Labor Law That Would Support Organizing in Today’s Economy

Apr 3, 2014Richard Kirsch

This is the fifth in a series of posts summarizing a new Roosevelt Institute paper report by Senior Fellow Richard Kirsch, entitled the "The Future of Work in America: Policies to Empower American Workers for and Ensure Prosperity for All." The paper report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class.

This is the fifth in a series of posts summarizing a new Roosevelt Institute paper report by Senior Fellow Richard Kirsch, entitled the "The Future of Work in America: Policies to Empower American Workers for and Ensure Prosperity for All." The paper report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class. Today’s post outlines possible policy solutions to several major challenges to organizing workers in today’s economy. Over the next year, the Future of Work project will be exploring many of these ideas in depth. Their inclusion here is to begin surfacing ideas, rather than as final recommendations for reform.

For decades, organized labor has supported federal legislation that aims to correct the imbalances in the NLRANational Labor Relations Act (NLRA), which favor employers and block unionization. The most recent push was for the Employee Free Choice Act (EFCA), which President Obama supported when he ran in 2008. However, in the face of threatened filibuster in the Senate by Republicans and a handful of Democrats, the President never made the issue a priority.

The list of potential reforms to the NLRA is as long as the law’s weaknesses. The top priority inof the EFCA was requiring employers to recognize a union once a majority of workers in the workplace had signed a card supporting the union. Card check elections could be expanded to include mail ballots and confidential on-line ballots as methods for demonstrating support from a majority of workers.

Other potential policies focus on leveling the playing field in union elections. Employers could be required to allow union representatives to have access to workers on the employer’s premises and be given equal time to speak to employees, when equal to the time employers spend campaigning against unionization.

Other reforms would create meaningful disincentives for employers, such as substantial penalties for retaliating against workers, rather than the current virtually meaningless penalty of requiring employers to provide back pay. Employers could also be prohibited from hiring replacement workers during a strike or lockout. Indeed, lockouts could be outlawed altogether.

While the reforms above are aimed at correcting long-established imbalances in labor law, other polices would tackle a big challenge in today’s economy. The nation’s biggest employers, fast-food chains and big box stores, have thousands of locations, each with a relatively small number of workers. Organizing these huge employers could be facilitated by allowing bargaining at multiple worksites. This would give unions the right to define the boundaries of bargaining units, either combining the units that exist within a single corporation or bringing together workers who labor for multiple employers within the same industry.

Another approach would require the creation of multi-employer consortia for the purposes of bargaining, allowing for workers to organize for better wages and working conditions in an entire industry.

Another policy would expand the use of hiring halls to a number of industries, potentially modeled after the construction industry. In construction, union members typically work on short-term jobs for multiple employers. These construction workers are hired through union hiring halls, and they receive health and retirement benefits from a multi-employer insurance fund administered jointly with the union.

To build on this model, employers in other industries could be required to hire workers through hiring halls, run by worker organizations. Employers would be required to pay into a fund run by the worker organizations, which would administer portable benefits - – including health coverage, retirement accounts, and earned sick days, family leave, and vacation - – earned by individual workers through their work with multiple employers,

Another transformational policy would be to end the requirement that a union win majority recognition in a given bargaining, with the responsibility to represent all the workers in that unit. Instead, unions would could be allowed to represent only those workers who choose to join the union. Members-only unions could operate across numerous employers within an industry, within a region or across a supply chain. Repealing exclusive representation would allow members-only unions to collectively bargain for their members and to represent only their members in grievances with their employers. A hybrid system would allow members-only unions to function until such time that a majority of workers vote to establish a union with the responsibility of exclusive representation.

In today’s economy, many workers are employed by companies that are largely or wholly dependent on huge companies that drive national and global supply chains. Labor policies must enable workers to seek decent wages and working conditions from those big companies, even if they do not work for them directly.

Companies like Walmart often contract with warehouse companies that almost exclusively handle Walmart-bound products. Policy changes to hold a dominant employer accountable for the companies that it effectively controls, would make a company like Walmart accountable for the conditions in those warehouses and require them to bargain with the warehouse workers. Similarly, it is common in the garment industry for a major retailer to require garment factories to produce items to the retailer’s specifications. The major company would be held accountable to the workers in those subcontracted garment factories. The dominant employer would be responsible if the controlled company violates labor laws, including labor standards, worker organizing and occupational safety and health protections.

Another approach would be to address the now-common practice of employers misclassifying workers as “independent contractors” in order to reduce compensation costs to employees and to exclude those workers from federal labor law protections. If workers are misclassified, all of the employers up the supply chain could be held legally responsible. Anti-trust and labor law should be changed to remove any barriers to worker organizations reaching agreements with a dominant employer that would apply to other firms in the supply chain.

Restoring the right to organize boycotts or strikes of companies in the supply chain, would be another tool for unions to pressure companies upstream or downstream from the company being organized.

Taken together, these measures would level the playing field for workers who now face a huge economic and legal imbalance as they seek a fair share of the enormous wealth being produced by huge, global employers.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Daily Digest - April 3: Once Upon a Time There Was No Safety Net

Apr 3, 2014Rachel Goldfarb

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Faith in Values: The Conservative Fairy Tale About Government (CAP)

Click here to receive the Daily Digest via email.

Faith in Values: The Conservative Fairy Tale About Government (CAP)

Sally Steenland draws on Roosevelt Institute Fellow Mike Konczal's argument against "the voluntarism fantasy" to argue for the strength of the progressive narrative, in which government and private entities work together to help society.

  • Roosevelt Take: Mike debunked the idea that private charity could take the place of government in fighting poverty in Democracy Journal.

