Labor Day Reads

Happy Labor Day!!

I read this poignant article from the Harvard Business Review last week but I wanted to headline it today because it is so true.  Labor really has no friends in America any more.  Both parties have realigned themselves to pander to the donor class. This is written by Professor Robert Martin.

Real wages for production and non-supervisory workers have declined since the mid-1970s.  The share of jobs that are unionized has plummeted back almost to the level it was before 1935 when the National Labor Relations Act (NLRA) facilitated a huge increase in unionization.  High unemployment has persisted in the jobless recovery. For those fortunate enough to have full time employment, job security is down, and pension and health benefits are shrinking. No trend for labor is positive.

Worse still, it is arguable that its longtime friend in Washington has abandoned traditional labor.  Throughout most of the 20^th century, labor could count on having the Democratic party squarely in its corner. President Roosevelt rode to the rescue of labor in 1935 with the NLRA to fight back against the corporations who were subjecting labor to hostile, dangerous, insecure and low-paying workplaces. Throughout most of the rest of the 20^th century, a Democratic presidential hopeful could not dream of winning the party’s nomination without gaining the endorsement of the President of the AFL-CIO – who always had a key speaking role at the Democratic Convention.

Meanwhile, the Republican Party battled on behalf of capital, supporting right-to-work states, deregulating industries, and lowering tax rates.  That was the 20^th century alignment.

It began to change at the end of the 20^th century. A key marker occurred in 1992 when President Bill Clinton signed into law a tax change that allowed only the first $1 million in CEO compensation to be deducted for corporate income tax purposes. It was supposed to discourage corporations from paying their CEOs more than what was then thought to be an excessive $1 million (imagine that!) – and failed spectacularly as they were given stock options instead, which made them wealthier than ever before.

But in whose favor was this measure intended? Labor?  Hardly. There was no obvious benefit to them.  Capital? Yes indeed. Shareholders were complaining about CEOs demanding ever-higher compensation – and the Democrats responded to help capital reign in CEO talent. Arguably the attention to the needs of capital has continued in the Obama administration. This administration featured enthusiastic embrace of the TARP bailouts of banks that protected their shareholders first and foremost and the continued low interest policies that favor capital owners.  Of course, the argument can be made that these policies help labor too, by avoiding a recession/depression. But the careful attention to capital first is a relatively new behavior for the Democrats.

Meanwhile, the Republican Party has increasingly shifted its allegiance to high-end talent, a tiny offshoot of labor that began to emerge around 1960.   During the Reagan era, for instance, they cut the top marginal income tax rate from 70% in 1980 to 50% just two years later. By 1988 it was 28%. In seven years, an executive earning a million-dollar salary went from keeping $340,000 after federal taxes to keeping $725,000. That’s quite a raise. (The marginal rate for labor — median-income families — fell only about 10% over the same time-span.)

We’ve really switched from celebrating hard work to celebrating businesses that gamble. There are many ways that you can tell that businesses are really killing themselves in the long run in order to deliver short run profits.  One of the most significant ways is the lack of R&D expenditures. That’s why it’s been an important public function. CEOS are no longer interested in anything that doesn’t deliver on high quarterly earnings. Here’s Bill Gates talking about the paltry investment in clean energy.

The demand for energy — be it solar, wind, clean coal, nuclear, or hydro — already far outpaces the amount we spend on technological innovations for the future of energy, and that demand is only continuing to grow more rapidly. The International Energy Outlook recently projected world energy consumption will increase by more than 50% by 2040.

Last week, Bill Gates wrote a post about needing “energy miracles.” He drew attention to some eye-opening statistics:

60% of the federal government’s R&D spending is on defense. About 25% is on health. Energy spending? 2%.

The US ranks 11th in overall percentage of the GDP that goes to energy research (Finland and China are the top two, respectively)

R&D spending on energy isn’t just a government problem. It’s also a serious problem in the private sector. The energy industry invests less than half of one percent (0.42%) of its revenue on research. In contrast, the pharmaceutical industry puts 20.5% of sales into R&D, and aerospace and defense spends 11.5%.

The US needs breakthroughs in clean energy in order to keep its economic engine running at full speed and to control future carbon emissions. So why does the federal government spend so little on research and development for innovations in this sector?

“People just have to understand that you don’t invest today and get a clean coal plant tomorrow, or cheap batteries at scale tomorrow,” said Margot Anderson, the executive director of the Energy Project at the Bipartisan Policy Center. “They take a lot of time, a lot of really smart people, a lot of money and private partnerships that develop.”

Again, the political donor class explains a lot of policy priorities. Steve Denning of Forbes asks why economics puts so much focus on profit maximizing business.  But, it doesn’t necessarily focus on maximizing profits by slashing costs, reducing service to customers, and not investing in innovation.  That seems to be a focus more on pleasing Wall Street Investors and CEOS. Actually, this “dumbest idea” came from Milton Friedman and is not the universal focus of all economists. But, the idea of “maximizing shareholder value” comes from the finance side of things but still from the Chicago School.

I reported earlier this month that the Financial Times published a pair of important articles asking why the goal of a firm is to maximize short-term shareholder value is still being taught in business schools.

