Hamptons Institute Experts Weigh In On Jobs, Debt, and China

Jul 26, 2011

Byron Wien, Jared Bernstein, and Zachary Karabell take on America's three greatest economic challenges.

Last week, the Roosevelt Institute teamed up with Guild Hall to present the third installment of the Hamptons Institute, a symposium that brings political, economic, and cultural thought leaders together to let the intellectual sparks fly. VVH's Byron Wien hosted a panel featuring Jared Bernstein, CBPP Senior Fellow and former White House economist, and Zachary Karabell, President of River Twice, who took on three of America's biggest economic challenges: our protracted unemployment crisis, growing debt, and complex relationship with China.

idea-100Byron Wien, Jared Bernstein, and Zachary Karabell take on America's three greatest economic challenges.

Last week, the Roosevelt Institute teamed up with Guild Hall to present the third installment of the Hamptons Institute, a symposium that brings political, economic, and cultural thought leaders together to let the intellectual sparks fly. VVH's Byron Wien hosted a panel featuring Jared Bernstein, CBPP Senior Fellow and former White House economist, and Zachary Karabell, President of River Twice, who took on three of America's biggest economic challenges: our protracted unemployment crisis, growing debt, and complex relationship with China.

Bernstein argues that the American economy is haunted by under-priced risk, bad fiscal policy, and China's mercantilist strategy of currency manipulation, all of which has led to an over-leveraged public and private sector. "When job growth is weak, and the benefits of growth are poorly distributed, it's very difficult for most families to get ahead." Karabell contends that "we don't have a debt crisis. We're having a crisis over debt." He also believes that current unemployment levels are more structural than cyclical, and that China's role in driving the global economy, despite disrupting the old order, "has been a source of stability and vibrancy, including for the domestic American economy." Watch the full debate in the video above.

For more on the Hamptons Institute, check out ND2.0 Editor Lynn Parramore's report on the summer's finest festival of ideas.

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Four Steps for Smart Scheduling: A Giant Leap for Working Families

Jul 25, 2011Joan Williams

workers-200Last Monday, unions and employers came together to make work-life balance a reality for hourly workers.

workers-200Last Monday, unions and employers came together to make work-life balance a reality for hourly workers.

The common assumption is that workplace flexibility is impractical for hourly workers. Not so: On Monday, models emerged to offer workplace flexibility in three contexts where it might seem impossible: health care, restaurants and small business.

Jennifer Piallat, owner of Zazie Restaurant in San Francisco, is busy inventing a new model of the restaurant business. The classic model gives servers unstable schedules that change from day to day and week to week. There are good reasons for this: much of servers' compensation comes from tips, and a "bad" shift (Monday night) can yield $50 in tips, whereas a "good" one (Saturday night) can yield $300 in tips. So the instinct is to shift people in and out of the more lucrative shifts by having them work different days on different weeks.

But that doesn't fit with many workers' lives. Low-income families are more likely than other families to be tag teaming, where Mom works one shift and Dad works a different shift. That means that, if Dad's schedule is unstable (or vice versa), Mom may be unable to show up for her shift-and may lose her job. Low-income families also are much more likely than other Americans to be caring for an elder 30 or more hours a week, and much more likely to be caring for ill relatives-that's often one reason these families are poor.

So Piallat sets up a permanent, long-term schedule that gives each server some high-tip and some low-tip shifts. That's the first step for employers of hourly workers. Virtually any job can be restructured to achieve a more stable schedule.

A related issue was addressed by Connie Leyva, President, California Labor Federation & UFCW Local 1428, who represents grocery and drug store employees. Her union negotiated more notice of weekly schedules, requiring that schedules for the following week be posted by Friday at noon. "It doesn't seem like a big deal. It's a huge deal," she noted.

Leyva's union also negotiated a contract that guarantees four hours of work once employees report to the workplace. This addresses one of the big problems with just-in-time schedules -- often, workers show up on a slow day only to be sent home for lack of customers.

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Creating a dependable schedule is only the first step. The second step is to set up a formal system for handling schedule changes. At Zazie, Piallat puts up a big Office Depot calendar. If you can't make your 9 a.m. shift, you just write your name by that shift; the first person who signs their name by yours gets the shift.

The third step is to address the issue of overtime. Netsy Firestein of the Labor Project on Working Families, who sat on the labor panel at the conference, reported that some unions have negotiated contracts in which employers rely on voluntary instead of mandatory overtime. My report Improving Work-Life Fit in Hourly Jobs found two additional tools for scheduling overtime that accommodate the reality of employees' lives. One is to separate the workforce into four groups, and assign each group one week a month for which they need to be available for overtime. (Piallat of Zazie commented she was going to adopt this system.) Another is to give employees vouchers that allow them either to bid for overtime, or to avoid overtime.

The final step is to offer hourly workers short periods of time off work. A key issue is allowing employees to take time off in two- or four-hour segments. This is vital for low-wage workers who cannot afford to attend a school conference or doctor's appointment if they need to take an entire vacation day in order to do so.

Marianne Giordano, President of OPEIU Local 30 and labor rep on Kaiser's labor-management partnership, reported that Kaiser Permanente -- a hotbed of best practices thanks to its labor-management partnership -- has already instituted this policy successfully. Giordano described a call center that had once had extraordinarily high turnover and low morale. "There has been a complete turnaround," she reported, as a result of workplace flexibility initiatives. "If it can be done in a call center, it can be done anywhere."

Barbara Grimm, Senior Vice President at the Kaiser Office of Labor Management Partnership, reported marked success with self-scheduling, and noted the importance of cross-training. Kaiser actually offers business training to workers to give them the tools they need to help work with managers to deliver the best possible patient care. "The person who is doing the job knows best how to do it," said Grimm. "Teams come up with their own staffing solutions. It usually works better that way. They can come up with better solutions in terms of work satisfaction, patient satisfaction and affordability."

