The Quagmire of Inequality

June 11, 2007 issue – You have never heard of the Treaty of Detroit, which you may connect with the French and Indian War (1756-1763). Guess again. The Treaty of Detroit is a long-lost label describing a series of landmark labor agreements between the United Auto Workers and the Big Three U.S. automakers. Starting with a 1948 contract at General Motors, the agreements guaranteed annual wage increases, job security and generous fringe benefits. As Detroit’s present turmoil attests, the treaty is in tatters.

Now come economists Frank Levy and Peter Temin of the Massachusetts Institute of Technology, who resurrect the label and say it explains something much greater: the rise of economic inequality. This promises to be a hot issue in the 2008 election. Until now, most economists have blamed the growing pay gap on skill differences caused by the explosion of computer technologies. Levy and Temin contend (correctly) that this is too simple; they also blame a shift in social norms and business practices. more…