The UAW Against the Volunteer State: Labor politics is desperate, thanks to capital mobility by Wendy McElroy

The United Automobile Workers (UAW) recently failed to unionize the Volkswagen assembly plant in Chattanooga, Tennessee. The campaign—and failure—revealed the desperation and changing dynamics of modern labor unions.

The UAW is the richest union in North America, with assets of reportedly more than $1 billion at the end of 2012. It is arguably also the most politically influential, because it donates large amounts of money to Democrats. Like most unions, however, its membership and dues are in decline while its costs, such as pension benefits, are climbing. According to the Bureau of Labor Statistics’ Union Members Summary (Jan. 24, 2014), there were 14.5 million members in 2013, compared with 17.7 million in 1983, and 11.3 percent of workers belonged to a union in 2013, compared to 20.1 percent in 1983.

For the UAW and, perhaps, labor unions in general, the Chattanooga vote was a pivotal event: Foreign manufacturers employ a huge—and non unionized—workforce.

The stumbling block: Foreign auto manufacturers such as Nissan, Volkswagen, Toyota, and Mercedes-Benz have set up plants in
Southern “right-to-work” states. These states defend a worker’s right not to join a labor union; other states allow closed shops in specific industries, meaning that they exclude non-union workers. A February 15 Forbes article explained, “In more than 30 years, none of the free-standing assembly plants owned by foreign manufacturers in the United States have ever been organized. (This doesn’t include factories that originally began as joint ventures.)”

According to CBC News, the UAW isn’t alone in its concern: “Detroit’s three automakers—Ford, Chrysler and General Motors—are increasingly anxious about the 78-year old union’s future.”

Why would the UAW’s future worry Detroit’s big three? Unions and corporate executives, though they’re usually cast as enemies, share a vested interest in keeping the union strong.

“For them, it’s a ‘devil you know’ situation. They worry that the 382,000-member UAW could be absorbed by a more hostile union. Such a merger could disrupt a decade of labour-management peace that has helped America’s auto industry survive the financial crisis and emerge much stronger, according to a person with knowledge of executive discussions,” CBC News reported.

A standard method by which to unionize an American workplace is to have at least 30 percent of employees request a union, usually in the form of signing a card or a petition. After the National Labor Relations Board (NLRB) approves the request, a secret-ballot election is held. If more than 50 percent of the employees vote for unionization, then a union is usually formed unless there are circumstances such as an appeal. A second procedure called a “card check” offers a different route; that’s when over 50 percent of workers request unionization. National Review explained what happens next: “The employer can choose to recognize the union, and it’s formed without a secret ballot. If the employer declines . . . a secret ballot election is held that requires majority support.”

The secret ballot has become a flashpoint, with surprising advocates and opponents. In decades past, unions pushed for secret ballots because they perceived a need to protect pro-union workers from threats or retaliation by employers. In short, secret ballots were a consciously pro-union measure to ensure workers could vote freely. Now, depending upon the politics of particular states and industries, unions want to make obsolete the secret ballot, which can function as an anti-union measure. That is, employees who vote secretly do not experience peer pressure or blowback from coworkers and union organizers. In some situations, this makes employees less likely to vote for unionization.

In recent years, Democrats have repeatedly introduced legislation into Congress that would automatically create a union without the step of a secret ballot or the need for employer consent. The only requirement would be for 50 percent of workers to request unionization. The legislative attempts have been unsuccessful so far. If the unionization in Chattanooga had succeeded, however, it would have established precedent, bypassing legislation altogether. It would have also made a crack in the barrier that has prevented the unionization of foreign manufacturers in the South. Unfolding the Chattanooga event reveals modern labor-union strategy.

The Pivotal Event

In February, the UAW seemed poised for victory in Chattanooga. A month earlier, it had publicly declared a victory by claiming that card check had demonstrated that a majority of workers wanted the union. It asked Volkswagen’s management for official recognition. But eight workers complained to the NLRB, reporting that the UAW had used thug tactics and misrepresentation in the ballot-casting. They also accused the management in Germany of threatening to cut the flow of work to the Chattanooga plant unless unionization occurred.

That might be the most interesting aspect of the story. As the Washington Post asked, “The German company is campaigning for the UAW, not against it, in a kind of employer-union partnership America has seldom seen. What gives?” Most foreign manufacturers oppose unionization of their American plants because it would usher in expensive benefits packages and weaken their control of workplace practices, such as hiring and firing. But labor practices in Germany are union-friendly. Volkswagen was undoubtedly targeted because the company is open to establishing a German-style works council, which would have been the first of its kind in America. A works council consists of blue- and white-collar employees who are partners in management decisions on issues such as productivity and workplace conditions. American labor laws, though, make this arrangement illegal without unionization. Specifically, federal NLRA statute section 8(a)(2) prohibits so-called “company unions,” which the VW works council would be categorized as.

The most powerful pushback against the UAW came from state officials who believed unionization would harm Tennessee’s economy and make the state far less attractive to business. One of the obstacles officials erected was a 2011 state law on secret ballots and the “selection of exclusive bargaining representative(s).” The law states,

Should employees and employers seek to designate an exclusive bargaining representative through an election, they have the right to a secret ballot election; if a secret ballot election is chosen, no alternative means of designation shall be used.

The state law has been called unconstitutional because it may contradict federal rules on unionization. Nevertheless, the state law clearly indicates Tennessee’s opposition. State Sen. Mark Green, the vice chairman of the Senate Commerce Committee, also called for Volkswagen to facilitate a secret ballot to protect workers’ privacy and shield them from intimidation. The likelihood of intimidation increases because most petition signatures are generated employee to employee, face to face. Green argued, “You’ve got seven guys standing around you who work with you every day and they’re saying, ‘hey, sign this card.’” Green concluded, “We don’t elect the governor that way, we don’t elect our representatives that way, the ballot is secret. That’s democracy.” The senator also claimed to know of four large manufacturers that were monitoring the Chattanooga situation before committing to expansion within Tennessee.