If flexibility is impossible in any industry, it would seem to be the moving industry. But it isn't, reported Lori Tubaya of Johnson Moving & Storage. Jim Johnson, the company owner, heard me speak in 1995, and went home and offered telecommuting for everyone in the company. "That not only changed my life...it has benefited five generations of my family," said Tubaya. She discussed the near-zero turnover at her company among employees in charge of collections-typically a high-turnover job. The company also offers flexibility to the movers themselves. She told the story of one mover who was a divorced father with custody of a child. He kept arriving late. "Instead of making excuses, saying the bus was late, he could just tell us he needed to come in later so he could drop his child off from school," Lori said.

Bottom line: if these employers can improve the work-life balance for movers, health care workers and retail and restaurant staff, this can be done anywhere, in any job.

Joan Williams is the author of Reshaping the Work-Family Debate.

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The Trade Deficit is the Most Important Deficit

Jul 25, 2011Jon Rynn

deficit-100Closing the budget gap will require a progressive industrial policy, not regressive spending cuts.

deficit-100Closing the budget gap will require a progressive industrial policy, not regressive spending cuts.

Between 1962 and 2009, the cumulative trade deficit of the United States almost exactly equaled the cumulative Federal budget deficit: 7,426 billion for the budget deficit, a couple of billion less for the trade deficit. That is, when you add up all the deficit numbers for those 28 years, both the trade deficits and the budget deficits have generated the same amount of red ink. The Republican House members, in particular, use fear-mongering to convince the public that the federal budget deficit is going to destroy the economy. But what about the trade deficit?

As Marshall Auerback and others have been arguing, focusing on cutting the federal budget deficit during an economic downturn can harm the economy, putting people out of work, for one thing. Our government discovered this in 1937, when a push to balance the budget led to a mini-Depression. But tanking the economy is exactly what is being discussed in Washington; every alternative on the table involves cutting spending, which will cut jobs, which will lead to even less revenues for the government, bigger deficits, and even more job losses.

We need to narrow the federal budget deficit by growing the economy, which generates wealth, part of which is then used for more revenue for the government. Narrowing the budget deficit by slashing spending will actually increase the deficit. In addition, a default on the debt, if it sent the dollar into a tailspin, would make the trade deficit much worse because we would have to pay much more for all of our imported goods, and thus, the standard of living for most Americans would go down.

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Closing the trade deficit, on the other hand, would actually create millions of jobs. In 2007, for instance, the trade deficit – that is, the difference between the goods and services we sell to the world, and the goods and services we buy – was about 700 billion dollars, according to the Economic Report of the President (Table B-24). The deficit in goods was about 800 billion. In 2007, there were 13.9 million people working in the manufacturing sector, down from 16.5 million in 2001, according to the Bureau for Labor Statistics (we are now at 11.5 million). Since the gross output of the manufacturing sector in 2007 was about $5 trillion (that is, including all the services, etc. that go into the price of manufactured goods), that means that the US could have increased manufacturing employment by about 1/6th (800 billion into 5 trillion), or about 2.25 million workers, had it made all the goods that were imported. According to the Economic Policy Institute, for each manufacturing job, the economy creates almost three more. So eliminating the trade deficit could have reduced the unemployment rate by almost 10 million – or, as of June 2011, about 70% of the 14 million officially unemployed workers in the United States.

We can close the trade deficit by engaging in a serious industrial policy, one which will pull the manufacturing sector back up by rebuilding the infrastructure to prevent the worst of global warming and wean us away from oil, as I have argued. If, for instance, the government guarantees a 20 year infrastructure rebuilding program, that might help to convince the banks and corporations that it is prudent to invest the 2 trillion dollars that they are currently sitting on. They would know that they had a market for the output of their investments, and they would be assured that American workers would have the purchasing power to buy their output.

There has been a long-running argument that federal budget deficits contribute to trade deficits, but trade deficits expanded in the 1990s when the federal budget went into surplus. I would argue that the trade deficit is caused by the decline of manufacturing in the United States, which has a variety of causes, and is only marginally affected by the increased demand caused by a budget deficit. In any case, by creating millions of jobs in the long-term, a program of job creation would lead to a lower budget deficit, in the long-term.

To put it simply, rebuilding the manufacturing sector could lift us out of the Great Recession. On the other hand, focusing on cutting the federal budget deficit at this stage will lead us to the Lesser Depression, as Paul Krugman calls it. Hopefully this news will arrive in DC soon, or we will be in big trouble.

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

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FDR's Championing of Labor Unions Key to Prosperous Post-War Economy

Jul 22, 2011David B. Woolner

Under Roosevelt's leadership, union membership and the size of the American economy grew hand-in-hand.

"It is now beyond partisan controversy that it is a fundamental individual right of a worker to associate himself with other workers and to bargain collectively with his employer." FDR --Address at San Diego Exposition, October 2, 1935

Under Roosevelt's leadership, union membership and the size of the American economy grew hand-in-hand.

"It is now beyond partisan controversy that it is a fundamental individual right of a worker to associate himself with other workers and to bargain collectively with his employer." FDR --Address at San Diego Exposition, October 2, 1935

Just over three quarters of a century ago, Franklin D. Roosevelt signed one of the most important -- though frequently overlooked -- pieces of the reform legislation to come out of the New Deal: the National Labor Relations Act. More often referred to as the Wagner Act, after its champion, Senator Robert Wagner of New York, this landmark bill established the National Labor Relations Board, an independent, quasi-judicial government agency that played a critical role in the remarkable expansion of union membership that took place during the Roosevelt era.

Prior to the passage of the Wagner Act, and thanks in part to the anti-union climate of the 1920s, union membership in the United States had declined precipitously. At the onset of the Great Depression, for example, membership in the American Federation of Labor had fallen from a high of five million in 1919 to less than 3 million in 1933. Seeking to expand workers rights as part of his administration's efforts to launch the New Deal, FDR created a weaker NLRB as part of the 1934 National Recovery Administration. But the 1934 agency proved largely ineffective and in 1935 FDR endorsed Senator Wagner's efforts to make the NLRB permanent and more powerful. The new law declared a whole series of coercive management practices to be illegal, and gave private sector workers the right to form unions and to engage in collective bargaining. It also gave the NLRB the right to determine bargaining unit jurisdictions, oversee union elections and certify the results as legally binding. The law also insisted that management had a duty to bargain with a properly certified union, though of course it did not compel the union to agree with the union demands.