The Supreme Court’s Ideology: More Money, Less Voting (The Nation)

Connecting the dots between yesterday's decision in McCutcheon v. FEC and other recent decisions on voting and campaign finance, Ari Berman says that the same groups are favoring secret money and voting restriction.

  • Roosevelt Take: Jeff Raines, Chair of the Student Board of Advisors for Roosevelt Institute | Campus Network, argued in October that McCutcheon was really about how much influence we allow the wealthiest Americans to have over our elected officials.

Will Disclosure Save Us From the Corrupting Influence of Big Money? (TAP)

Paul Waldman raises the question of whether campaign finance disclosure is enough to limit political corruption, because he thinks the courts could one day use disclosure as justification to eliminate all contribution limits.

Are The Views Of America's Wealthiest Undermining Democracy? (Forbes)

A new study on the opinions of the top 0.1 percent of Americans shows that they hold substantially different political views, and their high rate of campaign contributions may mean those views get more attention from policymakers.

A Union Aims at Pittsburgh’s Biggest Employer (NYT)

Steven Greenhouse reports on the Service Employees International Union's efforts to unionize the University of Pittsburgh Medical Center, where workers say great benefits don't matter when they can't afford the health insurance.

New on Next New Deal

Labor Law that That Would Support Organizing in Today’s Economy

In the fifth piece in his series on his new report on labor reform, Roosevelt Institute Senior Fellow Richard Kirsch begins to lay out some of the possible ways to strengthen labor laws.

Taking on Big Business Wage Theft

Harmony Goldberg, the Program Manager for the Roosevelt Institute's Future of Work Initiative, argues that government needs to strengthen enforcement and change laws so that workers aren't forced to sue in order to get their fair wages.

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Taking on Big Business Wage Theft

Apr 2, 2014Harmony Goldberg

Lawsuits show that the fight against wage theft is heating up, but workers shouldn't have to sue their employers to get paid what they're owed.

Lawsuits show that the fight against wage theft is heating up, but workers shouldn't have to sue their employers to get paid what they're owed.

Despite the extensive press coverage of the fight of fast-food workers for a $15 hourly wage, one recent development hasn’t gotten much attention: fast food workers around the country have started to win significant wage theft lawsuits against McDonald’s franchisees, to the tune of hundreds of thousands of dollars. These lawsuits raise an important question: How has McDonald’s been able to get away with stealing hundreds of thousands of dollars from low-wage workers? The answer is straightforward. Our system for enforcement has been so severely weakened that many employers are able to regularly violate workers’ basic rights. And the law itself is broken. Its structure allows corporations like McDonald’s to escape responsibility for the conditions in their workplaces.

In February, student guest workers won a lawsuit that charged a McDonald’s franchise in Pennsylvania with wage theft. They had been paid sub-minimum wages, denied overtime pay and charged exorbitant prices for company housing. The Department of Labor required the franchise to pay $205,977 to both guest workers and native-born workers at the franchise. This victory was rapidly followed by a wave of other lawsuits around the country.  

Last week, McDonald’s workers in three cities launched highly publicized cases charging the corporation with wage theft. These workers had experienced many types of wage theft. The workers in California claim that they were not paid for overtime work. In Michigan, workers are asserting that they were required to show up for work but were not allowed to clock in. Workers in New York allege that were not compensated for the time they spent cleaning their uniforms, required to do work off the clock and not paid overtime. The New York suit was almost immediately successful. Last week, seven franchises agreed to settle for almost $500,000.

McDonald’s workers are not alone. Wage theft has become a widespread problem in low-wage industries in the United States. An influential study found that more than two-thirds (68 percent) of workers had experienced some form of wage theft in their previous week of work: they were paid below the minimum wage, not paid for overtime, required to work off the clock or had their breaks limited. An organization of fast food workers in New York City surveyed workers and found that 84% of workers had experienced wage theft in the last year.

Addressing wage theft will take a two-pronged solution: rebuilding the enforcement system in the U.S., and cutting through the smokescreen of subcontracting and franchising to hold employers responsible for the wages and working conditions in their workplaces. 

The enforcement regime in the United States has been significantly weakened over the last several decades. There has been an overall downward trend in funding for the Department of Labor. The number of labor inspectors had plummeted for years. The Obama administration has added new inspectors, but not enough to make up for the long-term decline. Meanwhile, the number of workers who need protection has grown. This pattern has to be turned on its head. If rampant wage theft is to be stopped, we need to radically increase the number of labor inspectors on the ground.

But – as Annette Bernhard points out in a new paper – increased funding is not enough. The enforcement system that we have is not well structured to deal with our current economy. It must be transformed. The penalties for employers who violate workplace regulations must increase. Enforcement agencies should partner with organizations like unions and worker centers that are in daily contact with workers. These organizations can educate workers and employers about workplace regulations, and they can provide an ear to the ground to help identify violators.

Even a radical transformation of the enforcement regime will not be enough in today’s economy. We need to change the law to deal with changes in the structure of employment. Right now, McDonald’s is structured so that the franchise owners are technically considered to be the employers. They are held legally responsible for wage violations in their stores, leaving McDonalds itself off the hook. Both recent legal victories charged franchise owners rather than the McDonald’s corporation itself. McDonald’s is shielded from blame while it continues to reap the majority of the profits that come from mistreating workers.