Gary Casteel, the UAW’s regional director, denied the charges of union intimidation and threw the accusation back at the state government. A secret ballot, he argued, would give “outside interests” a 40-day window in which to take out ads and otherwise communicate anti-union messages to VW workers. By contrast, Casteel claimed the cards in the card check would carry a simple, self-explanatory message and not be confusing.

On February 14, the Chattanooga Volkswagen workers cast a secret ballot. They defeated unionization by a vote of 712 to 626. The defeat occurred even though Volkswagen had signed a neutrality agreement, pledging not to interfere with the UAW’s efforts; such agreements are considered to be endorsements of unionization. Volkswagen workers also defeated unionization despite a strong drive by the UAW that included public support voiced by President Obama. They defeated it even though the NLRB facilitated the election by fast-tracking it.  An anti-union campaign headed by Sen. Robert Corker, Jr., and Tennesseans’ concern about unemployment, prevailed.

Conclusion

Predictably, the UAW has appealed the February 14 results and seeks a revote. The union accuses state officials of “dirty politics.” For example, it argues that officials threatened to withdraw state-financed incentives if Volkswagen workers unionized. As of this writing (March 27), the NLRB has set a hearing for April 21, but delays are probable. Rejecting the vote would mean rejecting the solid precedent of siding with the voice of workers. Accepting the vote would mean undercutting labor unions on a matter that may be key to their future. Whatever the decision, union politics in America is changing.

ABOUT WENDY MCELROY

Contributing editor Wendy McElroy is an author and the editor of iFeminists.com.

EDITORS NOTE: The featured photo is courtesy of FEE and Shutterstock.

Blue State Blues

Two headlines on Tuesday, March 18, are bound to give Democrats across the country a really bad case of heartburn. The Washington Free Beacon headline read: “Born to Run Away From High Taxes,” while a New York Times headline read, “Businessman Wins Republican Primary for Governor in Illinois.”

The Free Beacon story details the extent to which “New Jersey’s high taxes may be costing the state billions of dollars a year in lost revenue as high earning residents flee (the state).” According to the Free Beacon story, the study,” titled Exodus on the Parkway, was completed last year by Regent Atlantic, of Morristown, New Jersey, but held for publication until after the 2013 elections. The study stated it intentionally withheld its results because 2014 is not an election year for state legislators… and the dire findings of the study would “hopefully encourage a serious and objective dialogue aimed at addressing and solving the challenges that New Jersey currently faces.”

The study found that, since the Democrat-controlled legislature passed the “millionaire’s tax” in 2004, signed into law by Democratic Governor Jim McGreevey, New Jersey has been steadily losing high-net-worth residents. That ill-advised and counter-productive approach to revenue enhancement, which presupposes that the rich will just sit still forever and allow themselves to be taxed back into the middle class, or worse, imposed a 41 percent increase in the state income tax on those with annual incomes of $500,000, or more.

Lacking the capacity to understand basic economic principles, and having no ability to learn from their mistakes, New Jersey Democrats have continued to push for even higher taxes on the wealthy. Under threat of veto by a tough-minded Republican governor, Chris Christie, they have failed on three successive attempts.

According to the Regent Atlantic study, New Jersey collects $10 billion annually in personal income taxes, $4.2 billion of which is paid in by just one percent of the population. Before the millionaire’s tax was enacted, the aggregate net worth of New Jersey residents increased by $98 billion over a four year period. However, in the four year period following the tax increase, 70 percent of that aggregate increase in net worth has fled the state. Because New Jersey residents have learned how to vote with their feet, the state lost taxable income of $5.5 billion in 2010 alone because residents moved to more tax-friendly states.

However, it’s not just the wealthy that New Jersey Democrats wish to bilk in their never-ending quest to buy enough votes to maintain themselves in power. Democrats in the legislature have also proposed a five-cent-per-gallon increase in the gasoline tax, a tax on water consumption, a tax on plastic bags, a tax on plastic water bottles, and yet another increase in the income tax. These are increases that would damage everyone who lives in or drives through the Garden State.

Apparently New Jersey Democrats believe that they have reached nirvana when a majority of the people are on food stamps, AFDC, Medicaid, unemployment compensation, and workman’s compensation, while the state confiscates 100 percent of the incomes and assets of those foolish enough to continue working… those for whom a job offer in Detroit would look like the opportunity of a lifetime.

Some 800 miles to the west, in Illinois, the state that currently resembles Detroit more than any other, wealthy private equity manager, Bruce Rauner, has won the Republican nomination for governor. Rauner, who spent $6 million of his own money in a four-way race for the GOP nomination, won 40.1% of the vote in defeating three better known GOP candidates, all long-time GOP officials in Springfield.

If Rauner is elected… and it looks as if he has the right stuff to get the job done… he will be taking on the toughest job of any Republican governor in the nation. Illinois is, after all, an economic basket-case, the worst run, most corrupt state in the nation.

On January 12, 2011, Investors Business Journal reported that the State of Illinois faced a budget deficit of $15 billion, “equivalent to more than half the state’s general fund.” According to the report, “(Illinois) officials warned that state government might not be able to pay its employees. It certainly would fall further behind in paying the businesses, charities, and schools that provide services on the state’s behalf.”

In response to that economic tsunami, the Governor of Illinois, Democrat Pat Quinn, and the Illinois legislature, controlled by Democrats (35-24 in the Senate and 64-54 in the House), developed a response that only a bunch of Democrats would see as a viable solution. In the midst of a major national recession they increased personal income taxes by 66% and corporate taxes by 46%, increases that were expected to produce an additional $6.8 billion per year… assuming, of course, that every employer then in Illinois, would remain in Illinois.

