The ongoing Hollywood writers and actors strike is a clash of ideologies as much as a clash of interests. The unions representing the writers and actors are seeking to cut their members in for more, depending upon the success of the TV shows and movies for which their members write and in which they act. Specifically, the unions are seeking greater participation in profits through larger and expanded increases in residuals. On the other side, the studios are willing to pay increased compensation, but are resisting what they consider to be an incursion into the preserve of the owners -the stockholders - namely, the profits of the business. However, this conflict plays out, it illuminates a broader struggle between labor and capital as the income of US workers has remained stagnant for over 44 years while capital returns have been rising at an accelerating rate.
An increasing percentage of US wealth is flowing to capital (financial investors) not labor (employees and independent contractors). This decline in labor’s share has accelerated since 2000. From 2000 to 2016 alone, the percentage of GDP going to labor versus capital decreased from 63% to 56% (BLS), a precipitate decline even as GDP itself grew by 39%.
This long-term trend has led to stagnant wage gains after inflation for the average American worker since about 1980. Income inequality is associated with wealth inequality. In the US, the top 10% of earners held 68% of the country’s total wealth while the lowest 50% held just 3.3%. Companies have chosen to “share” their capital accumulation with shareholders through stock buybacks to the tune of $4.4 trillion since 2008, rather than sharing with employees through higher wages. Moreover, labor’s input to production is rewarded by wages which are treated as income, subject to a much higher tax rate than are capital gains from capital’s contribution to production.
The causes have been attributed to the impact of globalization, new technologies, market consolidation and the hollowing out of unions (which reached a high of 35% of private sector workers in the 1950s and has since plummeted to only 6% today).
The impact of this shift from labor income to capital income has been increasing income inequality, a reduction in consumer purchasing power needed to fuel the economy and a slowing of income growth. The declining standard of living for workers is at least partly to blame for political polarization, gridlock, distrust of democratic institutions, and social discord.
Writers and Actors Strike
The current Hollywood writers and actors strike against the studios illuminates the trend. A central issue in the bargaining has been that the Writers Guild of America (WGA) and Screen Actors Guild-American Federation of Television (SAG-AFTRA) are seeking an increase in “residual” payments. Residuals are royalties paid to an actor or writer for the future use of their work such as reruns or future airings after the initial release. The unions also seek residuals from the showing of their work on streaming platforms such as Netflix, Amazon Prime, and Hulu, which are rapidly becoming the dominant distribution platforms for TV shows and movies.
This is essentially an effort to share in a capital asset which the studios envision as within their entitlement, so they are pushing back. Although residuals are a form of deferred of income, they can also be seen as a return on non-financial artistic investment in the production with an uncertain pay off in the future dependent upon how the public receives the production and how the production is promoted by the studios. Residuals are also referred to as secondary profit participation in various arrangements. Of course, many special residual arrangements are made by a sub-group of famous or well-paid actors and writers. Several of these “stars” like Dwaine Johnson, Robert DeNiro and Merrill Streep, have contributed $1 million or more to the actors’ Emergency Fund, in recognition of the chronic low income conditions the majority of actors face.
In seeking increased residuals, the writers and actors are arguing that their creative work is indeed an “investment” as much as money is an investment in the production of a show. In addition to seeking the usual demand for increased wages and benefits, the actors and writers unions are seeking a return on their “sweat equity” writing or performing skills.
Since the unions see the traditional pay and benefit model for bargaining as inadequate, these workers are looking for an additional source of income, namely, future earnings. The writers and actors believe they are entitled to the value of their original work input realized over the long term, similar in nature to what a “capital” investment can produce. They argue that because their work is sent into the current of commerce, it ought to pay off multiple times their initial investment of their labor and can produce a long-term stream of income, similar to a capital investment. This objective has been prioritized for writers in light of the potential of Artificial Intelligence to fashion derivative screenplays from the original work without consulting with or paying the writer, a result made possible by the fact that the studio, not the writer, holds the copyright to the work. A similar concern for actors exists where their likenesses are reproduced by digital imagery.
The unions’ effort to capture the downstream rewards of such an investment of their work time and creative effort is unusual. Workers rarely chose to invest in companies rather than seeking increased pay because of the risk and need for immediate compensation. Workers generally would rather have a larger weekly paycheck and higher employer contributions to health care or pensions than risk that their work product would be successfully re-used in the future. Most employees including writers and actors, prefer to receive the maximum pay for their labor at the time their labor is performed rather than risking an uncertain payoff sometime in the future. Here, the unions appear to be willing to trade-off or at least to de-emphasize current earnings for a potential future pay-off. The union’s sacrifice of increased up-front pay could justify their contention that they are also contributing sweat equity to the production and expect a bigger share of the residual. If they are fully paid up front, there is less justification for delayed payment. Ultimately it is a matter of bargaining power.
The studios, represented by the Alliance of Motion Picture and Television Producers (AMPTP, composed of the leading movie studios, TV networks and streaming services) perceive the unions’ demands as a payment for work which was previously paid for when initially performed (written or acted). They see residual payments as redundant or double pay, even though they have agreed in previous rounds of bargaining to a residual, but at a lower level. The studios see reruns and streaming as their right to a return for their overall investment in a production. The studios pay the upfront costs and hope for large rewards in the future. Therefore, they resist the unions’ attempt to capture an increasing share of the future value of their work.