We need a new definition of what it means to be an employer. The current definition makes it impossible for workers to hold their corporate employers – the ones who are setting the real terms of their work – responsible. The two remaining McDonald’s wage theft cases target both the franchise owners and the McDonald’s corporation itself. That challenges the narrow definition of employer, which limits responsibility to the franchise owner. The time has come for the law to be changed. All employers - from the front-line employers up to top of the employment chain – should be legally recognized as such so they can be held accountable for the conditions in their workplaces.

Wage theft that has become an endemic problem in today’s economy. Low-wage workers should not have to turn – again and again – to private lawsuits as a solution. They deserve the basic right to be paid for their labor. To get there, we need full funding and comprehensive reform of the enforcement system in the United States, and we need legal reforms that hold central employers responsible for the conditions in their workplaces. 

Harmony Goldberg is the Program Manager for the Roosevelt Institute's Future of Work Initiative.

Photo copyright Annette Bernhardt, via Creative Commons license.

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The Challenges to Organizing Workers in Today's Economy

Apr 2, 2014Richard Kirsch

This is the fourth in a series of posts summarizing a new Roosevelt Institute paper report by Senior Fellow Richard Kirsch, entitled "The Future of Work in America: Policies to Empower American Workers and Ensure Prosperity for All." The report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class.

This is the fourth in a series of posts summarizing a new Roosevelt Institute paper report by Senior Fellow Richard Kirsch, entitled "The Future of Work in America: Policies to Empower American Workers and Ensure Prosperity for All." The report provides a short history of how the rise and decline of unions and then explores reforms in labor policy to empower American workers to organize unions and rebuild the middle class. Today’s post identified the major challenges posed by the changes in how employment is structured, which new policies must address.

When you consider what it would take, under American labor law, to organize the nation’s biggest employers, you understand the huge challenge unions face to organize workers and win a fair share of the nation's economic progress.

Today, the largest employers in the country (Walmart, McDonalds and Yum Brands – owner of major fast-food chains like KFC and Pizza Hut) – employ a small number of workers, primarily low-wage, at each of their thousands of locations. Walmart - which employs approximately 300 workers at each location - is the largest of these. Unions would need to collect the signatures of half of the workers at each of thousands of locations, so organizing a major share of the company’s employees is daunting.

After a union did get the support of a majority of workers at any location, the company could warn its employees against voting for the union while they were on the clock, but the union would need to find and talk to each employee outside of work. The only penalty the company would face for firing union activists or supporters would be to pay back-pay, a nominal amount when wages are so low, and only after a protracted regulatory and judicial process.

Of course, since many of the workers are part-time, job turnover is very high. As a result, the longer the store succeeds in delaying an election, the more workers will turn over, requiring the union to continually organize new crops of workers to win a simple majority. If the workers won the election and the store refused to negotiate in good faith, it could prolong the talks until only a few of the original workers remained. If workers did strike, the store could hire replacement workers and wait longer. Or they could decide to close the store – as Walmart did in Canada – because the loss to the company of one outlet among thousands has virtually no impact on its bottom line. And if by some miracle a union organizing effort was successful, the union would represent only the one store that employed only a fraction of the corporation’s workforce, making it difficult to influence broader industry standards.

When we look at the job categories that are adding the most workers today we see the same story. The organizing challenges of two groups of workers - retail sales and fast food - are captured in the discussion above. We also find other obstacles. Only one of the six job categories with the most job growth – registered nurses – has historically been represented by unions. A substantial share of workers in two other growing categories – home health aides and personal care aides – are not covered by the NLRA, whether because they work for the person they are assisting or because they are categorized as independent contractors.

We can group the major challenges facing labor organizing and policy into five categories:

Current labor law is tilted against unions. There are virtually no strong incentives for employers to recognize unions or to reach bargaining agreements. Government is ineffective in enforcing the laws on the books and powerful tools that unions might use to gain more power in the economy are prohibited.

Only a relatively small number of workers are employed at one site. As we described above, organizing workers at many of the nation’s large corporations now requires successful campaigns at thousands of worksites.

Industries are typified by diverse, global supply chains, in which a major corporation that sells goods to the public does not directly employ many of the workers who produce its products. As a result, the employer that is driving the price for the good or service being delivered is shielded from legal responsibility for the conditions of work, the compensation paid to many of the people who make the good or deliver the service, and responsibility for responding to unionization efforts.

Labor law does not cover many workers. Approximately one-in-four workers are not covered by the NLRA or other labor laws. These include domestic workers, farmworkers, supervisors and independent contractors.

Corporations have become much more powerful than unions and often more powerful than governments, making decisions that determine people’s well being and shape the national and global economy. Corporations use their power to cut wages and benefits, including by subverting labor laws.

A major goal of the Future of Work Initiative is to envision policies to address these challenges, in order to create a society of broadly shared prosperity. We seek policies to both reform and transform American labor law and policy. In the final two posts in this series, we will describe a wide variety of policy ideas to address the five major challenges listed above.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Daily Digest - April 2: Winning the Fight Against Inequality

Apr 2, 2014Rachel Goldfarb

Click here to receive the Daily Digest via email.

5 Facts About Women’s History That Will Keep You Fighting (MTV Act)

Danica Davidson talks to Roosevelt Institute Senior Fellow Ellen Chesler about some of the most incredible accomplishments in women's history and the still-unfinished work of the feminist movement.

Click here to receive the Daily Digest via email.

5 Facts About Women’s History That Will Keep You Fighting (MTV Act)

Danica Davidson talks to Roosevelt Institute Senior Fellow Ellen Chesler about some of the most incredible accomplishments in women's history and the still-unfinished work of the feminist movement.

Paul Ryan’s Budget: Even More Austerity (MSNBC)

Cuts to Medicare and Medicaid will get more attention, but Suzy Khimm points out that Paul Ryan has proposed dramatic cuts to discretionary spending, including Pell grants and other programs targeted at low-income communities.