A year later, the Illinois Comptroller’s Office estimated that the backlog of unpaid bills was nearly $8 billion… and this after Democrats in Springfield placed a crushing load of new taxes on the shoulders of taxpayers and corporations.

Reactions were predictable. According to the Journal, neighboring states immediately began plotting to “lure business away from Illinois.” Governor Scott Walker (R-WI) said, “Years ago, Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, ‘Escape to Wisconsin.’ Today we renew that call to Illinois businesses, ‘Escape to Wisconsin.’ You are welcome here.”

Then-Governor Mitch Daniels (R-IN) said, “It’s like living next door to the ‘Simpsons’ – you know, the dysfunctional family down the block.” Gov. Daniels may have mixed a metaphor. To say that living next door to Illinois is like living next door to the Adams Family may have been a more apt comparison.

But now it appears that Republicans are about to field a candidate with some business sense who is not afraid to tell the people of Illinois what they need to hear, while Democrats continue to insist on telling them whatever is necessary to get their votes on Election Day. And while union leaders in Illinois could not have failed to notice that their state is now surrounded by states where right-to-work was once thought to be impossible… Indiana, Iowa, Michigan, Ohio, and Wisconsin… right-to-work is probably not something that will happen in Illinois until a hard-nosed Republican governor can make Republicanism respectable everywhere in the state except in America’s most corrupt city… Chicago.

Bruce Rauner may be that man. According to the Times story, Rauner has already angered the public sector unions. He has criticized union leaders, advocated charter schools, and suggested that recent reforms in the public employee pension system… with unfunded liabilities of about $80 billion… were far too timid.

Never in American history has a political party been as vulnerable to resounding defeat as is the Democrat Party in 2014. The only thing the Republican Party needs is leadership. With John Boehner (R-OH) as Speaker of the House, with Mitch McConnell (R-KY) as Minority Leader of the Senate, and with Eric Cantor (R-VA) as House Majority Leader, the GOP is in great danger of wasting the opportunity to literally devastate the Democratic Party. Never before have there been three political leaders more capable of snatching defeat from the jaws of victory.

Although most pundits agree that Republicans will maintain their majority in the House of Representatives, many hedge their bets by saying that the party could actually lose a few seats in the House. I believe the Republicans will maintain their majority in the House, picking up an additional five to ten seats in the process.

In the Senate, most pundits hedge their bets by predicting that Republicans have a shot at taking control, but with a slim majority of only one or two seats. I believe that those predictions are far too conservative and fail to take into account the foul mood of the American people and the intense unpopularity of Barack Obama, Harry Reid, and Nancy Pelosi.

Republicans have 15 Senate seats at stake. I believe Republicans will retain all of those seats. On the other hand, the Democrats have 21 seats at stake, only eight of which are all but certain to remain in Democrat hands. The remaining 13 seats are either leaning heavily Republican or are vulnerable to Republican takeover. A net gain of 10 seats by the GOP is not outside the realm of possibility.

All we need are leaders and candidates who are willing to take the battle to the enemy in a most forceful and straightforward way. At a recent rally in Illinois, Bruce Rauner shouted, “Let’s shake up Springfield! Let’s go get ‘em!” Republicans should never doubt that we have the people and the issues on our side. And if we can get Republicans across the country to adopt that same rallying cry, to say, “Let’s shake up America! Let’s go get ‘em!” we can win a victory in November that will make the Republican Revolution of 1994 pale by comparison.

EDITORS NOTE: The featured map is courtesy of Theshibboleth. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

Advice to Young, Unemployed Workers by Jeffrey A. Tucker

We are now in the fifth year of very choppy hiring markets for young workers. The latest unemployment numbers once again leave them out from posted gains. Not even the boom in temporary employment included them.

The United States has one of the highest rates of unemployment among 20-to-26-year-olds in the world. Nearly half of the U.S. army of unemployed is under the age of 34. As for those who are hired, there is a huge gap between wage expectations and paycheck realities, which is exactly what you would expect in a post-boom world. A survey by Accenture finds that more than 41 percent of recent U.S. college graduates are disillusioned, underemployed, and not using their college degrees in their work.

The young generation faces challenges unlike any that most people alive have seen. This situation requires new adaptive strategies.

What follows, then, is my letter of advice to young workers.

Dear Young Workers:

Even if it weren’t for the economic stagnation, you would already be facing a tough market. That’s because you are showing up at the job marketplace nearly empty-handed. Our society long ago decided it was better for you to sit in desks for 16 years than to gain any real work experience in the marketplace that is likely to hire you later.

Even if it were legal for you to work when you are capable of doing so—from the age of maybe 12 or 13—the government has imposed these wage-floor laws that price your services out of the market. Then you are told that if you stay in school, you will get a great, high-paying job right out of college. Then it turns out that employers aren’t interested in you. You are beginning to sense that employers think you have few marketable skills and have no demonstrated predisposition to produce.

Here’s the root of the problem: People have been lying to you all your life.

As a young child you were repeatedly fed slogans about the equality of everyone. The urges to compete and win were suppressed in your childhood games, while sharing and caring for others were exalted above all other values.

Then at some point—somewhere between the ages of 7 and 10—something changed. All that caring/sharing stuff ended and a world of dog-eat-dog began. You were expected to get perfect grades, to excel at math and science, to be perfectly obedient, to stay in school for as long as possible. You were told that if you did that, everything would work out for you.

It does work out for some. But only a small minority of people are disposed to both compliance and rote learning. And even for those people, not everyone gets what he’s been promised. As for the rest, there is no plan in place. Those who fall through the cracks are expected to make it on their own somehow.

How do you make it? It all comes down to remunerative work. And there’s the barrier you face right now. You have the desire and you are looking for some institution that values what you have to contribute. But you can’t find the match.