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As with many other pieces of New Deal legislation, the establishment of the NLRB was bitterly attacked by employers as a measure that would ruin the US economy. But such fear mongering proved completely unfounded. Over the next ten years both union membership and the size of the US economy would grow hand in hand, so that by 1945 the ranks of unionized worker had reached a record 35 percent of the non-agricultural workforce, while wages had increased by 65 percent, unemployment had fallen to less than one percent, and the US economy exploded to meet the demands of the Second World War.

Moreover, the labor legislation of the New Deal helped form the basis of a long period of post-war prosperity that vastly expanded the size and wealth of the American middle class. Yet sadly, the right of American workers to form unions and engage in collective bargaining -- and hence protect their job security and wages -- is once again under attack. The recent attempt by conservative Republicans in the House of Representatives to challenge the NLRB authority to act through the introduction of such bills as the Protecting Jobs from Government Interference Act is but one example of this ongoing attempt to weaken the NLRB's authority and with it the power of unions to fight against unfair labor practices. In 1935, in the wake of the Wagner Bill, FDR asserted that the "fundamental...right of a worker to associate himself with other workers and to bargain collectively with his employer" was "now beyond partisan controversy." Based on the recent activities of this Congress, and the strong anti-union movement among conservatives in states like Wisconsin and New Jersey it would appear that he was sadly mistaken.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

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Dorian Warren on Why We All Need a Strong Labor Movement

Jul 18, 2011Bryce Covert

dorian-warrenI got the chance to talk with Roosevelt Institute Fellow Dorian Warren, who just publis

dorian-warrenI got the chance to talk with Roosevelt Institute Fellow Dorian Warren, who just published new research on workplace anti-union campaigns. We discussed his surprising findings about illegal employer intimidation tactics, the labor movement's biggest weaknesses, and why comprehensive labor reform would amount to some of the best economic stimulus we could find.

Bryce Covert: You recently published new research on workplace intimidation tactics against union organizing. Can you explain the important findings that came out of your work?

Dorian Warren: As background, let me start by saying that we already know what happens when workers try to organize into a union: employers routinely violate the law. They use a range of legal and illegal tactics. The most egregious one is firing workers who are seen as union leaders or union influencers, and that happens in about 34% of union election campaigns. A number of other illegal tactics include threatening workers, threatening to close the plant, threatening to close the shop, illegal pay raises, that kind of stuff.

The other thing to note is that usually when workers file a petition with the National Labor Relations Board for an election, the wait from the date they file a petition to when the election is scheduled is really long. Throughout all that time, employers engage in anti-union campaigns, again using these legal and illegal tactics. So the National Labor Relations Board proposed a rule change to potentially decrease the number of days between when workers file a petition and form election and when the election is scheduled and held.

The research that I did with my coauthor Kate Bronfenbrenner was to look at the timing of when employer campaigns start through the election and what difference the proposed rule change would make. What we found was that the employer campaign starts very early. It definitely starts once workers start filing a petition for election, it continues constantly, and the number of tactics they use are multiple. So every single day before an election the employer campaign is constant, the tactics are cumulative, and it's unrelenting.

But the surprising finding is that employer campaigns start even before workers petition. So let's say Target or WalMart hires new employees and as part of the orientation it gives them an anti-union video to watch. From day one that's basically an employer anti-union campaign. Then it's constantly probing and trying to find out if there's any talk of unionization. The employer knows that workers are talking about potentially wanting a union, and they start doing things way before workers even file a petition to ask for an election. The longer employers can delay an election, the more time they have to harass and intimidate workers. But our research shows that from before the workers file a petition to when they file a petition, leading all the way up to an election and even after the election if they win the election, the employer's still using these tactics to intimidate and harass workers.

BC: What are the details of the NLRB rule change proposal and what are its implications?

DW: The proposal is to streamline the NLRB election process, which is very clunky. There are lots of delays and it takes a long time for workers to actually get an election. It would also prevent employers from attempting to delay. Workers usually file for election, the election date is set, but then close to the election date the employer files a claim with the National Labor Relations Board, usually falsely accusing the union of some kind of unfair practice or tactic, which then the Board has to investigate. So they delay the election. Then after the investigation, which usually finds nothing wrong, the election is rescheduled, and then that starts all over again. This rule would say there will be no delays. There will be an investigation after the election as opposed to postponing elections to investigate these delays, so-called infractions, either by employers or the union. The idea would be obviously that these changes would give workers a better chance to unionize free of intimidation and coercion.

Assuming this rule change goes through, it would make it potentially easier for workers to organize because they wouldn't be subject to the employer campaign for as long and therefore would probably end up winning more union elections. It will make organizing easier in a climate where employers are absolutely hostile by default and break the law because the penalties aren't that strong.

Employers are going crazy about this. The Chamber of Commerce is going crazy about this proposed rule change because they know that this would make it easier for unions to organize.

BC: If the rule goes through, does it address what you identified in your research? What goes unaddressed?

DW: The only thing that would address what we found in our research would be comprehensive labor reform. But obviously the political possibility for that is zero. This rule change would help address what we find, but it's not going to eliminate the employer campaign. Employers are still going to violate the law and fire people and threaten people. They'll just have a shorter time to do it, so hopefully it won't have as much impact on workers as it does now. This rule change does nothing about our big finding that employers already violate the law before workers even file for a petition. Those practices are still going to happen and employers are still going to be spying on workers, essentially, to see if there's any talk of a union and then go into action immediately when they hear it.

