages. Most railroad managers reluctantly dealt with the skilled groups, though the Burlington Railroad strike of 1888 demonstrated that even the BLE was not invincible.
The limitations of this approach inspired efforts to organize other employees. The notable example was the Knights of Labor, which grew rapidly in the late 1870s and 1880s and briefly became the largest American union. The Knights attempted to organize work ers regardless of skill or occupation. Several successful strikes in the mid-1880s created a wave of optimism that the Knights might actually succeed, and membership rose to more than 700,000 in 1886. But employer counterattacks, together with the Knights' or ganizational shortcomings, brought this activity to an abrupt halt. The Haymarket massacre of 1886, at the height of the Knights' popularity, underlined its vulnerability. By 1890 the Knights of Labor had lost most of its members; it never again enjoyed the kind of success it had experienced in the preceding decade.
In 1893 Eugene V. Debs, an officer of the Brotherhood of Locomotive Firemen, and a handful of followers undertook another campaign to create a more inclusive organization. The American Railway Union, an industrial union of railroad workers, enjoyed a few initial successes but suffered a fatal defeat in the infamous Pullman strike of 1894. The ARU's failure was largely a result of the anti-union policies of the federal government, which so outraged Debs that he henceforth devoted himself to the cause of political change, notably as a candidate of the Socialist Party.
In the meantime, most of the established unions banned together to form a new labor federation, the American Federation of Labor, which took a pragmatic approach to the issues of organizational structure and jurisdiction. Although the AFL initially consisted of craft organizations that were hostile to the Knights of Labor and the American Railway Union, it soon demonstrated sufficient flexibility to become the locus of union activity. Dominated by President Samuel Gompers of the Cigar Makers, the AFL thereafter guided relations between unions and between organized labor and government. It also maintained a staff of organizers who aided individual unions.
In its early years the AFL confronted a strong employer backlash and a deteriorating economy. One of the most powerful AFL organizations, the Amalgamated Association of Iron and Steel Workers, lost a decisive battle against the industry's largest employer, the Carnegie Steel Company, in 1892. The failure of the famous Homestead strike sealed the fate of the Amalgamated Association and unionism in the steel industry until World War I. Other defeats followed as the severe recession of 1893-1897 encouraged employers to reject union contracts and agreements and reduce employment opportunities. The Pullman strike and a 1897 United Mine Workers strike against most of the coal industry illustrated the plight of organized labor.
As the economy recovered, the labor movement began a long period of expansion and growing influence. Autonomous workers groups, led by the coal miners and construction workers, dominated organized labor for the next third of a century. The debate over tactics was decisively resolved in favor of collective bargaining, though a dissenting group, the Industrial Workers of the World, originally an outgrowth of the Western Federation of Miners, rallied critics with some success before World War I. This decision was effectively institutionalized during World War I, when the federal government endorsed collective bargaining as an antidote to wartime unrest. The other major development of this period was the revival of the AFL. Under Gompers, who proved to be a wily and articulate leader, the AFL promoted autonomous worker groups while professing to speak for all industrial workers. Gompers and his allies disavowed socialism and efforts to create an independent political party, policies that led to an erroneous perception (encouraged by their many critics) of indifference or hostility to political action. On the contrary, Gompers closely aligned the AFL with the Democratic Party and created aggressive lobbying organizations.
Labor's political activism seemed to pay off during World War I, when President Woodrow Wilson appointed Gompers to a high post in the mobilization effort and the federal government directly and indirectly encouraged organization. The greatest gains occurred in the railroad industry, which was almost completely organized by 1920. Government efforts to limit unrest and strikes also resulted in inroads in manufacturing, notably in steel, shipbuilding, and munitions. In 1920 union membership totaled five million, twice the prewar level.
These gains proved to be ephemeral. The end of wartime regulations, the defeat of the Democrats in the 1920 national elections, the spread of the anti-union "American Plan" in many industries, and the severe recession of 1920-1922 completely reversed the situation of 1915-1920 and put all unions on the defensive. Membership contracted. The disastrous 1919-1920 steel strike, which restored the open shop in most firms, was only the first of many setbacks. The decline of the coal and railroad industries in the 1920s was an additional blow. By the late 1920s union membership was back to its prewar level. The one positive feature of the postwar decade was the rapid growth of service sector unionism.