The Myth of Working Your Way Through College (The Atlantic)

A graduate student at Michigan State University has examined the data, reports Svati Kirsten Narula, and the costs of a year's tuition alone now exceed what a student could make working full-time at minimum wage.

Good News! Janet Yellen Speaks English, Not Fedspeak (The Nation)

William Greider praises the new Federal Reserve chair for her clarity when speaking to the public about the economy. He says she didn't dumb anything down while asserting the Fed's plans to support job creation.

New on Next New Deal

Why Inequality Matters and What Can Be Done About It

In his remarks to the Senate Budget Committee yesterday, Roosevelt Institute Chief Economist Joseph Stiglitz discussed the relationship between policy and inequality, calling on the senators to take action.

The Challenges to Organizing Workers in Today's Economy

In the fourth post in his series on his new report on labor reform, Roosevelt Institute Senior Fellow Richard Kirsch lays out the difficulties facing labor organizing today.

Reducing Flood Risks is Worth the Effort – and the Savings

Melia Ungson, Roosevelt Institute | Campus Network's Senior Fellow for Energy and Environment, writes about the Community Rating System, a program that encourages communities to reduce flood risks in exchange for lower insurance premiums.

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Reducing Flood Risks is Worth the Effort – and the Savings

Apr 1, 2014Melia Ungson

Programs aimed at cutting flood insurance premiums by reducing risk have their pluses and minuses, but the positives deserve strong consideration from local governments.

Programs aimed at cutting flood insurance premiums by reducing risk have their pluses and minuses, but the positives deserve strong consideration from local governments.

FEMA administers the National Flood Insurance Program (NFIP) to make flood insurance available to many communities, as most standard home and property insurance policies do not cover losses from floods. In 2012, Congress passed the Flood Insurance Reform Act of 2012, which called on FEMA to raise flood insurance rates so that they better reflect flood risk. This has spurred concerns about people’s ability to afford flood insurance and maintain property values.

One program that strives to help make flood insurance more affordable and encourage communities to reduce flood risk is the Community Rating System (CRS), which began in 1990. Communities that participate in CRS receive a discount on flood insurance premiums. The more a community does to reduce flood risk, the larger the premium reduction. According to FEMA, CRS has three main goals: to reduce flood damage to insurable property, to strengthen the insurance aspects of the NFIP, and to encourage a more comprehensive approach to floodplain management.

CRS is a points-based system, where 500 points is required for participation. A community can earn CRS points by taking on actions from an approved list. These activities are broken up into four main categories (public information, mapping and regulations, flood damage reduction, and flood preparedness), and include everything from disseminating brochures with flood hazard information to developing mapping information.

Based on the number of points accrued, communities are assigned to one of ten CRS classes. Class 10 is for those who are not participating or who have less than 500 points. Class 9 communities, with 500-999 points, receive a 5% reduction, and Class 1 communities, with 4,500 points or more, receive a 45% reduction. The increasing reductions create incentives for communities to expand flood protection activities.

Despite the benefits, CRS communities represent only about 5% of the communities in the NFIP. Most communities that participate in CRS fall between Class 5 and Class 9. In New England, most participating communities fall between Class 7 and Class 9. Improving class takes time and resources, but for a program that has been around for nearly 25 years, there are surprisingly few communities at the top classes. Roseville, California is the only Class 1 community, inspired to take on the CRS after devastating floods, and its 45% reduction saves residents an average of $792 per plan. Additionally, only three communities have achieved a Class 2 rating. Tulsa, Oklahoma, which has creeks that cause flooding, saves residents an average of $514 per plan. Unincorporated King County, Washington, which focused on preserving floodplain open space, saves residents an average of $586. And Pierce County, Washington, which focused on public information, saves residents an average of $550.

Beyond premium reductions, FEMA argues the program has other benefits. These include improving public safety and awareness, facilitating easier comparison and evaluation with a standardized classification system, providing technical assistance, and focusing on maintaining measures to reduce risk.

Indeed, CRS does have major benefits, not least of which is the reduced premium. With the incentive to reduce flood risk, the program balances recognizing the real risks and costs of living in areas with flooding dangers, and also trying to make those communities more prepared and resilient. Acquisition and relocation are incentivized through CRS with high point rewards, as is preserving hazardous flood areas as open space, though the bulk of the program’s actions focus on reducing risk in areas that will remain inhabited. Additionally, FEMA offers free training for local officials and makes emergency management specialists available to support CRS applications.

However, the very low number of NFIP communities that participate in CRS suggests that there are obstacles to applying for and maintaining CRS status. Despite Tulsa’s success in CRS, overall interest in the program has been declining in Oklahoma, as local officials weigh the benefits and costs of implementing CRS. A major issue is limited local capacity. Communities that are already struggling to stretch budgets and personnel may not be able to take on the additional work required by CRS to benefit residents living in flood zones. This may be particularly problematic in cases where the residents of flood zones are those who are struggling with the added costs of flood insurance and are most in need of the premium reduction. Since individual residents cannot take steps to gain points, the community must rely on local officials to prioritize CRS.

Furthermore, upgrading levels is difficult and takes time. King County, for instance, went from being Class 10 when the program started in 1990 to Class 9 in 1992. It then took 15 years to work up to Class 2. That long time horizon may be discouraging to getting communities to apply. A 5% discount may not seem like much in comparison to the time and work required for a class upgrade, so communities may postpone their participation until they accrue enough points for a larger reduction.

