If president Joe Biden is able to manoeuvre his ambitious programme of wage and labour reforms through Congress, many workers in the US will for the first time enjoy benefits they may have dreamed of but never expected to become reality. And investors – both foreign and domestic – in certain sectors will see their bad dreams realised as a newly empowered workforce makes demands.

Joe Biden ran on a platform of raising the federal minimum wage to $15 an hour by 2024, a rate he said would lift people out of poverty. He pledged to make it easier for workers to unionise and to strengthen the power of unions, for example by barring state laws from weakening that power through ‘right-to-work’ laws. He has named as his secretary of labor Marty Walsh, a former union leader and mayor of Boston. And his new Treasury secretary, Janet Yellen, defended the wage increase before a Congressional committee.

But it will take more than playing defence to turn the Biden plan into law over opposition from Republican legislators and major business organisations, even those which supported Mr Biden’s run for office. Vigorous campaigns against both the wage increase and support for unions began immediately.

In the hot seat

The grilling Ms Yellen received from some senators in her confirmation hearing shows how difficult it will be to raise the federal minimum wage from its 2009 level of $7.25 an hour to the higher rate. “If the federal government mandates a universal $15 minimum wage, many low-income Americans will lose their current jobs and find fewer job opportunities in the future,” prophesied Republican senator Pat Toomey, a view shared by many business groups and companies.

Michael Reich, a professor at the University of California Berkeley and expert on the minimum wage, argues that a higher minimum wage would have a minimal negative effect on job numbers and would reduce poverty rates significantly. 

For foreign companies, the higher wage is likely to have limited impact, Mr Reich says, because a significant amount of foreign investment in the US is concentrated in manufacturing and other sectors that already pay above the minimum wage. 

However, foreign companies also have a significant presence in food manufacturing, where the Bureau of Labor Statistics reports median pay is well below $15 an hour. The food sector accounted for 6% of all manufacturing FDI, or $78bn, the Congressional Research Service found in 2017. The low-paying retail sector has also attracted considerable FDI.

Fear of unions 

If raising the minimum wage earns criticism from business groups and their Congressional representatives, Mr Biden’s focus on making it easier for unions to expand their foothold across the country arouses outright hostility. 

Just as each state sets its own minimum wage law – 29 states have set it higher than the mandated federal minimum – so does each state regulate how unions operate. Under federal law, individuals have the right to form or join a union to negotiate with their employers if they can muster at least 30% of workers to sign cards or petition to form a union. 

However, 27 states have a right-to-work law which usually prevents individuals from being forced to join or pay dues to a union, even though they are still protected by the contracts the union has negotiated. In all but one state, employment is presumed to be “at will”, meaning that with a few exceptions workers can be fired for any reason, not “for cause”, and employers can change the terms of employment with no notice. Union contracts usually stipulate “for cause” provisions. 

A battle currently being fought between workers at an Amazon warehouse in Bessemer, Alabama and the company illustrates the challenges of trying to form a union in a system proponents allege is stacked against workers. In a right-to-work state, Amazon has enlisted a prominent law firm to resist unionising efforts, launched an anti-union website, allegedly created fear of retribution against workers who wish to organise, and tried to force workers to vote on a union in person on company grounds amid the Covid-19 epidemic, a move that regulators overruled in favour of voting by mail. 

Mr Biden strongly supports the Protecting the Right to Organize (PRO) Act, which passed the Democratic House but stalled in the then Republican-controlled Senate. The act introduces enforceable penalties for companies and executives that violate workers’ rights, closes loopholes that enable worker exploitation, and prevents employers from interfering in union elections. Mr Biden would hold executives personally and even criminally liable if they do.

A hard road ahead

Since it will be difficult to get anything done in an evenly split Senate, Mr Biden will have to rely on other measures, says Seth Borden, a partner in the Washington, DC office of law firm Perkins Coie. 

“I think a bill as sweeping, comprehensive and impactful as the PRO Act has little chance of passing the current Senate, regardless. But employers should take the PRO Act very seriously because it is a blueprint for what the administration wants, whether it is done by cutting pieces out and passing them as part of smaller legislation, or through reconciliation that doesn’t require 50 votes, administrative agencies or regulatory rule-making,” he says. He also predicts that ending right-to-work laws which are becoming more popular will face strong headwinds. 

Mr Borden expects some success for the Biden administration in raising the minimum wage, and says companies contemplating FDI in the US will factor that in among other considerations. “For companies already operating here, I’m concerned about their ability to grow and expand and navigate the regulatory hurdles,” he says.

Mr Biden has wasted no time demonstrating his determination. On his first day in office, he fired the National Labor Relations Board general counsel, widely reviled as being on the side of business, not workers. Mr Borden believes that later in the year, the board will be comprised largely of Biden appointees who will act consistently with his agenda. The battle lines have been drawn; victor and vanquished await the outcome.

This article first appeared in the February/March print edition of fDi Intelligence.