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It’s time for a new social contract with America’s workers

Amid a great resignation and inflation, corporations—and governments—need to revisit their obligations to employees, a financial health expert writes.

It’s time for a new social contract with America’s workers
[Photo: stocknick/Getty Images]

When American soldiers returned home from World War II, they were offered government benefits such as the GI Bill (although benefits mostly went to white males). Corporate leaders believed it was the obligation of industry to help generate full employment.

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As Rick Wartzman documented in his book The End of Loyalty: The Rise and Fall of Good Jobs in America, the thinking was that well-paying jobs would turn workers into consumers, who would demand more products, requiring yet more workers, which would benefit the communities that were home to company factories and offices.

Many business leaders believed the government’s role was to create a basic safety net for the unemployed, while the job of business was to meet the bulk of workers’ needs. Over time, that meant vacation and sick pay, profit sharing, life insurance, pensions, and health insurance.

Seventy-five years later, that social contract among businesses, government, and workers is badly frayed. A once-in-a-generation mix of a global pandemic, inflation, and automation has exacerbated wealth inequality and lack of access to quality health care and education. And while tight labor markets have emboldened some workers to demand more money, flexibility, and respect, it is time for more a more systemic response from the very institutions that benefit from healthy, well-paid employees. It’s time for corporate America and the federal government to respond by rewriting the nation’s social contract.

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Eroding benefits for American workers

The idea that industry was responsible for caring for its employees died in the wake of Nobel Prize-winning economist Milton Friedman’s famous 1970 essay in which he argued that a corporation’s only legitimate social responsibility was to increase its profits. The Friedman Doctrine effectively broke the social contract with workers as corporate CEOs increasingly prioritized shareholders over all else. In the name of efficiency and cost cutting, big business shrunk the benefits and supports that bolstered workers and their families. The government did the same thing to the safety net. And America’s workers were left shouldering an increasingly unsustainable burden.

Defined benefit pensions are all but gone for new private-sector workers, and only half of all workers have the 401(k) retirement plans that replaced them. America is the only industrialized nation without paid leave, the consequences of which have become all too clear over the course of the pandemic. And while health insurance remains a fairly standard benefit for full-time workers at large companies, it isn’t of much use when the health care itself is so expensive and companies increasingly rely on high deductible health plans–a further step toward shifting costs and risks disproportionately to workers.

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Confronted with these financial burdens and in the wake of the pandemic, workers became the spark that lit a fire. An average of nearly 4 million workers quit their jobs each month last year in what has become known as the Great Resignation. Tens of thousands of workers across the country and across industries have protested working conditions in the last year. And it seems as if each week employees at yet another Starbucks store or Amazon warehouse announce their attempts to unionize.

A social contract rooted in financial health

It is clear that we need a new social contract between workers, employers, and the government. While the premise in the post-war era was driving consumer spending and building the middle class, today workers are demanding greater financial health and well-being. They want to be paid a living wage so they can afford the basics and still have time for family and other pursuits. They want protection against financial shocks and the opportunity to build wealth for the future.

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A growing number of employers, driven by an extremely competitive labor market and a spate of new ESG commitments, are listening to workers and taking action. They are raising starting wages, in some cases well above the required minimum, offering more childcare benefits, tiering health insurance costs based on salaries, and, in a few cases, sharing equity and profitability gains with a broader set of workers.

The latest move by Apple exemplifies the trend. The company is doubling the number of sick days for retail employees and expanding eligibility for paid parental leave and discounted emergency childcare. Target has also stepped up in supporting its front-line workers, announcing increases in starting wages and expanding access to health care benefits for more part-time workers.

Target CFO Michael Fiddelke made the business case for the additional costs to investors this way: “Whether you’re talking about physical capital or human capital, under-investing might lead to great-looking results over a very short period, but they’re not sustainable over time.” In recent years, companies announcing pay bumps have been penalized by investors driving down their stock market share price. But not this time. Target’s news was greeted positively by the markets, an indication that both corporate America and Wall Street may be beginning to recognize what’s at stake.

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Closing the wealth gap for all workers

One of the most crucial elements of a new social contract will be how companies share gains, not just with investors and the C-suite, but with rank-and-file employees. The outsized stock market gains of the last few years have only further increased existing wealth gaps between executives and workers, fueling the ire of everyday Americans.

Bank of America is demonstrating what change can look like. In early 2021, the bank announced that workers making above $100,000 a year would receive up to 750 shares of restricted stock, while those making less would receive a $750 cash bonus. This year, downstream from record 2021 earnings, CEO Brian Moynihan announced that nearly every employee, regardless of salary, would receive shares. Paypal and Chobani in recent years have made similar moves to democratize equity compensation.

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The business community is beginning to step up, but it cannot be the only drafter of a new social contract. Supply chains will untangle and the labor market will ultimately loosen, and the imperative companies feel right now to increase wages and provide more generous benefits may not last once that happens. Plus, COVID-19 demonstrated that the private sector can’t afford to be the only backstop in a crisis.

Government’s responsibility is setting basic standards to ensure worker well-being, but the standards have not kept pace with reality. The federal minimum wage is stuck at $7.25 an hour, federal workplace safety laws haven’t been materially updated since they were codified in 1970, and, in a world where close to a third of adults work at least some of their hours in the gig economy, frameworks for classifying workers are outdated.

The future of a healthy national economy depends on commitments of great magnitude. In his 2022 State of the Union address, President Biden called for higher wages, affordable childcare, and paid leave as core benefits that should be available to all Americans. In concert with the actions employers are taking, these policies can form the foundation of a modern social contract that signals a new, powerful partnership between workers and employers.

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Jennifer Tescher is CEO of Financial Health Network, a nonprofit organization that works with business leaders, policymakers, and innovators to design and implement solutions that improve financial health.

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