Lastly, the number of communities participating, and especially the number of communities in the top classes, suggests that there may be a gap between national standards and local capacity. Though the cost of implementing CRS varies, communities have reported costs ranging from $10,000 to $20,000 and above, largely for disseminating information and developing maps. Some communities may be hesitant to proceed too far along with CRS, as it poses restrictions on development, such as elevation requirements.

Despite the challenges, CRS is an important tool. While local communities may have limited capacity, FEMA, too, can only do so much to reduce risk in communities across the country. CRS empowers local officials to take action, while also putting money back into the hands of residents. The challenge is to make the case to local residents and officials that participation in CRS is worthwhile. It is a big commitment, with the application likely taking significant time and resources, and it is an ongoing commitment, as communities must demonstrate they are maintaining measures to reduce risk and inform the public. Yet many of those actions are valuable, and even doable with the resources offered by FEMA and other agencies. While CRS may fairly not be a top priority for many communities, it is worth serious consideration.

Melia Ungson is the Roosevelt Institute | Campus Network Senior Fellow for Energy and Environment.

 

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Stiglitz: Why Inequality Matters and What Can Be Done About It

Apr 1, 2014Joseph Stiglitz

Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz will speak before the Senate Budget Committee today on the topic of "Opportunity, Mobility, and Inequality in Today's Economy." His prepared remarks are below. Click here to download all of the statements from the hearing.

Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz will speak before the Senate Budget Committee today on the topic of "Opportunity, Mobility, and Inequality in Today's Economy." His prepared remarks are below. Click here to download all of the statements from the hearing.

It is a great pleasure for me to discuss with you one of the critical issues facing our country, its growing inequality, the effect it is having on our economy, and the policies that we might undertake to alleviate it. America has achieved the distinction of becoming the country with the highest level of income inequality among the advanced countries. While there is no single number that can depict all aspects of society’s inequality, matters have become worse in every dimension: more money goes to the top (more than a fifth of all income goes to the top 1%), more people are in poverty at the bottom, and the middle class—long the core strength of our society—has seen its income stagnate. Median household income, adjusted for inflation, today is lower than it was in 1989, a quarter century ago.[1] An economy in which most citizens see no progress, year after year, is an economy that is failing to perform in the way it should. Indeed, there is a vicious circle: our high inequality is one of the major contributing factors to our weak economy and our low growth.

As disturbing as the data on the growing inequality in income are, those that describe the other dimensions of America’s inequality are even worse: inequalities in wealth are even greater than income, and there are marked inequalities in health, reflected in differences, for instance, in life expectancy. But perhaps the most invidious aspect of US inequality is the inequality of opportunity. America has become the advanced country not only with the highest level of inequality, but is among those with the least equality of opportunity—the statistics show that the American dream is a myth; that the life prospects of a young American are more dependent on the income and education of his parents than in other developed countries. We have betrayed one of our most fundamental values. And the result is that we are wasting our most valuable resource, our human resources: millions of those at the bottom are not able to live up to their potential.

This morning, I want to make eight observations concerning this inequality. The first is that this inequality is largely a result of policies—of what we do and don’t do. The laws of economics are universal: the fact that in some countries there is so much less inequality and so much more equality of opportunity, the fact that in some countries inequality is not increasing—it is actually decreasing—is not because they have different laws of economics. Every aspect of our economic, legal, and social frameworks helps shape our inequality: from our education system and how we finance it, to our health system, to our tax laws, to our laws governing bankruptcy, corporate governance, the functioning of our financial system, to our anti-trust laws. In virtually every domain, we have made decisions that help enrich the top at the expense of the rest.

The second observation is that much of the inequality at the top can’t be justified as “just deserts” for the large contributions that these individuals have made. If we look at those at the top, they are not those who have made the major innovations that have transformed our economy and society; they are not the discoverers of DNA, the laser, the transistor; not the brilliant individuals who made the discoveries without which we would not have had the modern computer. Disproportionately, they are those who have excelled in rent seeking, in wealth appropriation, in figuring out how to get a larger share of the nation’s pie, rather than enhancing the size of that pie. (Such rent seeking activity typically actually results in the size of the economic pie shrinking from what it otherwise would be.) Among the most notable of these are, of course, those in the financial sector, who made their wealth by market manipulation, by engaging in abusive credit card practices, predatory lending, moving money from the bottom and middle of the income pyramid to the top. So too, a monopolist makes his money by contracting output from what it otherwise would be, not by expanding it.

Thirdly, the idea that one shouldn’t worry about inequality because everyone will benefit as money trickles down, has been thoroughly discredited. In some ways, I wish it were true, for if it were, it would mean that the average American would be doing very well today, because we have thrown so much money at the top. But the statistics I gave a few minutes ago shows that it is not true: while the top has been doing very well, the rest has been stagnating.

Fourthly, this recession—while in no small measure caused by the financial sector which itself is responsible for so much of our inequality today—has in turn made inequality so much worse. 95% of the gains since the so-called recovery have gone to the top 1%.

Fifth, it is not the case that our economy needs this inequality to continue to grow. One of the popular misconceptions is that those at the top are the job creators; and giving more money to them will thus create more jobs. America is full of creative entrepreneurial people throughout the income distribution. What creates jobs is demand: when there is demand, America’s firms (especially if we can get our financial system to work in the way it should, providing credit to small and medium-sized enterprises) will create the jobs to satisfy that demand. And unfortunately, given our distorted tax system, for too many at the top, there are incentives to destroy jobs by moving them abroad. This growing inequality is in fact weakening demand—one of the reasons that inequality is bad for economic performance.