The dramatic economic downturn that began in 1929 and continued with varying severity for a decade set the stage for the greatest increase in union membership in American history. Why? Recessions and unemployment typically reduced the appeal of anything likely to provoke employer reprisals. This was true of the 1930s, too. Union membership declined precipitously between 1930 and 1933, as unemployment rose. It also plunged in 1937-1938, when a new recession led to sweeping layoffs. Union growth occurred in 1933-1937 and in the years after 1938, when employment was increasing. Yet even the generally unfavorable economic conditions of the early 1930s had important indirect effects. Harsh economic conditions produced a strong sense of grievance among veteran workers who lost jobs, savings, and status. They also turned many voters against Republican office holders. The 1932 election of Franklin D. Roosevelt, who had strong progressive and activist credentials as governor of New York, proved to be a turning point in the history of the twentieth-century labor movement.
Union growth after 1933 reflected these factors, particularly in the early years. Roosevelt's New Deal was only intermittently prounion, but it effectively neutralized employer opposition to organization and, with the passage of the Wagner Act in 1935, created a mechanism for peacefully resolving representation conflicts and introducing collective bargaining. Though the goal of the legislation was to foster dispute resolution and increase wages, it indirectly promoted union growth by restricting the employer's ability to harass union members. In the meantime, industrial workers, notably workers in the largest firms in steel and automobile manufacturing, reacted to the new political environment with unprecedented enthusiasm. A wave of organizing in 1933-1934 surprised employers and public officials alike. Defeats in a series of spectacular, violent strikes in 1934 and other setbacks in 1935 seemingly had little effect. One expression of the workers' determination was the growing popularity of the sit-down strike, notably in the Goodyear Tire and Rubber strike of 1936 and the General Motors strike of 1937. Though most sit-downs were union-led, they represented a degree of shop-floor militancy that shocked many employers and not a few outside observers. Another important expression of the changing industrial landscape was the emergence of the Congress of Industrial Organizations, a new federation of unions devoted to aggressive organizing, especially in manufacturing. John L. Lewis, the creator of the CIO, was the veteran president of the United Mine Workers who had presided over the decline of that once formidable organization in the 1920s. Whatever his shortcomings, Lewis grasped the possibilities of the moment. By the end of the decade he was closely identified with both the revival of organized labor and the increasingly bitter relations between the CIO and AFL.
Although the Wagner Act (and other related legislation designed for specific industries) most clearly and explicitly addressed the industrial relations issues of the 1930s, other New Deal measures complemented it. The move to regulate prices and production n the transportation, communications, and energy industries, which dated from the National Industrial Recovery Act of 1933 and continued with a variety of industry-specific measures between 1935 and 1938, created additional opportunities for unions. Regulated corporations had powerful incentives to avoid strikes and cooperate with unions. As a result, about one-third of union membership growth in the 1930s occurred in those industries. If the United Auto Workers and United Steel Workers were symbols of the new militancy in manufacturing, the equally dramatic growth of the Teamsters symbolized the impact of government regulation in the service sector.
Government regulations were more directly responsible for the even more dramatic growth in union membership that occurred during World War II, when aggregate membership rose from 10 million to 15 million members. Most new jobs during the war years were in manufacturing companies that had collective bargaining contracts and, in many cases, union security provisions that required new hires to join unions. War mobilization thus automatically created millions of additional union members, including large numbers of women and African Americans. Organized labor, in turn, opposed strikes, cooperated with the government's wage-and-price-control programs, and promoted the war effort. By 1945 the labor movement had become a respected part of the American establishment.
By the mid-1940s full employment, high wages, and optimism about the future, based on a sense that government now had the ability to manage prosperity (together with awareness of the safety net that government had created since the mid-1930s), replaced the depressed conditions of the 1930s. Most workers' experiences in the 1940s and 1950s seemed to confirm the lessons of the New Deal era. With the exception of a few mild recession years, jobs were plentiful, real wages rose, and public and private benefit programs became more generous. The labor movement also continued to grow, but with less dynamism than in the 1940s. Optimists viewed the 1955 merger of the AFL and CIO as a likely stimulus to new gains.
In retrospect, however, those lessons were often misleading. The striking feature of the economy of the 1950s and 1960s was the degree to which the character of work and the characteristics of the labor force changed. Farming and other natural resource in dustries declined at an accelerated rate, industrial employment leveled and then began to decline, and service industry employment boomed. Formal education became even more critical to success. Married women entered the labor force in unprecedented numbers. Civil rights laws adopted in the early 1960s banned racial and other forms of discrimination in employment decisions.
One other major development also was little noticed at the time: organized labor stopped growing. Contrary to most predictions and popular impressions, the labor movement lost momentum in the 1950s and 1960s and faced a host of obstacles by the 1970s. Three problems, in reverse order of importance, were particularly notable. First were the unions' internal difficulties. Adapting to an expanded membership and larger public presence was inevitably challenging, but it also could be damaging, as two well-publicized incidents suggest. At the end of World War II the CIO included numerous (mostly small) communist-dominated unions. Though the CIO soon expelled them and supported U.S. cold war policies, it was unable to prevent anti-union demagogues from loudly portraying it, and by implication unions in general, as subversive.