The studios’ position reflects the notion that residuals are a way to capture a future stream of earnings that rightly should be retained by them. Revenues from reruns and future distributions are a return on investment, part of which is the pay already provided to industry employees including the actors and writers. The unions’ seeking additional residuals (including from streaming platforms) breaks the invisible line separating companies’ legitimate entitlement to capital accrual from labor’s entitlement to compensation for work performed.
While Hollywood stars and top writers are in a position to leverage their skills to obtain a “piece of the action” (percentage of profits) their effort has been traditionally resisted by the studios. This is so even though such participation might produce a better product or less net pay for an actor’s performance or writer’s product and a sharing of the risk of future earnings.
It is interesting to note that Broadway playwrights retain 100% of the rights to their works no matter how many times they are shown. Of course, playwrights work alone, do not have an employment relationship with theaters, and generally do not alter their works once completed. This contrasts with TV and movies which are usually originated and revised by groups of writers and may change over time, as new episodes or versions of the original are produced. Hollywood writers effectively gave up their entitlement to exclusive rights to their works in return for employment rights and the protections of collective bargaining.
Another model of sharing rewards is the book publishing business, where authors are provided upfront payment, which is repaid from the book’s revenues from sales, and royalties are divided between the writer and publisher.
Actors and Writers as “Gig” Workers
One concern in the parties’ bargaining is that the writers and actors are increasingly separated from their customary connections to the studios as reliable sources of work. This is so because of the proliferation and globalization of production and distribution vehicles. Writers and actors feel like itinerant workers, “independent contractors”, untethered and unprotected from their legal and beneficial protections as “employees.”
Actors and writers are employees covered by the protections of the National Labor Relations Act (a status initially resisted by the studios) who can be (and generally are) represented by unions and are subject to the terms of the collective bargaining agreement (CBA) between the union and the studios. However, if the writer or actor works for a non-signatory production company, he/she is no longer covered by the terms and conditions of the CBA. Whether or not they are working for a union studio, writers and actors have no seniority-based employment guarantees and often move around from company to company. They are generally more project oriented than connected to a single company. Since writing and acting assignments are typically of short duration, the writers and actors may work at a variety of production companies during the course of a day, month, or a year. They may even be paid for multiple jobs they perform during the same time period. Some even play multiple roles in the same production, as for instance, actor/director or writer/producer.
When working for a non-signatory production company, the writer or actor becomes similar to a “gig” worker (“freelancer” or “independent contractor”). Gig workers typically are not “employees” of a single company, but rather provide their labor to multiple employers. They negotiate their own terms of employment.
According to the Department of Labor’s Bureau of Labor Standards (BLS), gig workers currently represent about 36% of American workers, and will increase to more than half the workforce by 2027. Workers come to gig work voluntary or involuntary. This increasingly dominant percentage of the workforce trades financial, health and job security for the independence, mobility, and flexibility of gig work as well as the access to multiple sources of income.
However, gig workers are also insecure and vulnerable. They do not work 40 hours a week in exchange for a steady income provided by their employer. They lack many of the benefits and legal protections given to employees. These protections generally include meaningful health insurance coverage, medical leave, workers compensation, base pay and overtime rules, and the right to collectively bargain.
Indeed, one of the major strike issues identified by the Writer’s Guild in light of the increasingly shorter and more intermittent duration of writing assignments in a streaming environment is that its members are at risk of being converted from professionals with career expectations into a status akin to gig workers with no lasting connection to their work. This fear was articulated by the WGA Negotiating Committee in a communication to its membership at the outset of the strike:
Though we negotiated intent on making a fair deal — and though your strike vote gave us the leverage to make some gains — the studios’ responses to our proposals have been wholly insufficient, given the existential crisis writers are facing… The companies’ behavior has created a gig economy inside a union workforce, and their immovable stance in this negotiation has betrayed a commitment to further devaluing the profession of writing.[1]
Businesses realize savings by hiring gig workers for specific or limited time expertise or “deliverables.” They also save on reduced administrative overhead, payroll taxes, and a myriad of other costs for non-salary benefits. However, businesses sacrifice cohesiveness, loyalty, availability, reliability (for retention and promotions) and, as indicated above, professionalism inherent in a legitimate corporate culture.
Conclusion
We should be devising and incentivizing approaches to moderating the concentration of wealth and income inequality in order to enable workers to derive income from direct participation in our economy, while recognizing its risks. Employee stock ownership plans and cooperatives are promising approaches for the long term, especially if provided tax incentives. The writers’ and actors’ unions, in seeking increases in residuals (including residuals from the streaming platforms) are insisting on obtaining a “piece of the action” -- or capital accrual. In their apparent willingness to forego present higher pay for uncertain future payoffs, they seem to be seeking to share in the strength of capital appreciation and lessen dependence on the decreasing returns to labor. The current negotiations will end when both sides present more balanced proposals that recognize each others’ legitimate interests. If unsuccessful, the clash in Hollywood will eventually spill over to a kind of class warfare that will not likely be as amenable to compromise.
[1] Hollywood’s Writers Are on Strike. Here’s Why That Matters., Alissa Wilkinson, Vox, July 13, 2023.