Consider: Why does any business hire an employee? It happens based on the belief that the business will make more money with the employee than without it. The business pays you, you do work, and, as a result, there are greater returns coming in than there would otherwise be.

But think through what this means. It means you have to add more value than you take out. For every dollar you earn, you have to make it possible for the business to earn a dollar plus something extra. This task is not easy. Businesses have costs to cover in addition to your salary. For example, government mandates that businesses be insured. You have to be trained. There could be healthcare costs, too. There are uncertainties to deal with. All of these add to the burden that you place on the business, which adds to the costs of hiring you.

What this means is you have to be more valuable than you think. Why are minimum wage jobs so hard? Because it’s difficult for an inexperienced worker to be worth paying that much. The employer has to extract as much value as possible from the relationship with you just to make that relationship happen at all. That can’t happen right away because odds are you are losing the company money in the first months of employment simply because you are untrained. You end up scrambling like crazy just to earn your keep.

If you already understand this rule—that you must add more value than you take out—you now know more than vast numbers of young workers. And this gives you an advantage. While everyone else is grumbling about the workload and low pay, you can know why you are having to hustle so much and be happier for it. You are producing more for the company than you take out. Doing that consistently is the way to get ahead. In fact, it’s the key to life.

But in order to get ahead, you have to be a player in the first place. It does little good to sit around and wait for the right job at the right pay. Forget all your expectations. If something, anything, comes along, you should jump on it immediately. No job is too menial, despite what you have been told. The goal is just to get in the game. Yes, you have much higher salary expectations, and those might be met someday. But not yet.

The first step is to get into the game at some wage, just something, somewhere. The fear that such work, whatever it is, is somehow beneath you is a serious source of personal undoing. Those who are willing to perform the most “menial” of jobs are the people who can make a good life for themselves. Just because you perceive the job as “menial” does not mean it is not valuable to others and especially, ultimately, to you.

You learn from every job you have. You learn how to interact with others, how a business runs, how people think, how bosses think, and how those who succeed get ahead versus those who fail. Working is a time for learning, as much as or more than school.

People’s number-one fear is that their job will somehow define their lives. Hence, they conclude that a job stocking shelves at Walmart will redefine or dumb down who they are. This notion is absolutely untrue. That job is a brick in your foundation.

In order to get any job, you have to do more than drop off a resume or file one online. You have to emerge from the pack. That means that you have to sell yourself like a commodity. You have to market yourself (and marketing is the least-appreciated and yet most-crucial feature of all commercial acts). That is not degrading; it is an opportunity. Find out everything you can about the company and its products. After you apply, you need to go back and back, meet the managers, meet the owners, all with the goal of showing them how much value you will add to their enterprise.

In this new job, success is not hard, but it requires discipline. Just follow a few simple rules. Never be late. Do first whatever your immediate supervisor tells you to do. Do it much more quickly and thoroughly than he or she expects. When that is done, do some unexpected things that add value to the environment. Never complain. Never gossip. Never partake in office politics. Be a model employee. That’s the path toward thriving.

It’s not just about adding value to the company. It’s about adding value to yourself. The digital age has given us all amazing tools for accumulating personal capital. Get a LinkedIn account and attach your job to your personal identity. Start putting together that essential network. This network is something that will grow throughout your life, starting now and lasting until the end. It could be the most valuable commodity you have outside your own character and skills. Take possession of your work experience and make it your own.

While doing all this excellent work, you need to be thinking about two possible paths forward, each of them equally viable: advance within this one firm or move to another firm. You should go with whichever is to your best advantage. Never stop looking for your next job. This is true now and always throughout your life.

A huge mistake people make is to embed themselves emotionally in one institution. The law encourages this attitude by tying all sorts of advantages to the status-quo job you currently hold. You get health benefits, time off, scheduled raises, and it is always easier to stick with what you know. To do so is a mistake. Progress comes through disruption, and sometimes you have to disrupt yourself to make that progress happen.

To be willing to forgo the security of one job for the uncertainty of another gives you an edge. Average people around you will sacrifice every principle and every truth for the sake of security. People, with very few exceptions, fear the uncertainty of an unknown future more than the seeming security of a known status quo. They will give up every right and every bit of their souls for the promise of security (whether it be through a paycheck or an armed police officer), even to the point of personal misery or obeying a wicked despot (whether it be a boss or a dictator). You can break free of this tendency, but it takes courage, risk-taking, and a conscious act of defying convention.

You should always think of yourself as a productive unit that is always on the job market. You can go from institution to institution, always upgrading your skills and hence your wages. Never be afraid to try something new or to plunge into a new work environment.

Clever finance management here is crucial. Never live at the level that matches your income. Your standard of living, instead, should match your next-best employment opportunity, the one you have forgone or the one you might take next. If you stick with this practice—and it requires discipline—you will be free to choose where you work and to take greater risks. You will also develop a cushion should something go wrong.

At the same time, there could be advantages to sticking around one place, even as everyone else around you is moving from here to there. Even if that happens, you should still think of yourself as being on the market. You are governing yourself. Don’t let yourself be beholden to anyone, but understand also that no one owes you a living. That’s the only way to make clear judgments about your career path.

At every job, you are going to learn so much about human ethics, psychology, emotions, and behavior. Most of what you will learn will be enlightening and encouraging. Some of it, however, is not pretty and might come as a shock.

First, you will discover that people in general are extremely reluctant to admit error. People will defend an opinion or an action until the end, even if every bit of logic and evidence runs contrary. Sincere apologies and genuine admissions of error and wrongdoing are the rarest things in this world. There is no point at all in demanding apologies or in becoming resentful when they fail to appear. Just move on. Neither should you expect to always be rewarded for being right. On the contrary, people will often resent you and try to take you down.