“While there is growing consensus that focusing on short-term shareholder value is not only bad for society but also leads to poor business results, much MBA teaching remains shaped by the shareholder primacy model.”

The challenge is massive because shareholder value is now deeply embedded in the basic economics that is taught in business schools and economics faculties around the world. Moving on from the shareholder value theory, which even its foremost exemplar, Jack Welch, has called “the dumbest idea in the world”, will entail re-thinking and re-writing much of the basics of modern economics.

If you want a way to take action against underpaid labor, try eliminating fast food from your diet.  Subway leads the fast food industry in underpaying workers.  That’s a good place to start or stop as the case may be.

McDonald’s gets a lot of bad press for its low pay. But there’s an even bigger offender when it comes to fast food companies underpaying their employees: Subway.

Individual Subway franchisees have been found in violation of pay and hour rules in more than 1,100 investigations spanning from 2000 to 2013, according to a CNNMoney analysis of data collected by the Department of Labor’s Wage and Hour Division.

Each investigation can lead to multiple violations and fines. Combined, these cases found about 17,000 Fair Labor Standards Act violations and resulted in franchisees having to reimburse Subway workers more than $3.8 million over the years.

It’s a significant sum considering many Subway “sandwich artists” earn at or just above the minimum wage of $7.25 an hour.

The next most frequent wage violators in the industry are McDonald’s (MCD)and Dunkin’ Donuts (DNKN) stores.

Is there really much to celebrate about Labor Day given the maltreatment of the American worker throughout most industries? 

Today, America finds itself in a position of incredible challenge. Half of all Americans now make less than $15 an hour. Of the 10 fastest-growing jobs in America, eight are service sector jobs that pay $15 an hour or less.

Service sector jobs are the heartbeat of our economy and our communities, from the folks who care for the elderly and our children, to those who cook and serve our food, to those who clean and secure our offices. Moving our economy forward must include making service jobs into good jobs with wages that you can raise a family on.

That’s why this Labor Day, the American people are sparking a new movement, joining together for an economy and democracy that works for everyone.

Fast food workers have joined together to fight for $15 an hour. They have been joined by home care workers who are calling for $15 an hour for all caregivers. Just last week 27,000 Minnesota home care workers joined together in union, determined to raise wages and fight for quality home care for our seniors.

Working people in Seattle fought for and won a $15 minimum wage for 100,000 people, and other cities are poised to do the same. Across our nation adjunct professors, airport workers, security officers, hospital workers, Wal-Mart workers and other service sector workers are standing up and sticking together.

All told, 6.7 million workers have achieved better pay since fast food workers began striking less than two years ago, either through states or cities moving to raise minimum wages or through collective bargaining. These brave workers are building the momentum to raise wages and get our economy roaring again.

Yet the prosperity of our nation and growth of our economy depend not just on economic justice. A vibrant economy cannot exist without vibrant American communities steeped in the fundamental American principles of liberty and justice for all.

Richard Reeves suggests we call it “Reagan Day” because Labor in American has changed radically since Reagan dealt with PATCO.

I woke up last Thursday morning to learn that my FedEx man does not work for FedEx. Voices on National Public Radio’s “Morning Edition” informed me that although FedEx controls just about every minute of its drivers’ days, the corporation regards them as “independent contractors.”
Thus, no benefits—they even have to pay for their own uniforms—and the workers can be kicked out anytime FedEx feels like it.

This was five days before Labor Day, the 120-year-old holiday that, according to the Labor Department, is “the first Monday in September, a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contribution workers have made to the strength, prosperity and well-being of our country.”

Nice words, written after 10,000 workers marched in an 1882 “Labor Day Parade” and celebrated in a New York City park. That’s what we pretend to celebrate even though it no longer exists for FedEx guys who are no longer “workers,” but are now “contractors” or “involuntary entrepreneurs.” Outsourced Americans. You could lump them with the franchisees of fast-food outlets. A corporation makes all the rules, avoids paying all the benefits and passes on the risk and liabilities to the franchisees. Got bad milk? Your problem.

Like many “workers” of my generation, I have been there and done that. I am a member of three unions: the Newspaper Guild, the American Federation of Television and Radio Artists and the Screen Actors Guild. Although it was run by as dumb a group of folks that ever gathered, I am forever indebted to the Newspaper Guild. I was working for a nonunion paper, the Newark Evening News in New Jersey, for $60 a week when I was hired by The New York Herald Tribune, a union paper that paid me $163.60 a week. I could buy a house and I did. I went to The New York Times, a union paper, which started me at $230 a week with loads of benefits and overtime. Then there came a day when I was promoted to management, chief political correspondent, with a salary of $23,000 a year in 1971. But there was no overtime, and I was taking home less than I had as a “worker.”

So it goes. Management, of which I was then a part, had begun to understand how to squeeze workers and their unions. By 2013, fewer than 10 percent of private-sector employees belonged to unions, compared with 20 percent in 1983 and more than 50 percent in the 1950s. Result: Wages have stagnated, spouses have gone to work, strikes have been broken. Now more than half the unionized workers in the country are public service employees, who have better and more complicated work rule regimes than corporate employees.

So, I would argue, Labor Day is a farce.

It’s possible.  But, at least I still get to enjoy the day off.

What’s on your reading and blogging list today?