It's a systemic problem. There's really nothing that would change it. There are no quick fixes in terms of what the National Labor Relations Board can do. They really need legislative change to alter the incentive structure against employers violating the law.

BC: Are there other short-term things that can be done right now short of comprehensive reform?

DW: After this I'm not sure what's left. There was another rule change that another federal agency did issue. The National Labor Relations Board covers all private sector workers except transportation workers. Railroad and airline workers are covered by the Railway Labor Act. If you're an airline worker and you want a union, the election goes to the National Mediation Board, not the NLRB. Last year, with two pro-labor Obama appointees, the National Mediation Board made a rule change for their election rules. In political elections, basically whoever gets the majority of the vote wins, and the same with the NLRB union elections. The Railway Labor Act was always different. It said that a majority of all workers was what it took to win unionization. So if people didn't show up to vote you were kind of screwed. Basically if someone didn't show up that was a no vote. The rule change was to make it similar to the National Labor Relations Board and our basic election rules for political campaigns -- just a majority of who shows up. They issued that rule change last year and again business groups went crazy. One of the implications of that is probably thousands of flight attendants at a couple of airlines, something like forty or fifty thousand flight attendants, are going to have elections to decide whether they want to join a union or not.

But after that I'm not sure what else the Board can do. They're already trying to speed up the processing of cases when employers or unions, but really employers, violate the law. There has to be an investigation and there's a trial to see if the employer violated the law, and then there's a ruling. There are hundreds if not thousands of cases and there's always a backlog because Republicans are trying to defund the Board and compromise its work.

After this latest rule change that's pretty much it. That's all they can really do.

BC: Ignoring politically impossibility, what would a modern-day Wagner Act to update labor laws look like?

DW: The first thing is there'd be no occupational exclusions. We should have a national campaign right now to take out the occupational exclusions of the Wagner Act. We know the history of why they're in there in the first place. It's unacceptable that they're still in. No worker should be denied protection or the fundamental right to freedom of association.

The second thing would be really, really strong penalties for violations of the law. Ideally it would match the whole system of employment law, including all the anti-discrimination laws like sex discrimination, race discrimination, age, disability. For instance, if employers fire a worker for union activity, the only penalty is that they have to hire the worker back and they have to post a sign in the workplace saying they won't do it again and potentially pay the worker back pay. That's not a strong incentive against violating the law. Unlike, say, anti-discrimination law, where you can sue for punitive damages, which works as a stronger sanction against employers for violating the law. Even raising the penalties so that you create strong incentives for employers to actually obey the law would be important. The potential for class action lawsuits when employers violate workers rights, the potential for triple or even hundred times back pay if they fire workers, really huge fines, punitive sanctions for violating any workers rights -- that would be, I think, ideal in any kind of twenty first century Wagner Act.

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BC: To play devil's advocate, many say that pro-labor reforms in a recession will hamper businesses from creating jobs. What do you say to that?

DW: In the preamble to the National Labor Relations Act, the justification is to level the playing field so that workers can bargain for higher wages with employers, which would then help the economy and help get us get out of the Depression because it would fundamentally give workers consumption power. They'd buy more goods and services, which would create more jobs, which would help the economy. It's economic stimulus, essentially.

I would say the same thing is true now. The problem has been that with wage stagnation for forty years, people had to take on debt to keep up with inflation and to buy basic things because they weren't getting raises. If we were to pass a new Wagner Act today that gave workers the right to organize free of intimidation, they could bargain for higher wages with employers, who have record profits, and that would help to stimulate the economy again. First, it would help people get out of underwater mortgages, and second, it would help people be able to buy more stuff. Especially in an economy that's 70% based on consumption, actually giving workers more bargaining power is a form of stimulus.

BC: Following that logic, with all the backward movement against labor -- what happened in Wisconsin, the Supreme Court decision on WalMart -- is there an anti-stimulus effect from these attacks?

DW: Part of that process of downward mobility has been the loss of pensions and economic security for private sector workers, especially with declining unionization, which is only 7% in the private sector down from almost a third in the 1940s. The aim of these attacks on public sector workers is to put them in the same boat as private sector workers -- strip them of pensions, strip them of the ability to bargain for higher wages. In that sense I do think there is a huge effect on the economy because with higher unemployment and as people lose their bargaining power they're not going to be able to purchase more stuff. Also, as people lose their pensions I can't even imagine what that's going to do in terms of pushing older people into the workforce longer at the same time that there's probably going to be an increase in age discrimination.

For all those reasons, I think the attacks are very dangerous. It's basically figuring out a way to eliminate the middle class, which is just absurd to me, and to fundamentally destroy the labor movement, because the public sector is now the strongest part of the labor movement. A majority of unions are public sector workers for the first time in history. They're not in the private sector. And think about teachers and the attacks on teacher's unions: one in four union members in this country is a teacher. It's mind-blowing actually. It's also a political attack and an explicit attempt to weaken the strongest base of the Democratic Party.

BC: In your view, what can the labor movement focus on right now to help the tide flow in the other direction?

DW: The labor movement's big Achilles' heel is the fact that it never organized the South. That's important for two reasons. It's important for labor's strength because the South is a whole different economy. Because it was a non-union economy, it actually ended up destroying the manufacturing sector and the labor movement. The auto industry essentially moved to different states to get out of UAW contracts.

The second implication is political. Because labor has a huge influence on how workers vote, it's not coincidental that the South is pretty Republican and pretty right-wing. If you're a white working class man there's basically a twenty-point gap between whether or not you'll vote Democrat or Republican and it's all based on union membership. So if you're a white working class man and you're in a union, you're much more likely to vote Democrat than Republican -- it's the union difference. If you're a white working class woman you're already a little bit more likely to vote Democratic, but you're much more likely if you're a member of a union.

There has to be some really transformative strategy and real commitment, even if it's just targeting three key states for instance, for labor to organize the South. It would help make the labor movement stronger but also change the politics of the country, frankly. Labor's been the core base of the Democratic Party since the New Deal. It seems extraordinarily short sighted that the party is looking at the destruction of its base and just standing by like a deer in headlights, and in some cases aiding and abetting the attack on labor.