Sixth, we pay a high price for this inequality, in terms of our democracy and nature of our society. A divided society is different—it doesn't function as well. Our democracy is undermined, as economic inequality inevitably translates into political inequality. I describe in my book how the outcomes of America’s politics are increasingly better described as the result of a system not of one person one vote but of one dollar one vote. One of the prices we pay for the extremes to which inequality has grown and the nature of inequality in America—both inequality in outcomes and inequalities of opportunities—is that we have a weaker economy. Greater inequality leads to lower growth and more instability. These ideas now have become mainstream: even the IMF has embraced them. We used to think of there being a trade-off: we could achieve more equality, but only at the expense of giving up on overall economic performance. Now we realize that, especially given the extremes of inequality achieved in the US and the manner in which it is generated, greater equality and improved economic performance are complements.

This is especially true if we focus on appropriate measures of growth, focusing not on what is happening on average, or to those at the top, but how the economy is performing for the typical American, reflected for instance in median income. For too many—perhaps even a majority—the American economy has not been delivering. And if our economy is not delivering, it not only hurts our people, it undermines our position of leadership in the world: will other countries want to emulate an economic system in which most individuals’ incomes are simply stagnating?

We pay a price not only in terms of a weak economy today, but lower growth in the future. With nearly one in four American children growing up in poverty,[2] many of whom face a lack of access to adequate nutrition and education, the country’s long-term prospects are being put into jeopardy.

The seventh observation is that the weaknesses in our economy have important budgetary implications. The budget deficits of recent years are a result of our weak economy, not the other way around. If we had more robust growth, our budgetary situation would be far improved. That’s why investments in decreasing inequality and increasing equality of opportunity make sense not only for our economy, but for our budget. When we invest in our children, the asset side of our country’s balance sheet goes up, even more than the liability set: any business would see that its net worth is increased. In the long run, even looking narrowly on the liability side of the balance sheet, it will be improved, as these young people earn higher incomes and contribute more to the tax base.

The final observation I want to make is that the role of policy in creating inequality means there is a glimmer of hope. Policy created the problem, and it can help get us out of it. There are policies that could reduce the extremes of inequality and increase opportunity—enabling our country to live up to the values to which it aspires. There is no magic bullet, but there are a host of policies that would make a difference. In the last chapter of my book, The Price of Inequality, I outline 21 such policies, affecting both the distribution of income before taxes and transfers and after. We need to move more people out of poverty, strengthen the middle class, and curb the excesses at the top. Most of the policies are familiar: more support for education, including pre-school; increasing the minimum wage; strengthening the earned-income tax credit; giving more voice to workers in the workplace, including through unions; more effective enforcement of anti-discrimination laws; better corporate governance, to curb the abuses of CEO pay; better financial sector regulations, to curb not just market manipulation and excessive speculative activity, but also predatory lending and abusive credit card practices; better anti-trust laws, and better enforcement of the laws we have; and a fairer tax system—one that does not reward speculators or those that take advantage of off-shore tax havens with tax rates lower than honest Americans who work for a living. If we are to avoid the creation of a new plutocracy in the country, we have to retain a good system of inheritance and estate taxation, and ensure that it is effectively enforced. We need to make sure that everyone who has the potential to go to college can do so, no matter what the income of his parents—and to do so without undertaking crushing loans. We stand out among advanced countries not only in our level of inequality, but also on how we treat student loans in our bankruptcy loans. A rich person borrowing to buy a yacht can get a fresh start, and have his loans forgiven; not so for a poor student striving to get ahead. The special provisions for capital gains and dividends not only distort the economy, but, with the vast majority of the benefits going to the very top, increase inequality—at the same time that they impose enormous budgetary costs: $2 trillion dollars over the next ten years, according to the CBO.[3] While the elimination of the special provisions for capital gains and dividends is the most obvious reform in the tax code that would improve inequality and raise substantial amounts of revenues, there are many others that I discuss in the attached paper which I would like to submit for the record.

A final point is that we must be careful of how we measure our progress. If we use the wrong metrics, we will strive for the wrong things. Economic growth as measured by GDP is not enough—there is a growing global consensus that GDP does not provide a good measure of overall economic performance. What matters is whether growth is sustainable, and whether most citizens see their living standards rising year after year. This is the central message of the International Commission on the Measurement of Economic Performance and Social Progress, which I chaired. Since the beginning of the new millennium, our economy has clearly not been performing in either of these dimensions. But the problems in our economy have been manifest for longer. As I have emphasized, a key factor underlying America’s economic problems today is its growing inequality and the low level of opportunity.

In the past, when our country reached these extremes of inequality, at the end of the 19th century, in the gilded age, or in the Roaring 20s, it pulled back from the brink. It enacted policies and programs that provided hope that the American dream could return to being a reality.

We are now at one of these pivotal points in history. I hope we once again will make the right decisions. You and your committee, in the budget decisions that you will be making, play a vital role in setting the country in the right direction.


[1] For large segments of the American population, matters are even worse. The inflation adjusted median income of a male worker with only a high school degree has fallen by 47% from 1969 to 2009. For additional data sources and explanation of these trends, see my “Reforming Taxation to Promote Growth and Equity,” forthcoming as a Roosevelt institute working paper, which is submitted along with this written testimony. Inequality is discussed in even greater detail in my 2012 book, The Price of Inequality: How Today’s Divided Society Endangers Our Future, New York: W.W. Norton.