How do you deal with this problem? Don’t get frustrated. Don’t seek justice. Accept the reality for what it is. If a job isn’t working out, move on. If you get fired, don’t seek vengeance. Anger and resentment accomplish absolutely nothing. Keep your eye on the goal of personal and professional advancement, and think of anything that interrupts your path as a diversion and a distraction.

Second, we all want to believe that doing a great job and becoming excellent at something will lead to personal reward. This is not always or even often true. Excellence makes you a target of envy from those around you who have failed by comparison. Excellence can often harm your prospects for success. Meritocracy exists, and even prevails, but it is realized through your own initiative, and it is never just granted freely by some individual or institution. All personal and social progress comes about because you alone push through the attempts of everyone around you to stop it.

Third, people tend to possess a status-quo bias and prefer to follow orders and instructions; most people cannot imagine how the world around them might be different through initiative and change. If you can train yourself to imagine a world that doesn’t yet exist—to exercise the use of imagination and creativity in a commercial framework—you can become the most valuable person around. You might be among those who can be real entrepreneurs. You might even change the world.

As you develop and use these talents, and as they become ever more valuable to those around you, remember that you are not infallible. The commercial marketplace punishes pride and arrogance and it rewards humility and the teachable spirit. Be happy for your successes, but never stop learning. There is always more to know because the world is ever-changing, and none of us can know all things. The key to thriving in this life is to be prepared to not only change with it but to get in front of the change and drive it.

From where you are now, unemployed with few seeming prospects, your future might look hopeless. This perception is not true. There are barriers, to be sure, but they are there to be overcome by you and you alone. The world does not work like you were told it works when you were a kid. Deal with it and start engaging the reality around you right now just as it is, using intelligence, cunning, and charm. You are the decision-maker, and whether you succeed or fail ultimately depends on the decisions you make.

In many ways, you are a victim of a system that has conspired against you. But you get nowhere by acting like a victim. You don’t need to be a victim. You have free will and the capacity for self-governance; indeed, you possess the human right to choose. Today is the day to start exercising it.

Find a Portuguese translation of this article here.

20121129_JeffreyTuckeravatar (1)ABOUT JEFFREY A. TUCKER

Jeffrey Tucker is a distinguished fellow at FEE, CEO of the startup Liberty.me, and publisher at Laissez Faire Books. He will be speaking at the FEE summer seminar “Making Innovation Possible: The Role of Economics in Scientific Progress.”

EDITORS NOTE: The featured photo is courtesy of FEE and Shutterstock.

Wages Are Like Love by Jeffrey A. Tucker

“The circumstances of time and place are no different for employers and employees.” – Jeffrey Tucker.

All this talk about raising the minimum wage has very little to do with reality. Raising it will not create a single job—if you aren’t earning a wage, making yourself more expensive is not going gain you a job—and will not likely cause anyone’s wages to rise. It’s hard to find anyone who is actually willing to contradict those claims, because they stem from basic price theory: Less of the same good will be purchased at a higher price than a lower price.

The timing is also incredibly bad. Business is already dealing with huge cost increases because of Obamacare. Many businesses are in full protest mode. Plus, employment markets are soft.

Economic growth in general is under downward pressure, with even past growth rates being revised downward. Economic growth is so pathetic now that Janet Yellen, the new head of the Fed, took a page from the Soviet playbook and suggested the bad weather itself is what is to blame—a line still used by Zimbabwe to explain its perpetual woes. It’s a heck of a time to force higher wages on businesses.

But wait. The New York Times has another view.

The writers and editors are arguing for President Obama to increase the minimum wage by executive fiat. And they use a novel argument based on 2013 research published by the Institute for Research on Labor and Employment at Berkeley University. This new research, based on data from many regions and time periods, suggests one clear effect of higher minimum wages. The labor force that remains after the wage hike tends to stick around longer because people don’t tend to move from job to job.

Now, in some way, this conclusion follows intuition. Once a business has trained someone and then gets coerced into paying that person more than he or she would otherwise earn, the business is going to be ever more dedicated to squeezing every bit of actual labor out of the person.

Business is less inclined to hire expensive new people and more inclined to press existing labor for performance. Workers are going to be less willing to risk leaving a crummy job that they are overpaid for doing because the job options have become tighter and muddier thanks to an increased wage.

In other words, higher minimum wages more deeply entrench what has come to be called “job lock.” Whether the employee and employer are happy with the arrangement or not, jobs tend to be frozen in place as a result of less fluid markets. People cling to what is known and what exists—the devil you know. This makes sense. Markets are synonymous with change. The less markets are allowed to work, the more stagnation you can expect in every area of life.

That doesn’t sound so hot, does it? But there’s another way to spin this effect, and The New York Timeseditorial page does its best to provide just such a spin. In fact, the editorial treats all of this research regarding job lock as wonderful news. It shows that “workers were less likely to leave on their own, and managers were more likely to keep the workers they had on staff to avoid the cost of recruiting and training replacements.”

Remarkable, isn’t it? In this rendering, business is saving money by raising wages, so what’s not to like? To be sure, there is nothing wrong with business doing this on its own. Retaining employees is sometimes good and sometimes bad, depending on a forecast of the future. It all depends, and surely it should be up to business and its labor force to make these decisions without bureaucratic fiat intervening.

What the editorial suggests is that higher wages need to be forced on business because otherwise managers would not understand their own interests. Businesses makes thousands of decisions every week regarding inventory, real estate, websites, accounting, product development, marketing, research and development, and vastly more, but, according to the minimum wage idea, they are clueless about how to manage the wages and salaries of their own workforce with an eye to profit maximization. For this, businesses need government to tell them what to do.

Do you see the presumption here? It is that the Department of Labor—not a profit-making firm but one run by people whose wages and salaries are dictated by law rather than markets—is in a better position than the private sector to know what the market demands. That’s implausible on the face of it, unless you fundamentally believe that markets are dumber than governments and that the price system is nonfunctioning.