BC: Many saw what happened in Wisconsin as a sign of the labor movement's reinvigoration. Do you have hope for the future of the movement?

DW: I have a different take on Wisconsin. Yes it was great that people mobilized, but I would stop short of what others have called it -- a victory of some kind. I'm not very hopeful at all, even of Wisconsin. That was a moment. And we lost, frankly. And we're losing in more than a dozen states around the country. Wisconsin's either a sign of reinvigoration or a sign of the last gasp. I think people over-interpreted it. I want to be more sober about it and say okay, where do we go form here, what's the strategy? It's a defensive fight. We're the ones trying to defend fundamental rights. We lost. Now what do we do? What's our vision? First we have to get those rights back. And it's not like things were great before. What's our vision for revitalizing workers' rights broadly? Unless there are some serious breakthrough strategies that labor, that workers, can come up with, I think the labor movement has about five years to figure out how to stay alive. Otherwise it's all over.

There is a bit of good news. Last week there were recall elections in Wisconsin and all the anti-labor incumbents were defeated. That suggests that there is some sustainability and some momentum from what happened in February. That's hopeful. But we haven't seen the efforts of people to mobilize in Wisconsin in any other place. In Ohio, in New Jersey, in New Hampshire, in Michigan, Oklahoma, all across the country, there are these basically same bills, but there hasn't been the same kind of mobilization that was shown in Wisconsin. Something more has to happen on a large scale. I don't see it yet.

BC: You just described a very bleak picture. What's the difference between now and FDR's time, when there was a huge movement for labor rights in the midst of a depression?

DW: A couple of things. One key point was the 1934 sit-down strike of autoworkers. That helped to spark a movement to unionize industrial workers, whether in auto or steel or rubber or textiles. But that was five years into the Great Depression. I don't think we're at a point where workers overall feel like the existing system is discredited. Maybe we're getting there as these quarterly reports keep coming out on corporate profits and CEO salaries. I think we're getting there. It can't happen fast enough.

The second factor I think is that there was a real fight in the labor movement around a new model. The old craft model of unions that worked for the building trades, for instance, was not adequate for the new industrial economy. There had to be some other model of unionism, so industrial unionism was created in the 30s to match the new kinds of work and the new kinds of employers. I think we need a similar kind of breakthrough strategy now. What kind of unionism do we need for the current moment, for the current economy? We've been toiling at the edges. The labor movement has been trying different strategies incrementally, but there hasn't been a new model of unionism that can recruit people by the thousands, if not hundreds of thousands.

Third is frankly a question of presidential leadership. The 1933 National Industrial Recovery Act was the first time that workers were given the right to organize. Then it got declared unconstitutional, and then the response was the Wagner Act. But in both cases there were posters and signs that union organizers would walk around with and on them was FDR saying ‘the president wants you to join a union.' There was a sense that now the law is on your side, the president's on your side, it is your fundamental right to do this. I think we're absolutely lacking that today. There's no sense that the law is on the workers' side, there's no sense that the president is on workers' side.

There's this new effort, Caring Across Generations, to organize workers from early daycare workers to home health workers who work with seniors. It's promising. There's an effort to organize WalMart, there's an effort to organize warehouse workers who are actually part of a crucial supply chain to WalMart and other big box stores. That looks promising. There are efforts by restaurant workers, carwash workers. So there are all these pieces that are definitely promising. I think the big question is a question of scale. Can they scale up fast enough to really make an impact sooner than later, or have an impact sooner than later? That's what I'm worried about.

*For more on the Wagner Act, see Roosevelt Institute Senior Fellow Thomas Ferguson discuss its history and relevance to contemporary struggles at last year's panel at the FDR Library at Hyde Park, NY: "1935 and the Enduring New Deal" (click on video for Sept. 26, 2010).

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Sky-High Executive Compensation Kills Jobs, Innovation, & Prosperity

Jul 14, 2011William Lazonick

money-and-greed-150In the latest installment of his series “Breaking Through the Jobless Recovery,” economist William Lazonick explores how excessive executive pay weakens our economy.

money-and-greed-150In the latest installment of his series “Breaking Through the Jobless Recovery,” economist William Lazonick explores how excessive executive pay weakens our economy.

Focusing on shareholder return is a very bad way for companies to govern the allocation of their resources. Public shareholders simply trade outstanding stock, but taxpayers and workers make risky investments in the innovation process and should be able to lay claim to a fair share of the returns. Yet since the 1980s, top executives of major US business corporations have invoked the flawed obsession with maximizing shareholder value to justify the exclusion of taxpayers and workers from sharing profits. Instead, they have been intent on increasing not only cash dividends -- the traditional way of distributing value to shareholders -- but also stock buybacks, which are used to manipulate their company's stock price. So shareholder return has become the measure of success of the publicly traded corporation.

This kind of financialized corporate behavior contributes to both the government deficit, as corporations look for every opportunity to avoid paying taxes, and income inequality, as corporations favor payouts to shareholders over investment in innovation and job creation. Ultimately, by neglecting investment in the productive capabilities of the labor force, the corporate pursuit of shareholder return undermines the ability of a rich country like the United States to maintain its standard of living.

So why do they do it?

All you have to do is look at how US corporate executives are paid. According to AFL-CIO Executive Paywatch, the ratio of the average pay of CEOs of 200 large US corporations to the pay of the average full-time US worker was 42:1 in 1980, 107:1 in 1990, 525:1 in 2000, and 343:1 in 2010. Over the past two decades, gains from exercising stock options have been by far the most important component in the outsized pay of top corporate executives. The average annual compensation in 2009 dollars of the 100 highest paid corporate executives named in company proxy statements was $20.6 million in 1992-1995, of which 63% came from exercising options; $77.8 million in 1998-2001, with 79% from options; and $61.8 million in 2004-2007, with 73% from options. For the top 500 in executive pay, average annual real compensation increased from $9.0 million in 1992-1995 with 51% from options to $29.5 million in 1998-2001 with 72% from options to $27.2 million in 2004-2007 with 60% from options (see my paper, "The Explosion of Executive Pay and the Erosion of American Prosperity").