[3] See Congressional Budget Office, 2013, The Distribution of Major Tax Expenditures in the Individual Income Tax System, May, p.31, available at http://cbo.gov/sites/default/files/cbofiles/attachments/TaxExpenditures_One-Column.pdf (accessed March 28, 2014). This figure includes the effects of the “step-up of basis at death” provision, which reduces the taxes that heirs pay on capital gains. Not including this provision, the ten-year budgetary cost of preferential treatment for capital gains and dividends is $1.34 trillion. 

Joseph Stiglitz is a Senior Fellow and Chief Economist for the Roosevelt Institute. He is a Nobel laureate in economics and University Professor at Columbia University.

Image via Thinkstock

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Daily Digest - April 1: How to Ensure Equal Opportunity Internet Access

Apr 1, 2014Rachel Goldfarb

Click here to receive the Daily Digest via email.

Why the Government Should Provide Internet Access (Vox)

Ezra Klein interviews Roosevelt Institute Fellow Susan Crawford, who says that internet should be regulated as a utility, just like electricity and telephone service.

Click here to receive the Daily Digest via email.

Why the Government Should Provide Internet Access (Vox)

Ezra Klein interviews Roosevelt Institute Fellow Susan Crawford, who says that internet should be regulated as a utility, just like electricity and telephone service.

CHARTS: The Amazing Wealth Surge For The Top 0.1 Percent (TPM)

A new study from two UC Berkley economists shows how the most affluent Americans have surged in their share of the country's wealth in recent years, reports Sahil Kapur. This study stands out because others have primarily looked at income.

New York Doormen Assert Their Right to Live in the City Where They Work (The Atlantic Cities)

With a union contract expiring for the city's doormen, negotiators are tying in to Mayor DeBlasio's fight against income inequality. Meanwhile, as Sarah Goodyear reports, a new ad campaign highlights the heroics of doormen, such as delivering babies. 

$2.13 an Hour? Why The Tipped Minimum Wage Has to Go (The Nation)

Subminimum wage workers, primarily in the restaurant industry, are more likely to live in poverty or rely on food stamps, writes Michelle Chen. That's less true, however, in states with no tipped minimum wage.

The Faces of Food Stamps (Time)

A photo series by Jeff Reidel looks at the lives of SNAP recipients, from their jobs to their efforts to stretch their food dollars. Maya Rhodan speaks with Reidel and some of his subjects.

New on Next New Deal

The ACA in Threes: The Good, The Bad and the Ways to Make it Better

Roosevelt Institute Senior Fellow Richard Kirsch considers some of the successes, outrages, and must-repair glitches occurring over the course of the Affordable Care Act's first open enrollment period.

Higher Education Financing Needs a Better Deal Than This

Raul Gardea, the Roosevelt Institute | Campus Network Senior Fellow for Education, argues that the White House's latest plan for easing student debt doesn't go far enough in its reforms. Indeed, it makes some things worse.

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The ACA in Threes: The Good, The Bad and the Ways to Make it Better

Mar 31, 2014Richard Kirsch

With the first open enrollment period ending today, consider some successes, outrages, and bug fixes for the Affordable Care Act (ACA). Roosevelt Institute Senior Fellow Richard Kirsch will debate implementation issues and the future of the ACA with the Heritage Foundation's Robert Moffit tonight at New York University. For more information, click here.

The Good: Three Big Successes of ACA:

With the first open enrollment period ending today, consider some successes, outrages, and bug fixes for the Affordable Care Act (ACA). Roosevelt Institute Senior Fellow Richard Kirsch will debate implementation issues and the future of the ACA with the Heritage Foundation's Robert Moffit tonight at New York University. For more information, click here.

The Good: Three Big Successes of ACA:

The Affordable Care Act is saving peoples lives: Already. Like Kathy Bentzoni, a Pennsylvania school bus driver, who dropped her old insurance because it was expensive and rejecting claims because of her pre-existing conditions. After getting ACA coverage at $55 a month, she was able to seek care: “They found my hemoglobin level was 5.7, and the normal is 14. I needed a transfusion. It was due to a rare blood disorder. Where would I be without Obamacare? ER, 3 units of blood, multiple tests in the hospital and a 5-day inpatient stay without insurance? Probably dead.” Kathy was not alone in that fear – studies show that tens of thousands of people each year die because they don’t have health coverage.

Medicaid enrollment is a bigger success than expected: Not only is Medicaid enrolling people who are eligible for the first time – 4.6 million of them – but almost another 2 million more are enrolling who were eligible before, but had not applied. In the big push to get people to sign up for the ACA, many people who have been eligible in the past applied for the first time.

Seniors on Medicare are saving money, getting better care: While most seniors don’t think that the ACA has anything to do with them, it does. Last year, 37 million people on Medicare – seniors and people with disabilities – received free preventive care. Since the law was enacted, 8 million people enrolled in Medicare have saved $10 billion on prescription drugs, as the prescription “donut hole’ closes. And for the first time in 30 years, hospital readmission rates for people on Medicare are coming down, because hospitals are now penalized for pushing people out before they are ready.

The Bad: Three Outrages Against the ACA

States that have refused to expand Medicaid: In an example of partisan politics killing people, Republicans in 24 states have refused to expand Medicaid, leaving 5 million people who would be eligible for coverage without any recourse.

Koch brothers campaign to discourage young people from signing up: In an example of billionaires killing people, the Koch brothers have funded tasteless ads and campus beer parties in an attempt to keep young people from signing up for insurance on the exchanges.

Republican lies about job loss and the ACA: One advantage of the ACA is that it gives people the freedom to leave their jobs or reduce their work hours, and still be able to get affordable coverage. When the Congressional Budget Office estimated that 2.3 million American workers would gain this freedom over the next 8 years, Republicans falsely claimed that it would cost jobs. If anything, it will create jobs for people who fill in for those who take advantage of their new freedom. I thought Republicans liked freedom.