That lack of basic economic understanding is only the beginning of the frustrations that economists have when looking at these debates. The urge to boost the minimum wage is driven not by economic considerations but political ones. It is a favor thrown toward unions and large corporations—institutions that already enjoy or pay high wages—at the expense of smaller companies or unemployed/marginal workers who have a hard time gaining any kind of foothold in the market.

The minimum wage also provides public relations benefits to politicians who are more readily seen as people who help people live better lives.

The cited research and the editorial are probably right that higher wages mandated by law tend to lock down existing jobs. But how they can argue that this is a good thing is a real puzzle.

In the real world, wages and salaries are like love; they’re complex and personal matters determined by concerns tied to the peculiarities of time and place. So they’re impossible to legislate from the outside without doing harm. For example, it might be to the advantage of a young person to work for very low wages as a way of getting in the door. Or there might be a benefit to working for free as a way of gaining necessary training.

In the real world, there are occasions when it makes sense to accept a much lower wage than you are currently getting as a way of earning a stake in a company on the rise.

Consider the culture of a startup, for example. Most of the workers are working for free or even negative wages in the hopes of creating something wonderful for the future. This has become a way of life for many people who are living in the tech world. They are making a bet that they can apply their own “sweat equity” to create something marvelous for the future. This is not a small issue, since these are the companies creating our future for us. They do not conform to the minimum-wage model of enterprise.

A consistent effort to impose minimum wages would rule out the startups that are creating the new technologies and services that are making the future possible. These startups ignore the law, which is the only way these enterprises work.

Our central planners tell us all what we should earn and what we should pay. In the end, these are intimate details of life that are unique to our lives, to time, to place. Central plans will always miss the mark and end up forcing inapplicable models upon us that do not meet the needs of a free-enterprise economy. That they believe they know is an expression of arrogance and an expression of an underlying belief that force is a better system than agreement.

20121129_JeffreyTuckeravatarABOUT JEFFREY A. TUCKER

Jeffrey Tucker is a distinguished fellow at FEE, CEO of the startup Liberty.me, and publisher at Laissez Faire Books. He will be speaking at the FEE summer seminar “Making Innovation Possible: The Role of Economics in Scientific Progress.”

Florida’s 303 public pension systems are unsustainable

Florida has the third highest number of public pension systems in the United States. According to the U.S. Census Bureau the states with the most public pension systems were Pennsylvania (1,425 systems), Illinois (457 systems) and Florida (303 systems).

The U.S. Census Bureau publishes The Annual Survey of Public Pensions: State- and Locally-Administered Defined Benefit Data, which is a census of all 222 state government pension systems and a sample of local government pension systems. The latest report was published in August 2013.

The six states with the largest amounts of total state and local cash and investment holdings in 2011 (the latest year data is available) were California ($600.0 billion), New York ($319.3 billion), Texas ($192.6 billion), Florida ($157.8 billion), Ohio ($152.4 billion) and Illinois ($127.7 billion) in total holdings and investments. Total holdings and investments in these states comprised just over half (51.2 percent) of total holdings and investments for the United States.

The Florida pension system is overseen by the State Board of Administration (SBA), which was created by the Florida Constitution and is governed by a three-member Board of Trustees (Trustees), comprised of the Governor as Chair, the Chief Financial Officer and the Attorney General.

The basic problem is there are fewer paying into public pensions with a growing number taking funds out of the systems. The report looks at active public pension members versus beneficiaries over time. The ratios of member to beneficiaries are: 1991 2.8 to 1, 2001 2.3 to 1 and 2011 1.7 to 1. Public pension systems are unsustainable.

For a larger view click on the chart.

The Florida Retirement System (FRS) carries the bulk of the public pension system load in the sunshine state. Cities, counties, school boards and public hospital employees pay into this system. According to the MyFRS website, “The FRS Pension Plan funding valuation takes place annually, available December 1st and was 86.9 percent funded, as of July 1, 2012. You can view a chart that compares the plan’s actuarial liabilities to the plan’s actuarial assets for the past five fiscal years. The annual benefit payments to FRS retirees and beneficiaries (shown in white on the chart) are a part of the overall plan liabilities. The market value of the total assets of the FRS Pension Plan is updated monthly.”

The Census Department reports the following public pension data for Florida (in thousands of dollars): Total contributions of $4,993,460, total employee contributions of $349,947, contributions from the state government $875,190, and from local government $3,768,323. Contributions from state and local government means from Florida taxpayers.

According to the report in 2011 Florida’s public pension systems payed out between $20,000 to $24,999 on average.

Defined benefit public pension programs are a growing financial burden for cities, counties, school boards and public hospitals. If one pension system fails Florida taxpayers will be left holding the bag.

RELATED: Florida’s public pensions still bleeding taxpayers

The decline and fall of America’s unions

“Hell hath no fury like a bureaucrat scorned.” – Milton Friedman

Many blame the decline of union membership on Republicans and big business. But is that what history tells us? The answer is: No!

As political power becomes more centralized there is an irreversible decline in the power of unions. It is a cause and effect that cannot be denied or stopped.

American unions began forming in the mid-19th century in response to the social and economic impact of the industrial revolution. National labor unions began to form in the post-Civil War Era. The Knights of Labor emerged as a major force in the late 1880s, but it collapsed because of poor organization, lack of effective leadership, disagreement over goals, and strong opposition from employers and government forces.

Government forces are accelerating the collapse of unions. But how?

Oleg Atbashian in his book Shakedown Socialism writes, “Union perks mean nothing when there is nothing left to redistribute. The Soviets learned it the hard way. The American unions don’t seem to be able to learn from the mistakes of others.”

A recent example is how the unions first supported the Affordable Care Act and are now opposing it.

