Toyota's plans to cut wages complete the unraveling of the loose system of "pattern bargaining" by which wages were temporarily taken out of competition in the post-World War II U.S. auto industry.

Under pattern bargaining, each time the UAW negotiated a new round of contracts, it targeted one of the Big Three ( Ford, GM, or Chrysler) to negotiate the first agreement (and for a strike if necessary). This first agreement then set the pattern for wages and benefits at the other two automakers and at smaller companies and suppliers. In the 1950s, this approach enabled workers at U.S. parts suppliers to earn over 95 percent as much as workers at assembly companies.

In the late 1950's recession, pattern bargaining began to weaken as suppliers in financial trouble settled for somewhat lower wages and benefits. Over time, union density in suppliers also fell dramatically. Parts company wages fell to 89% of assembly company wages in 1963, 80% in 1974, 69% in 1983, and now around 55%. (Figures based on UAW data and Bureau of Labor Statistics figures.)

In recent weeks, the free fall of auto parts wages has hit close to home here in South Central Pennsylvania. In Carlisle, the new owner of a car seat plant is asking its workers to take a wage and benefit cut of $7.65 per hour.

By the early 1960's, local unions at auto parts companies understood the long-run consequences of the erosion of an industrywide wage standard. If the union lets a big wage gap emerge between auto suppliers and assembly companies, auto supplier union leaders said, that will threaten assembly workers in the long run. As predicted, this wage gap ultimately created the fierce economic pressure that resulted in GM and Ford spinning off much of their parts-making capability in the late 1990s into Delphi and Visteon. These new companies then used the far lower benchmark of the supplier industry to reset wages and benefits. And now Toyota will recalibrate wages down in assembly plants themselves.

Many European countries and parts of Canada have managed to limit wage inequality within industries. How? Through legislatively backed sectoral unionism (which facilitates unionization of all companies in a sector), sectoral collective bargaining (which leads to a contract that applies to the entire sector), or through laws (such as the Quebec Decree system) that extend the wage and benefit provisions of union agreements to all non-union competitors. Under the Quebec approach, for example, wages and benefits set in the union core of the apparel industry are imposed on non-union companies. This has limited the re-emergence of sweatshops in Quebec. By focusing employers on high-end markets, it has helped sustain a high-wage, high-quality industry in Quebec. Sectoral bargaining and industry-wide compensation standards not only limit wage inequality, they also help maintain union density because employers have less economic incentive to avoid unions.

As we begin to fight nationally for a legal framework for the Next New Deal, the history of auto industry pattern bargaining is worth bearing in mind. Although union strategy and structure played a part, the collapse of this structure also reflects New Deal labor law, the National Labor Relations Act (NLRA). Outside construction, this law privileges unionization and bargaining one company at a time or one establishment at a time. The law does this by favoring bargaining units (that determine the scope of elections to form a new group of unionized workers) that include only one workplace or one company. For bargaining to take place at more than one company, all the relevant unions and employers must voluntarily agree to joint bargaining. And any company or union can drop out at any time. These features are a far cry from the laws in Europe and Quebec.

The fact that U.S. labor law makes it hard to establish industrywide and occupational unions and wage standards is an even bigger flaw in today's service industries and occupations than in post-World War II manufacturing. These service sectors tend to have large numbers of small establishments rather than a few mammoth plants. Thus, loose pattern bargaining that spreads wage and benefit standards one company or one workplace at a time will be even harder to use to establish and maintain an industrywide wage standard than in post-World War II U.S. manufacturing.

Labor law is on the agenda now because Congress is considering the Employee Free Choice Act (EFCA). This Act is essential because it would restore the spirit of the Wagner Act—the right of workers to choose a union and bargain collectively at an individual workplace. But because it does not promote multi-employer unionism or bargaining, EFCA ought to be considered a first step. In today's new economy, the Next New Deal needs a legal framework that promotes more broadly-based unionism to make worker rights more meaningful.

The absence of legal support for sectoral unionism (or at least sectoral wage standards within regional labor markets of non-mobile industries) would severely limit that capacity of unions to reverse the growth of inequality. It would also limit unions' ability to grow because the incentives for union avoidance would remain powerful.

This example suggests that the U.S. debate about labor law reform needs to be more fully recast based on an analysis of today's economy and today's inequality. Although the political hurdles to this approach may be high today, it sets a realistic goal of where we need to be tomorrow.

First, what kind of New Economy unionism would permit workers meaningful voice and the capacity to reshape competition to focus on productivity, quality, and skills rather than following Toyota down the low road?

Second, what kind of labor law reform would enable an upsurge of New Economy union organizing analogous to the union wave of the 1930s and 1940s?

Without reforms of this kind and scale, we don't know how the United States can get back to prosperity that is broadly shared--a national goal that surely commands the support of the vast majority of Americans.

And we don't know anyone else that knows another route to broadly shared prosperity.

(For one discussion of labor law reform that could facilitate the growth of new unions for a new economy, see the last chapter of New Rules for a New Economy: Employment and Opportunity in Postindustrial America.)