Elevators Going Up, Wages Going Down
And more from this week...
I happen to know way too much about the elevator industry, having spent a year working for one of the major manufacturers back in my days as a business consultant. And one of the most interesting things about it is that it presents one of the rare successful examples of sectoral bargaining in American industrial-labor relations. All of the major elevator manufacturers (who are also, generally speaking, the maintainers) sign on to the same contract with the national union—you can actually read the current contract yourself.
ONE THING TO READ
So this week, I highly recommend reading the New York Times essay on the challenges that make American elevators so expensive, “The American Elevator Explains Why Housing Costs Have Skyrocketed.”
As a result of the strong union contract, the industry has in effect taken “squeeze workers” off the table as a basis for competition. The effect, which I saw first hand, is extraordinary. The central goal of our work with the manufacturer was to increase profit margin. Generally speaking, when a consulting firm gets brought in to help a big company increase profit margin, guess what it does? Cut labor costs. Lay people off, try to find lower-cost workers, offshore and outsource…but for us, from day one, that was simply off the table.
Our task was thus to improve profit margin any other way. This turned out to include: accelerating the development of the next generation of products, improving training for both management and front-line workers, investing in building a stronger company culture and increasing job satisfaction, realigning incentives to further reward workers for strong performance, and optimizing allocation of work hours to improve productivity. In short, once workers had power industry-wide, the remaining options for pursuing private profit became precisely the sorts of things we should want companies doing, that advance workers’ interests and the public’s as well.
Our NYT writer sees things differently: The goal should be the cheapest possible elevator, and workers with power stand in the way. “The fewer workers available to do a job, the more the job costs. This tight market for skilled and licensed labor has strengthened the hand of the elevator union — power it uses to create even more of a labor squeeze.”
The answer, of course, is immigration. “Our broken immigration system cannot supply the labor that the construction industry desperately needs.” That’s not much of a problem in regular home construction, where “immigrant workers without papers” can hold wages down (yay?), but “workers’ lack of legal status and stability makes it tough for them to get licensed or enroll in apprenticeships or other formal job training programs” (boo?).
As usual, the point that high levels of immigration into a labor-market segment undermine worker power and reduce wages is asserted as self-evident and beneficial when the consumer’s interests are in focus. Nowhere to be found is the open-borders economist embarrassing himself with the argument that immigrants would not just build elevators but also ride in them, so by increasing both supply and demand we should not expect wages to change at all.
Indeed, note that high labor costs are simply lumped in alongside excessive regulation, NIMBY lawsuits, and so on, as entirely unfortunate obstacles. This is the view of labor as just another commodity input alongside steel and electricity. The tens of thousands of blue-collar, family-supporting jobs are irrelevant.
The conclusion is almost too on-the-nose to believe, but here it is:
America has grown extraordinarily rich from white-collar industries like software engineering and finance. But with email-job couples earning well into the six digits now struggling to afford to live in many American cities, we are bumping up against the limits of what quality of life an economy built on apps can provide. Software and financial engineers can’t make my apartment building accessible, so at some point we must relearn how to build things in the real world. Maybe the elevator can teach us how.
In short, highly educated, high-income couples are finding their financialized and unproductive economy unsustainable. “So at some point we must relearn how to build things in the real world.” Of course, many people can build things in the real world. And they’re not paid as well as the “email-job couples” to do it. But they’re paid too much, defined as an amount that prevents the couples from riding comfortably to the top floors of their brownstones. And no, neither those couples nor their children are interested in becoming elevator mechanics, thank you very much.
I’m sure there’s a good phrase for training and licensing illegal immigrants to undercut the legal workers doing a job today for the benefit of higher-income households, but I wouldn’t call it “relearning how to build things.”
Bonus Link: I must chuckle that when I asserted in an NYT Opinion interview last year that “strong immigration enforcement, reduction of immigration into low-wage segments of the labor market and the elimination of guest worker programs are pro-labor policies by any useful definition of the term,” the editors appended a note that read, “the economic impact of low-wage immigrants on low-skill wages is debated; some economists argue there is an effect, while others contend there is close to zero effect.” I guess I should have mentioned elevators!
Bonus Bonus Link: Not to be that guy recommending that thing I read in the New Yorker, but its long-read on the elevator from 2008 is, well, spectacular. Many anecdotes ideal for your next cocktail party.
THIS WEEK AT AMERICAN COMPASS
The Compass Point is from Elbridge Colby, the leading conservative foreign policy analyst, adapted from his remarks this week at the National Conservatism conference in Washington on the need for a realist foreign policy focused on China: Only One Priority Makes Sense for American Foreign Policy.
