Reich is promoting his new documentary, "Inequality for All," which looks at the income gap and possible solutions. The film premiered at the Sundance Film Festival in January and won a special jury prize in the documentary competition for director Jacob Kornbluth.
The following is an edited transcript:
QUESTION: Income inequality has been an issue for a number of years. Is there a danger that the middle class will shrink and fewer people will be able to climb the economic ladder?
ANSWER: It's already happened. When you have so much income and wealth concentrated at the very top -- and the top couldn't possibly spend all that they're gathering even if they wanted to -- they're the ones where almost all the saving is coming from. Under normal circumstances it would be good, but their savings are going around the world wherever they can get the highest return.
And 70 percent of the American economy is based on consumer spending; consumers just don't have the ability to continue to buy what the economy is capable of producing. So what do you get? You get an economy that is struggling to get out of the worst economic downturn since the Great Depression.
Q: Will this growing income inequality eventually lead to social unrest?
A: It's already close to that. The tea party movement and the Occupy movement both grew out of the bailout of Wall Street and the sense that many Americans had then and still have now that the game is rigged, that the wealthy have managed to get the goodies, the tax breaks and the subsidies. Now the tea partiers, their ire is directed at government, and the Occupiers directed their ire at Wall Street, but the underlying lack of confidence, distrust, anger is there right now.
The anger is coming directly out of the frustrations of so many people that they're working harder than ever, and they're still living essentially paycheck to paycheck.
Q: The AFL-CIO is forming alliances with non-union groups to reverse labor's waning power. The labor federation says its aim is to boost the middle class and improve wages. What's the future of organized labor?
A: The idea of making new political alliances is very smart and very important. In terms of organizing workers, low-wage workers at big-box retailers like Wal-Mart, retail fast-food chains like McDonald's, all of these workers need to be unionized. They're working at very low wages. They're not teenagers anymore. These people are mostly adults. One-third of them are heads of households. They cannot function at a minimum wage or near a minimum wage, and the rest of us end up subsidizing their employers through food stamps, in effect, and other safety nets.
We need to raise the minimum wage. If we had a minimum wage that was the minimum wage we had in 1968 adjusted for inflation, it'd be $10.40 today.
Q: How will record-low labor force participation rates affect future economic growth?
A: One reason the labor market participation rates are going down is baby boomers are retiring. A more serious concern is that you've got an increasing number of people who are too discouraged to look for work, not because they get generous safety nets and benefits. They want to work, would make more money in jobs. The conservative view that they are all sitting on their hands and collecting welfare is wrong. For one thing, we don't have welfare anymore. For another, there are now still three people looking for work for every job that exists. If they get discouraged looking for work, it's not because they have welfare; it's because there's not a job for them.
Q: Does company loyalty still exist?
A: Loyalty is dead. Nobody is looking to long term. It means every employee is looking over his or her shoulder at "What am I going to do if I get sacked? What is my next job?" Everybody is assuming they're a free agent and they can't count on their employer.
And it means that the employer can't count on the employees to go that extra mile. The employer can't count on the employee to work harder than that employee feels is justified by the salary and compensation and overall possibilities in that company. This is the story of the private sector in America today. Part of this is the relentless demands of Wall Street for short-term quarterly performance that has driven almost every company in this direction.
Q: What will the U.S. economy look like in five years?
A: If nothing changes, the median household is going to get poorer and poorer. The wealth of the country is going to get more concentrated, which is not only bad for the economy, but it's also bad for society. I'm optimistic only because this has happened before in American history. If we were having this conversation in 1900, we would say much the same thing. Then two years later, we'd be in the middle of the Progressive movement. How did we get from 1900 to the Progressive era? Frankly nobody knows how social upheaval of a positive kind that we have in the United States occurs, but it's very simple: We get to a gap where our ideal -- equal opportunity, a society based on merit -- is so far away from the reality that people just can't stand it anymore.