Townhall.com reported in July 2013, “The leaders of three major U.S. unions, including the highly influential Teamsters, have sent a scathing open letter to Democratic leaders in Congress, warning that unless changes are made, President Obama’s health care reform plan will “destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

If that’s not bad enough, the Affordable Care Act, if not modified, will “destroy the very health and wellbeing of our members along with millions of other hardworking Americans,” the letter says.

Atbashian uses the example of Poland’s Solidarnosc, an independent union that spearheaded the overthrow of the oppressive Communist regime in 1989.  Why? Because, “…Current [union] perks can only exist in a free and competitive economy that ensures growth and generates wealth – known as ‘capitalist exploitation’ in the lingo of the champions of ‘redistributive justice’.”

Unions are only relevant if they retain their control to collectively bargain for wages and benefits. If the government takes over this role, as it did workplace safety with OSHA, then unions are doomed.

When government becomes the sole arbiter of the social and economic impact of industry, then unions are forced to submit.

Atbashian notes, “The workers are not herd animals, nor are they a separate biological species with a different set of interests. They are as human as anyone else who possesses a mind and free will, and therefore their long-term interests are not different than the rest of humanity. And since the interests of humanity lie with liberty, property rights and the rule of law, this is what the unions should stand for.”

Milton Friedman, in Free to Choose: A Personal Statement, wrote, “The ICC [Interstate Commerce Commission] illustrates what might be called the natural history of government intervention. A real or fancied evil leads to demands to do something about it. A political coalition forms consisting of sincere, high-minded reformers and equally sincere interested parties. The incompatible objectives of the members of the coalition (e.g., low prices to consumers and high prices to producers) are glossed over by fine rhetoric about ‘the public interest,’ ‘fair competition,’ and the like. The coalition succeeds in getting Congress (or a state legislature) to pass a law. The preamble to the law pays lip service to the rhetoric and the body of the law grants power to government officials to ‘do something.’ The high-minded reformers experience a glow of triumph and turn their attention to new causes. The interested parties go to work to make sure that the power is used for their benefit. They generally succeed. Success breeds its problems, which are met by broadening the scope of intervention.”

Friedman noted, “Bureaucracy takes its toll so that even the initial special interests [e.g. unions] no longer benefit. In the end the effects are precisely the opposite of the objectives of the reformers and generally do not even achieve the objectives of the special interests. Yet the activity is so firmly established and so many vested interests are connected with it that repeal of the initial legislation is nearly inconceivable. Instead, new government legislation is called for to cope with the problems produced by the earlier legislation and a new cycle begins.”

The “angel of death” for unions is progressivism, its primary weapon is big government bureaucrats, the anti-union soldiers.

RELATED: 

Union membership declines in 2012 – US Department of Labor

Under Obama, black unemployment back to twice the white rate – PEW Research

Teacher Makes $4 Million Dollars a Year

In this past weekend’s Wall Street Journal, journalist and author Amanda Ripley, profiled a teacher in South Korea who makes $4 million a year. Yes … $4 million. His name is Kim Ki-Hoon and he teaches in one of South Korea’s private, after-school tutoring academies called “hagwons” where his lectures are videotaped then available for purchase on the internet. Mr. Ki-Hoon is paid according to his demand (which, evidently, is pretty high) in what Ms. Ripley calls “a free market for teaching talent.”

These private tutors are essentially “free agents”, meaning they don’t receive a base salary—their pay is based on performance. So, how is their performance evaluated?

Ripley writes, “Performance evaluations are typically based on how many students sign up for their classes, their students’ test-score growth, and satisfaction surveys given to students and parents.”

In South Korea, students truly are the customers. If you are a highly-respected teacher in a hagwon, countless numbers of students will pay for your services, which, as Mr. Ki-Hoon has demonstrated, can become quite lucrative. Most importantly, they are getting results.

South Korean students routinely outperform students in the United States on international tests. However, this wasn’t always the case. Ripley writes, “Sixty years ago, most South Koreans were illiterate; today, South Korean 15-year-olds rank No. 2 in the world in reading, behind Shanghai. The country now has a 93% high-school graduation rate, compared with 77% in the U.S.”

A startling statistic that Ripley uncovers is that South Korean parents spend $17 billion a year on tutoring services similar to Ki-Hoon’s, while American parents spend approximately $15 billion a year on video games. According to Ripley, in South Korea, “if parents aren’t engaged, that is considered a failure of the educators, not the family.”

So, what can the United States learn from high-performing countries like South Korea when it comes to educating our kids? Ripley has embarked on finding the answer to this question in her upcoming book, The Smartest Kids in the World—and How They Got That Way, which will be released on August 13.

Ms. Ripley will be providing keynote remarks at the U.S. Chamber of Commerce Foundation’s upcoming education summit, Connecting the Dots, on September 17 to share what she has learned while researching the book. The annual summit will bring together leaders in business, education, and workforce development to discuss issues which are vital to America’s competitiveness.

EDITORS NOTE: This column is cross-posted with permission from the U.S. Chamber of Commerce Foundation’s Education and Workforce blog.

Milton Friedman wrote, “Education spending will be most effective if it relies on parental choice & private initiative — the building blocks of success throughout our society.” 

Five Florida cities that may be future Detroits

For a larger view click on the map.

WDW- FL reported that one-third of Florida’s cities are in “perilous financial positions“. The reasons: the increasing burden of  growing retirement and medical costs for government retirees coupled with shrinking revenues.

Luke Rosiak from the Washington Examiner did an analysis to determine which US cities have a larger proportion of government workers to population than Detroit. Rosiak used the Census Bureau’s 2011 Annual Survey of Public Employment and Payroll to rank every U.S. city with a population of 200,000 or more.

Rosiak notes, “Remarkably, the Census Bureau excluded from these figures all teachers and education professionals, which make up the largest group of local government employees.”