We are already at historic levels of debt and deficit spending. Thus there are significant constraints on how much more we could spend on our military without either cutting entitlements or sharply raising taxes, neither of which is appealing to Americans or appears to be seriously on the political agenda. At the same time, our military readiness is at historic lows, and our defense-industrial base has been thoroughly hollowed out by a generation of deindustrialization. Even the huge amount of money being injected on behalf of Ukraine over the last two years has not even come close to closing the gap between what we can produce, and what our military is being expected to perform. Meanwhile, the American people are justly war-weary after the hyper-ambitious military interventions and nation-building campaigns that primacists themselves advocated for.
ALSO ON THE COMMONS
Duncan Braid finds apt the analogy of America’s current plight to the dysfunction of the late Soviet era, but argues that we still have the resources to turn things around.
John Sailer highlights the movement afoot at flagship public universities in red states like the University of Florida, UNC-Chapel Hill, and Ohio State to create genuine centers of academic freedom and, in turn, a pipeline for the next generation of conservative scholars.
And, on the American Compass Podcast this week, I hopped across the table to the guest chair to discuss my own recent Compass Point, The Electric Slide, on lessons learned from the loss of EV leadership to China, why EV leadership matters anyway, and the policy reforms needed to recover.
WHAT ELSE SHOULD YOU BE READING?
Callback to last week, when I mentioned the New York Times profile of Rep. Marie Gluesenkamp Perez (MGP), one of my favorite Democrats. I placed her alongside Rep. Jared Golden, who had gone most aggressively out of the gate on President Biden with an op-ed in his local paper, “Donald Trump is going to win the election and democracy will be just fine.” It is probably not a coincidence that MGP is now out with a statement of her own, becoming, I believe, the first Democrat to call on Biden to not only drop out of the race, but also resign his office.
Goldman Sachs is out with an in-depth report throwing cold water on the transformative power of generative AI. The whole report is worthwhile if you’re interested in the topic, especially the interview with MIT economist Daron Acemoglu, but at a minimum I recommend this write-up from Edward Zitron, who explains “What makes this interview—and really, this paper—so remarkable is how thoroughly and aggressively it attacks every bit of marketing collateral the AI movement has. Acemoglu specifically questions the belief that AI models will simply get more powerful as we throw more data and GPU capacity at them, and specifically ask a question: What does it mean to ‘double AI's capabilities’?”
In Newsweek, ISI president John Burtka takes a harsh look at the American Dream and data showing the increasing pessimism of younger generations. As a somewhat amusing counterpoint, AEI economist Michael Strain looks at similar data and comes up with the spin, “Confidence in the American Dream Rises with Age.” If every subsequent generation is feeling worse about things, maybe that actually means, “The Dream is objectively achievable, but people starting out their lives are uncertain about whether they can achieve it.” Maybe… But I think Burtka’s analysis is closer to the mark.
Over at The Liberal Patriot, one of my favorite Substacks, Michael Petrilli laments how both parties seem determined to shovel massive education windfalls to the wealthy. The Left’s efforts to relieve Americans of their obligations to pay back the money they borrowed to pursue higher education is probably the better-known example. But he makes an interesting point about the “universal school choice” programs being advanced by the Right, mostly at the state level. By subsidizing private school attendance for the high-income households that would have sent their children to private schools regardless (and paid full price), the net result is to shift billions of dollars out of the public education system and into the bank accounts of families least in need of support.
And finally, checking in with Jim Edgerton, the humble farmer featured in Norman Rockwell’s famous Freedom of Speech. We’re huge fans of Edgerton at American Compass. Or, rather, I’m a huge fan and the rest of team has little choice but to humor me. Rockwell depicted Edgerton at the annual meeting in his small town, rising to speak against a tax increase he could not afford, but that would fund a new school building. The town proceeded to vote 10-to-1 in favor of the proposal, but all who were in attendance listened respectfully while their neighbor made his case. American Compass’s collection of short essays from working-class Americans was titled “The Edgerton Essays,” and a large replica of the painting hangs in our office. But the image has also become an online “meme” deployed ironically to signal that someone wishes to convey an opinion. It’s a fun read.
Enjoy the weekend!
I never comment on anything but wanted to do so just to applaud your efforts in taking down the NYT elevators piece. Very well done. I would have read this sort of thing in The Nation 20 years ago. Times are changing. . .
Years ago, about 2000, I was discussing with my corporate lawyer friend about what an individual did for a living. He told me this individual was in charge of employee retention for a fast food franchisee. My response: all they have to do is pay them $10 an hour. My lawyer friend responded with: I can’t be paying a buck extra for my value meal. Keep up the good work!