A new social contract: America’s workers deserve their fair share of economic gains

Between 1948 and 1950, the United Auto Workers and General Motors negotiated an agreement that shaped what later became known as the post-World War II social contract. The Treaty of Detroit provided a wage increase tied to the rate of inflation and a 2 percent “annual improvement factor” to ensure workers shared in the economy’s productivity growth. That bargain subsequently became the new norm that companies across the economy were expected to follow. It ensured that as firms prospered and the economy grew, workers would get their fair share of the prosperity they helped to generate.

Unfortunately, that postwar social contract frayed in the 1970s and completely broke down in the 1980s and thereafter.  

It’s time for a new grand bargain —a new social contract that reflects the expectations of today’s workforce and the successes businesses experienced in recent years.

Indeed, workers across the country are taking aggressive actions to achieve a new social contract. They have mounted the greatest upsurge in union organizing and militant collective bargaining seen since the 1970s. At this very moment, negotiations are underway between large unions including the Auto Workers and domestic auto producers and a coalition of health care worker unions at Kaiser Permanente; Teamsters and the United Parcel Corp. just freshly negotiated a tentative deal that would ensure higher wages and new safety protections for drivers, including air conditioning in delivery trucks and vans.

These workers are demanding sizable wage increases, given the impact of inflation they are enduring. Similar difficult negotiations are underway among countless smaller labor-management relationships, including many nonprofit organizations such as universities, museums and foundations. 

Moreover, workers are trying to organize in unprecedented numbers, and too often are facing vigorous — and oftentimes hostile — employer opposition. Employer opposition is out of step with the views of the 70 percent of Americans who approve of unions, and with the majority of workers who now express a desire to join a union. It is especially surprising and appalling to young workers who expect to have a voice at work and do not understand why they should be subject to employer retaliation for exercising their rights on the job.  

What would a new social contract that fits with today’s economy and workforce look like?

It has to start with a grand bargain over the norms that govern wage setting. Just as the UAW and GM agreed to share productivity gains in the 1940s and beyond, so too should management and labor set wage norms today that allow workers to share in the gains from economic growth and to keep them from falling behind from inflation.  

But today there is also a new imperative: Workers are demanding a voice in the introduction of new robotic, AI, and “generative” technologies that are putting their incomes and jobs at risk. The good news is that evidence from manufacturing, IT, health care and other industries demonstrates that these new technologies are most effective when they are designed and introduced with worker input. Toyota first taught us this in the 1980s when it followed the mantra that, “it is workers who give wisdom to the machines.”  

Workers and their leaders know this and are increasingly demanding a role in shaping how these technologies can support innovation and improve productivity by augmenting how workers do their jobs — rather than just replace them. UNITE-HERE, the largest union of hospitality workers, has taken this approach in negotiating agreements with hotel chains like Marriot and Las Vegas casinos. The Writers Guild of America and SAG-AFTRA, the largest union of entertainment workers, are both now on strike seeking new agreements on how to share the benefits of the technologies that have introduced video streaming and eliminated an important source of their members’ prior income.  

Today’s workforce is insisting on other elements in a new social contract that reflect the diversity in its ranks. Leading unions and employers in health care, communications, construction and other industries for example, are adding diversity, equity and inclusion language to their agreements that ensure that all workers will be respected and treated with dignity and fairness at work. Unions and employers benefiting from government investments in infrastructure, windfarms, and electric vehicle components are opening up apprenticeships to young disadvantaged workers who are eager to gain the skills needed to do this work.

This is not rocket science. In a recent Harvard Business Review article, several of us laid out how CEOs and unions can build high-quality labor-management relationships that achieve the productivity and economic performance needed to support a new social contract.

What’s the alternative? Pitched battles over worker efforts to gain a voice at companies like Starbucks and Amazon are all too common. So too are the rising number of strikes and/or, contract rejections when labor and management leaders fail to understand what today’s workforce expects from work.  

The choice is clear. Either labor and management negotiate a new social contract that is more responsive to what workers want and need today, or we will experience intensified conflicts that further divide our country.

Thomas A. Kochan is The George M. Bunker Professor Emeritus at the MIT Sloan School of Management and a faculty member in the Institute for Work and Employment Research.