But doesn't stock-based compensation of executives reflect the real productivity gains of their companies, translated into higher stock prices? Answer: no.  Most of the gains from exercising stock options are the result of stock-price speculation and manipulation. The price yields on S&P 500 stocks averaged 13% per annum in the 1980s, and 15% per annum in the 1990s, rates of increase that far outstripped productivity growth in even the most dynamic sectors of the US economy. Especially in the Internet boom of the last half of the 1990s, stock-market speculation drove up stock prices -- and executive pay. In the 2000s, however, stock-price yields averaged minus 2% per annum, with considerable volatility. A massive manipulation of stock prices through stock buybacks pushed the S&P 500 Index even higher in 2007 than it had been at the zenith of the speculative boom in 2000 -- again to the great benefit of the stock-based pay packages of the corporate executives who made these resource-allocation decisions.

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The problem is that in the United States, the practice has been to grant executives stock options that are unindexed to the productive performance of their company. If the stock price soars as a result of speculation, such as it did in the late 1990s, then executive pay explodes. If the stock price is manipulated through a multiplication of stock buybacks, as occurred especially in 2003-2007, executive pay rises as well.  With a system that permits top corporate executives to be rewarded by stock-market speculation and manipulation, what need do they have for innovation and job creation?

The "Say-on-Pay" provision of the Dodd-Frank, sanctioned by the Securities and Exchange Commission in January 2011, has given public shareholders the right to express their opinion to corporate management on issues related to executive compensation.  According to a report from Institutional Shareholder Services, during Say-on-Pay's first months in operation, stock-market investors endorsed over 90% of company board executive pay proposals. In my view, the impact of "Say-on-Pay" will be to encourage corporate boards and executives to disgorge even more cash flow to shareholders, with all its negative effects on the health of the US economy.

A case in point that I have analyzed in an article in The Globalist is an agreement on the conditions that, under Say-on-Pay, General Electric (GE) shareholders placed on the stock options of GE CEO Jeffrey Immelt. One of the conditions is that Immelt only gets to exercise some of his options if, over the next four years, GE generates at least $55 billion in cash from operations from its industrial businesses, as distinct from its financial arm, GE Capital Services. This provision creates the impression that GE's shareholders want Immelt to invest in real productive assets. Indeed, upon being named chair of President Obama's Council on Jobs and Competitiveness, Immelt declared that "there is nothing inevitable about America 's declining manufacturing competitiveness if we work together to reverse it."

Really? Over the past four years GE generated almost $73 billion in cash from its industrial operations.  In effect, therefore, armed with Say-on-Pay, GE's shareholders are willing to reward CEO Immelt if he oversees a 25% reduction in GE's industrial businesses. So much for working together to reverse the nation's declining manufacturing competitiveness.

The only effective counter to the explosion of executive pay and the erosion of American prosperity will be a social movement of people, as taxpayers and workers. It's time to demand that US business corporations be governed according to the principles of innovative enterprise, and not by the anti-innovation principle of maximizing shareholder value.

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

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No Jobs + Shredded Safety Net = Disaster for Women

Jul 13, 2011Lynn Parramore

Women face a double whammy in the jobs crisis and proposals to cut Social Security and Medicare. That's a catastrophe in the making that will harm the entire economy.

Women face a double whammy in the jobs crisis and proposals to cut Social Security and Medicare. That's a catastrophe in the making that will harm the entire economy.

The Pew study released last week showed clearly that the so-called 'mancession' has morphed into a 'hecovery' in which men are outpacing women in finding employment. Job trends during a tepid recovery have favored men over women in all but one of the 16 major economic sectors -- a sharp contrast to other modern recessions, in which women either gained jobs faster in the recovery or gained them at a similar rate to men.

A little bit of the gender gap can be explained by the fact that women have been walloped by recent rounds of government layoffs. The first great jobs hemorrhage was largely in the private sector and whacked men the hardest. But the second wave of layoffs in the public sector has had a greater impact on women, who hold the majority of teaching jobs.

But this doesn't nearly explain the size of the gap, which has emerged as the Rosetta Stone of the unemployment crisis. Experts and journalists are scrambling for answers.  Slate's Annie Lowrey speculates that perhaps men are being less picky. Maybe they're agreeing to wage and benefit cuts, taking menial positions, part-time work, or jobs outside their traditional purview, like nursing. She also wonders if there could be hiring discrimination afoot. Given the kind of inflammatory rhetoric coming from people like Michael Barone of the New York Post, who suggests that men are "hustling to acquire new skills and learn how to do different jobs, while many women sit back and accept whatever the macroeconomy doles out" -- that one doesn't seem implausible.

But we can't say for sure yet. What we do know is that while over the past few decades women have greatly expanded their power in the labor market, they're now losing ground in the wake of the financial meltdown. That's bad.

This is worse: The current attacks on the social safety net coming from Washington disproportionately hurt women. Under the guise of the sham debt-ceiling crisis, we hear of possible cuts to Social Security and Medicare --  programs that millions of women rely on.

Even though female participation in the workforce has jumped since the 1950s, the percentage of working age women who have jobs seems to have leveled off at around 70%, which is far below the rates for working age men (over 90 percent). Why is that? Well, until there is some freaky sci-fi breakthrough, only women can have babies. And they still bear the brunt of childcare. So most mothers still leave the workforce temporarily in order to give birth, while some leave for years to raise small children. This is why they generally receive smaller Social Security checks than men who have worked steadily. On the other hand, women live longer, and often have special burdens caring for children and grandchildren. So any decrease in Social Security -- call it chained CPI or whatever you like -- is especially injurious to women. (There is something ironic in this, given that it was a woman who brought us Social Security in the first place -- Frances Perkins, FDR's Secretary of Labor!)