Even more harmful was the mounting evidence of union corruption and especially of abuses involving the now giant Teamsters organization. Revelations of Teamster misdeeds led to the U.S. Senate's McClellan Committee investigation of 1957-1958 and the subsequent passage of the Landrum-Griffin Act (1959), designed to protect union members from dishonest officials. Whether the act was warranted or effective was beside the point: the scandals devastated the unions' public image.
A more fundamental cause of union decline was organized labor's association with industries (manufacturing, mining, transportation) that were growing slowly, if at all, and its tardiness in recognizing the overwhelming importance of the service economy in the postwar era. Labor's one significant breakthrough came in the 1970s and early 1980s, when it won collective bargaining rights for most state and municipal employees. By the end of the 1980s unions increasingly were associated with public rather than private employment.
Finally, employer counterattacks grew more effective in the postwar years. Though some employer groups sought to challenge unions directly (for example, in the Taft-Hartley Act of 1947 and state right-to-work legislation), others adopted a more subtle approach, attacking union power in the regulatory agencies and the courts and promoting employment policies that reduced the benefits of membership. These attacks gained momentum during the presidency of Dwight D. Eisenhower. One additional tactic, locating new plants in southern or western states, where there was no tradition of organization, also helped isolate organized workers. The impact of these varied trends became inescapable in the 1970s, when the economy experienced its most severe downturns since the 1930s. Major recessions in 1973-1975 and 1979-1982 led to thousands of plant closings in traditional industrial areas. Unemployment reached levels that rivaled the 1930s. Productivity declined, and real wages stagnated. Exploiting anxiety over the future of the economy, Republican Ronald Reagan ran successfully for president on a platform that attacked government assistance to the poor and support for collective bargaining. Reagan left no doubt about his intentions when, in 1981, he fired air traffic controllers for striking in violation of federal law.
The experiences of the 1970s created a labor force that was more diverse in composition and overwhelmingly engaged in service occupations. The return of favorable employment conditions in the 1980s was almost entirely a result of service sector growth. Formal education, together with antidiscrimination laws and affirmative action policies, opened high-paying jobs to ethnic and racial minorities, including a growing number of immigrants. At the same time, industry continued its movement into rural areas, especially in the South and West, and unions continued to decline. Indeed, by the mid-1990s, the private sector of the American economy was largely union free.
The decline of organized labor was associated closely with three other ominous developments. The first was a slowing in real-wage increases, especially among low-income workers. The purchasing power of most manufacturing and service employees remained largely unchanged between the 1970s and 1990s, eliminating an important source of social mobility. Second was a gradual decline in welfare capitalism. A new generation of nonunion firms that paid high wages but provided few or no benefits initiated this trend. Other firms followed, arguing that cost reductions were necessary for survival. Other employers reacted to the rising cost of medical insurance and to the lower costs of defined-contribution retirement plans (as opposed to the traditional defined-benefit plans). Even the tight labor market conditions of the mid-1990s to late 1990s, which led to real-wage increases, did not result in expanded benefit programs.
Third was the accelerating globalization of economic activity. The growth of international trade and investment were partly a consequence of the transfer of industrial technology to economically disadvantaged countries. It also was a result of a series of legal and regulatory changes, such as the North American Free Trade Agreement of 1993, which liberalized economic relations between countries and encouraged international activity. These changes had the potential to raise living standards, but their immediate effects were often painful, as employers moved some or all of their operations to lower-wage countries. Already many American manufacturers had moved labor-intensive assembly operations to Mexican border towns to take advantage of lower wages and other low costs. In most cases Mexican employees replaced American workers. And while the Mexican employees earned more than most of their neighbors, their jobs were extremely insecure. Indeed, by 2000 manufacturers were increasingly moving their operations from Mexico to China and other Asian countries, where wages were even lower.
The results of these complex developments were at least superficially contradictory. On the one hand, by the 1990s many workers enjoyed expanded opportunities and high wages. Severe labor shortages in some industries attracted a flood of immigrants and made the United States a magnet for upwardly mobile workers. On the other hand, many other workers, especially those in agriculture or industry or who had little formal education, found that the combination of economic and technological change, a less activist government, and union decline depressed their wages and made their prospects bleak. A recession that began in 2000 created additional uncertainties. At the beginning of the new century the labor force, and American society, were divided in ways that would have seemed unlikely or even impossible only a few decades earlier.