The Ways to Make it Better: Three Big Fixes for the ACA:

Allow Medicare to operate in the exchanges: The best way to bring price competition and access to virtually ever doctor and hospital in the exchanges would be to have Medicare offer a plan (without age requirements) in every exchange. This is the easiest and most effective way to bring back the public option.

Base the employer mandate on a play or payroll tax: As I’ve explained here, the best way to get rid of the convoluted system of employers paying a penalty for employees who work more than 30 yours a week, would be to have employers who don’t provide coverage pay a percentage of payroll for health care, just like employers now do for Social Security.

Lower the premiums and out-of-pocket costs: While the ACA is providing affordable coverage for millions – and will offer lower premiums than 29 million people are paying now – they are still too high for many families. And the out-of-pocket costs in the cheaper plans are way too high. The subsidies should be increased for middle-income people – funded by progressive taxes – and the high-out-of-pocket plans ended. 

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

Photo of President Obama signing the Affordable Care Act copyright George Miller, via Creative Commons license.

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Higher Education Financing Needs a Better Deal Than This

Mar 31, 2014Raul Gardea

Bipartisan budget proposals seek to address the debt-burden on students, yet merely underscore the need for a drastic overhaul of post-secondary education financing.

Bipartisan budget proposals seek to address the debt-burden on students, yet merely underscore the need for a drastic overhaul of post-secondary education financing.

The White House’s latest proposal for easing student-debt is a noble but ultimately bankrupt effort, which misses the forest for the trees. The plan includes an expansion of income-based repayment (IBR), makes the American Opportunity Tax Credit permanent past the current 2017 cut off, and places a cap on loan forgiveness for public sector workers. Yet like most college affordability proposals that have come out of Washington, the current plan offers Band-Aid “reforms” that fail to cut to the heart of the structural problems in how we finance higher education. Instead of trying to fix the debt, the conversation should center on solving why students should need to take out such massive debt in the first place, a discussion few in Washington are eager to have.

A common critique of debt forgiveness is that such policies encourage students to take on a heavier financial burden and leads to schools hiking tuition to compensate. On paper, tuition deferral methods like IBR coupled with loan forgiveness are sound. This method shifts the costs from the individual to the taxpayer, as they should if we still value higher education as a public good. Currently, students who demonstrate need can enroll in “Public Sector Loan Forgiveness” (PSLF) which is an IBR plan that forgives debt after ten years of public sector or non-profit employment. The new proposal lifts the needs-based eligibility requirement to allow larger numbers of individuals to sign up, but places a $57,500 cap on forgiveness for public sector workers and requires payments for twenty-five years instead of ten for any amount over that.

Yet despite the White House’s claim that the proposal provides a “safeguard against raising tuition at high-cost institutions,” there is little reason to believe that will be the case. If the school has already been paid, and taxpayers will foot the bill in twenty-five years as the proposal stipulates, what incentive would there be for colleges to keep tuition low? Since schools have nothing at stake, it is likely that they will continue to increase tuition without regard for what happens to graduates. Students who may have considered serving their communities by pursuing careers as, say, public interest lawyers, relying on the promise of loan forgiveness after ten years are now having the rug pulled out from under them.  A quarter-century of indebtedness is simply absurd to imagine.

Republicans have also weighed in on higher education spending through their tax code reform proposals. They include repealing or consolidating various credits into a permanent American Opportunity Tax Credit, taxing PSLF, and repealing several tax breaks for students, among several other proposals. While this legislation will likely go nowhere as it is, several of these items could linger for a while and undoubtedly worm their way into more digestible, passable bills.

All this back and forth about restoring the promise of higher education hides the urgent need for a massive overhaul of the way the U.S. finances post-secondary education, something that Washington seems unwilling to do. Thinking back to the hopefulness of 2009 now seems like a lifetime ago. That year appeared to signal a turning point in history: a return to a strong, activist, solutions-oriented federal government. The 111th Congress was the most productive Congress in a generation. Certain sectors of the economy appear to be correcting course, with health care costs dropping and financial markets rising again. Yet the cost of a college education, an issue that President Obama is supposedly obsessed with, has continued to increase during this tenure. As his presidency winds down, it’s easy to feel like the window for passing any kind of comprehensive reform has shut. A large segment of our generation is chronically underemployed.  Students continue getting fleeced as the federal government hands out mortgages and lends to banks at lower interest rates. 41% of student loan holders are behind on their payments. Sen. Elizabeth Warren says government should not profit off the backs of students. As one of the few consistent voices advocating for this issue, she must get lonely.

Just as income inequality has become part of the national dialogue through grassroots efforts, reeling in higher education costs is something that requires broader strokes. Local efforts like the Kalamazoo Promise or San Francisco’s Kindergarten to College must be commended for expanding college access to students who might otherwise be shut out. But these programs assume higher education will remain exorbitantly expensive. Rather than trapping students in a debtor’s prison for twenty-five years, policymakers should be deep-diving into an audit of bloated university president and administrative pay, intercollegiate athletic subsidies, and educational outcomes per tuition dollar, among other things. During election years, the Obama White House tends to revisit its college affordability agenda, and this time is no different. But even without re-election to worry about, we have yet to see this administration truly go big on this issue. As campaign season heats up, access to an affordable higher education should be a bigger part of the conversation and indeed, must be a part of any serious policy agenda.

Raul Gardea is the Roosevelt Institute | Campus Network's Senior Fellow for Education.

 

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