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A few more facts: women represent two-thirds of retirees over 85. The average woman receives about $1,000 a month from Social Security. Half of women aged 65 and older rely on Social Security for at least 80 percent of their income. By the age of 85, 81 percent of women are unmarried. These are the women who would be hit hardest by schemes like the chained CPI.

Because women receive lower Social Security benefits, Medicare is particularly critical for them. Women comprise 57% of the Medicare population, and also make up three quarters of our most vulnerable Medicare beneficiaries -- those living in nursing homes or other long term care facilities.  Long-term care isn't cheap, and often the savings of such women run out. Then they have to turn to Medicaid. But of course, there's also plenty of talk of significant changes to the Medicaid system! There are many ways we could bring down the costs of health care, such as allowing the government negotiate for better prescription drug prices. But this fight was never really about bringing down costs for ordinary people, was it?

So what will happen to women who can't find jobs and may see the social safety net torn away? Back before the Social Security system, elderly women would often find themselves in poor houses or poor farms. These facilities, built for the destitute, were known for their minimal and often inhumane conditions. Before the New Deal, aging Americans lived in terror of ending up in such places if there were no family members to contribute to their upkeep. Nowadays, people have fewer children and live longer, so if the social safety nets are slashed, the likelihood of destitution will be even greater. The picture becomes quite Dickensian.

Women are in many ways the key to our economic well-being and recovery. A disaster for them is a disaster for everyone. Nancy Pelosi and other female leaders in Washington have started to make noise, and that's a good thing. The warning has been issued: throwing women under the bus to pay for a deficit caused by a banking crisis, out of control military spending, and health care priorities that benefit big Pharma is not acceptable.

Lynn Parramore is the editor of New Deal 2.0, Media Fellow at the Roosevelt Institute, co-founder of Recessionwire, and the author of Reading the Sphinx.

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Lynn Parramore Gets Feisty on Fox: Don't Make Grandma Pay for Sins of Wall Street

Jul 12, 2011

The gloves were off as New Deal 2.0 Editor Lynn Parramore waded into the deficit debate with Republican strategist Adam Geller on Fox News Live this week. On revenues, Lynn says no one's buying the GOP's claim that corporate tax evasion is as American as apple pie. And as for the supposed consensus behind "entitlement cuts," Lynn reminds Geller that "progressives do not believe that the sins of Wall Street should be paid for by your grandmother or mine." Check out the video below:

The gloves were off as New Deal 2.0 Editor Lynn Parramore waded into the deficit debate with Republican strategist Adam Geller on Fox News Live this week. On revenues, Lynn says no one's buying the GOP's claim that corporate tax evasion is as American as apple pie. And as for the supposed consensus behind "entitlement cuts," Lynn reminds Geller that "progressives do not believe that the sins of Wall Street should be paid for by your grandmother or mine." Check out the video below:

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Impact of Job Numbers Goes Far Beyond the Jobless

Jul 12, 2011Jeff Madrick

 

The high rate of joblessness suggests a deep malaise in America that begs for strong leadership.

A New York Times article on Sunday by the fine journalist Catherine Rampell suggested that a reason the jobs crisis in America (my phrase) is not getting sufficient attention is that the unemployment rate, even if a very high 9.2 percent, still means that nearly 91 percent are employed.

 

The high rate of joblessness suggests a deep malaise in America that begs for strong leadership.

A New York Times article on Sunday by the fine journalist Catherine Rampell suggested that a reason the jobs crisis in America (my phrase) is not getting sufficient attention is that the unemployment rate, even if a very high 9.2 percent, still means that nearly 91 percent are employed.

But we need to take a moment to clarify what high unemployment really means, and how broad its implications are. It is an indicator of overall economic weakness, not merely a number about those without jobs. And as such, it suggests that much is seriously wrong. It does not mean that 14 million are hurting people and the other 125 million are not.

First of all, we of course know that millions are looking for jobs and have given up or have taken part-time jobs when they want full-time jobs. That adds another 7 or 8 percent to the unemployed or underemployed. We are now are getting to the point where one out of six workers or so is having employment disappointments. We also know many have been unemployed for a very long time -- a record number, in fact.

Second, these people have relatives and friends who increasingly realize they may also get the axe. Their families, not only themselves, suffer.

Third, when you lose a job you now usually lose your health coverage -- or have to pay up big time to retain it. That adds to the misery.

In fact, far more people than 9.2 percent are upset by the high unemployment rate. About a quarter say in surveys it is our number one problem.

But high unemployment also implies little or no wage growth for most employees. There are two theories about this. One is the classical theory that when labor markets are loose, there is more supply and the price will not rise readily -- that is, the wage. The other is a little more Marxian in orientation. When people are losing their jobs, they get scared -- and they don't ask for a raise, they work more hours if asked, and on.

Since mid-2009, when the recovery technically began, there has been almost no increase in wages and salaries. But profits have soared by hundreds of billions of dollars.

That's almost never been the case before. Indeed, the relationship between job creation and GDP growth seems to have changed some time ago. Many people, including Nobel laureate Michael Spence, hardly known as a progressive economist, worry that something is deeply wrong -- and a lot of it may be about globalization.

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But when you consider that salaries and wages have risen slowly, stagnated, or fallen for almost all workers except those at the top for forty years, the American economic condition gets pretty frightening.

I think the unemployment rate suggests there is growing malaise in the nation. More and more people are pessimistic. Are Americans giving up on the future?

And yet both political parties talk far more about budget deficits than jobs. Obama has fallen into one of the great political traps of all time. On average, the media follow meekly behind. Yet Americans have long fallen for the deficit scare, back in the 1930s and even before that. That is an issue worthy of more discussion.

I wrote a few weeks ago on New Deal 2.0 that Obama should sound the jobs alarm. Leadership matters in America. That is the problem. Right now, we don't have it. Leaders have to tell Americans the economy is weak and the deficit is necessary right now.

But in sum, a high unemployment rate does not merely mean that 14 million Americans, and they alone, are suffering. It suggests far broader pain and suffering. And disappointment may turn to anger before we know it. The Tea Party is the first manifestation of this. What's next?

Roosevelt Institute Senior Fellow Jeff Madrick is the author of Age of Greed.

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The Real Crisis is Unemployment

Jul 11, 2011Marshall Auerback

A deal on the debt ceiling of the kind proposed by both parties will only make the jobs crisis worse -- and push deficits up.

"O, the heart's blood of a patriot! That's a fellow now that'd sell his country for fourpence-ay-and go down on his bended knees and thank the Almighty Christ he had a country to sell." - Irish proverb

We had a horrendous employment number last Friday. Leaving aside the headline details, (which showed unemployment rising from 9.1% to 9.2%), the household measure of employment fell by 445,000.

A deal on the debt ceiling of the kind proposed by both parties will only make the jobs crisis worse -- and push deficits up.

"O, the heart's blood of a patriot! That's a fellow now that'd sell his country for fourpence-ay-and go down on his bended knees and thank the Almighty Christ he had a country to sell." - Irish proverb

We had a horrendous employment number last Friday. Leaving aside the headline details, (which showed unemployment rising from 9.1% to 9.2%), the household measure of employment fell by 445,000.

Okay, it's just one number. But this measure of employment, which is never revised, now shows no employment growth over the last five months and very negative employment growth over the last three.

But it gets worse: The work week was down one tenth. Overtime was down one tenth. The labor participation rate at 64.1% was the lowest since 1984. The broad U6 unemployment rate rose from 15.8% to 16.2%. In other words, several other employment indicators in this report confirm the deep disappointment in the payroll series and the much more negative message of the household series.

And the President's response to this disaster: Get a deal done on the debt ceiling!

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that will need in order to make additional investments to grow and hire," Obama said.

He made his remarks just hours after the latest employment report was released.

And when they agree to the deficit cuts, then unemployment will fall...and I'll go on a diet by eating a bunch of Super Sized Big Macs.

Here's the problem: Nobody in Washington DC seems to understand that today's crisis of unemployment is all about a lack of effective demand in the US economy. The persistently high unemployment is about a lack of jobs, nothing more. It has nothing to do with the uncertainty over the debt ceiling negotiations, except to the extent that any future deal, which features the cuts mooted by both parties in the press, will create an even greater shortage of spending power in the economy. Furthermore, as Bill Mitchell has argued, "the financial nature of the crisis...means that any revival of private spending will be slow to return. So private firms and households are first of all going to try to reduce their debt levels to restore some security to their balance sheets."

This isn't your run of the mill recession; it's Japan's "balance sheet recession" writ large.

Yet President Obama maintains that cutting spending will somehow induce the private sector to invest and help reduce unemployment. He's wrong. A deal on the debt ceiling, of the kind that is being proposed by both parties, actually makes it much harder for the private sector to achieve this goal.

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To recap, a government deficit generates a net injection of disposable income into the private sector, generating an increase in its saving and wealth which can be held either in the form of government liabilities (cash or treasuries) or non-interest earning bank liabilities (bank deposits). If the nonbank public prefers bank deposits, then banks will hold an equivalent quantity of reserves, cash, and treasuries with the distribution among these government IOUs depending on bank preferences. By contrast, a government budget surplus has exactly the opposite effect on private sector incomes and wealth: As the government takes more from the public in taxes than it gives in its spending, this results in a net debit of bank reserves and reduction in outstanding cash balances held by the private sector. In other words, it drains wealth from the private sector.

Firms will only employ if there are sufficient spending to purchase the output that the workers produce. 9.2% unemployment and 16.2% underemployment is clear evidence that the demand deficiency which emerged after the Great Financial Crisis of 2008 is far from over. This problem existed well before anybody even spoke about the debt ceiling, let alone started negotiating another increase. Far from solving this scourge, the Administration's own proposals will exacerbate unemployment and almost certainly cause the government deficits to rise even further.

The President has his causation completely reversed: A growing economy, characterized by rising employment, rising incomes and rising capacity utilization causes the deficit to shrink, not the other way around. Rising prosperity means rising tax revenues and reduced social welfare payments. Cutting budget deficits when there is slack private spending growth and external deficits -- as the President and his Congressional negotiators are now proposing -- will erode growth and destroy net jobs.

There is zero evidence to support the idea that a nation which cuts public spending in situations where there is high unemployment and huge underutilized resources will grow and create jobs. The ongoing economic disaster in Europe illustrates precisely the opposite phenomenon.

But, hey, what's the worry? I'm sure the Administration's spin-meisters will simply argue that it's just a few headwinds (the "bump in the road" is SO yesterday). In the meantime, just to be on the safe side, the President appears open to cuts in Social Security (which today contributes zero to the budget deficit). Why? Because it will show "the markets" that we are "being responsible" about our deficit "problems", which in turn will do wonders to restore confidence and get us out of the ditch in which most Americans now find themselves (to use one of the President's favorite metaphors).

Almost since the days of his inauguration, Barack Obama has talked a lot about digging the American economy out of the ditch which he inherited from the previous Administration. But he should bear in mind the old expression: when you're in a hole, stop digging. The Democrats are now posing as the party of fiscal austerity, offering up cuts in entitlements if only those "irresponsible" Republicans would agree to tax increases (which will further deflate the economy into the ground). And we have much of the mainstream press praising the President for his "grown-up, statesmanlike" behaviour, as he tries to out-Hoover everybody. The grim examples accelerating across Europe appear to mean nothing. And to what end? The deficits will only get larger if cuts and tax rises of the magnitude contemplated by the President become law.

If the President and his team persist with his current ruinous deficit reduction fixation, they will turn that ditch into which the US economy has fallen into a coffin. At that point, the only people who will be celebrating any "achievement" over a debt ceiling deal will be the GOP hopefuls in the 2012 election.

Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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