Rosiak reports, “Detroit declared bankruptcy due in no small part to $3 billion in unfunded public employee pensions owed a sprawling city workforce that kept growing even as the city’s population shriveled, but a Washington Examiner analysis found that 19 major American cities have even bigger ratios of such workers to residents.”

“What’s more, seven of the 19 cities with larger relative workforces than Detroit paid workers more than twice as much as the Motor City did its employees,” states Rosiak.

To view the map with all of the city data click here.

Below are those Florida cities listed by Rosiak (Note: some city government agencies and public school teachers/education professionals are not counted):

TAMPA

Residents per employee   79
Population: 335,709
Employees: 4,244
Annual payroll: $540,168,672
Average compensation: $127,278
 

ST PETERSBURG

Residents per employee   83
Population: 244,769
Employees: 2,943
Annual payroll: $170,042,328
Average compensation: $57,778
 
 

ORLANDO

Residents per employee   85
Population: 238,300
Employees: 2,799
Annual payroll: $338,968,872
Average compensation: $121,103
 
 

JACKSONVILLE

Residents per employee   87
Population: 821,784
Employees: 9,368
Annual payroll: $1,037,019,744
Average compensation: $110,698
 

MIAMI

Residents per employee   101
Population: 399,457
Employees: 3,923
Annual payroll: $479,194,080
Average compensation: $122,149
 
 

RELATED COLUMNS:

New Poll: Detroit Bankruptcy Popular in Michigan

A whole bunch of really depressing facts about Detroit

Did you know this is National Employee Freedom Week?

National Employee Freedom Week is a national effort “to inform union employees about the freedoms they have to opt out of union membership and let them make the decision that’s best for them.” Often that choice is freeing themselves from union membership, becoming an agency fee payer, or identifying as a religious/conscientious objector.

According to the National Employee Freedom Week website:

Because Florida is a Right-to-Work state, Floridians do not have to join or pay dues to any union organization in order to keep your job, salary, benefits or seniority. If you are already a member of a union, you can resign your membership by submitting a written notice to your union. A generic opt-out letter is available here. Florida employees will need their union’s address and contact information.

NEFW recommends that union employees make a copy of their letter and either deliver it in person and receive a stamped copy or mail it with Certified Mail Return Receipt Requested Signature. This protects the employee in case, a union boss “loses” your letter. NEFW also recommends sending a copy of the letter to your employer’s payroll department.

NOTE: State laws can differ depending on your profession, please consult with an employee rights organization if you have questions about your specific situation.

Non-union alternatives:

For Teachers:

Association of American Educators (AAE) – $15 per month membership
Christian Educators Association International (CEAI) – $239 annual membership
Professional Educators Network of Florida (PEN) – $180 annual membership

More Information About Your Rights here are some useful information sites provided by NEFW.

All Employees:

National Right to Work Legal Defense Foundation
Workplace Fairness Institute
Your Rights (Center for Union Facts)
Unions and Union Dues (American Center for Law and Justice)

For Teachers:

Teacher Rights (AAE)
Coalition of Educators Against Forced Unionism

Labor Reform Information, Research, and News:

The Heritage Foundation
Competitive Enterprise Institute
Center for Union Facts
National Taxpayers Union
FreedomWorks
National Right to Work Legal Defense Foundation
Insider Online (The Heritage Foundation)
Labor Watch (Capital Research Center)
Alliance for Worker Freedom (Americans for Tax Reform)
Workforce Freedom Initiative (US Chamber of Commerce)
Education Intelligence Agency

Michelle Rhee Grades Florida Among Top Two States in the Nation on Education Policy

Students First, founded by Michele Rhee, has issued its 2013 State Policy Report Card. No state received an “A” grade. Florida and Louisiana both received a grade of “B”, all other states were graded “C” to “F”. Florida received an A- for Elevating Teaching, a C- for Empowering Parents and a C for Spending Education dollars wisely.

The following outlines the rationale for these grades and why Florida was ranked in the top two nationally by Rhee:

“Florida has established itself as a national leader in putting students first. The state has adopted meaningful educator evaluations, and it requires districts to base all personnel decisions, as well as compensation structures, on classroom effectiveness. Florida is also a model for empowering parents. The state provides parents with useful information regarding school and teacher performance. Parents can also choose from a robust network of public charter schools and a tax credit scholarship program. Florida should provide comparable funding to public charter schools and needs to improve in holding local districts accountable for increasing student outcomes with their investments. The state should also allow mayors to take control of local districts that fail to improve under existing governance structures. Lastly, to ensure career flexibility and sustainability of Florida’s retirement system, it should require teachers to participate in its portable retirement option.”

ELEVATING TEACHING A- (GPA 3.64):

Florida is a leader for the rest of the country when it comes to ensuring effective teachers and principals are identified, retained, and rewarded by districts. Florida requires districts to evaluate educators meaningfully; several key multiple measures are incorporated, including student academic growth, which comprises 50 percent of the overall evaluation. Of importance, Florida mandates that performance drive all district personnel decisions, including placement, layoff, and tenure decisions. The state has already made progress in its implementation as well. Additionally, Florida invests in compensating its teachers through strong performance pay systems and in recruiting top teaching talent though its alternative certification programs. Adopting comprehensive reforms has allowed Florida to lead the country in its efforts to improve teacher quality and elevate the profession.

EMPOWERING PARENTS C- (GPA 1.94):

All families should have the information and access they need to choose high-quality schools for their children, and no student should be forced to attend a low-performing school or be taught by a low-performing teacher. Florida empowers parents by requiring all PK-12 schools to receive annual report cards that include an A-F letter grade based on student achievement and by requiring that parents are notified when their children are placed in the classroom of a teacher who has been rated ineffective. The state should pass parent trigger legislation that empowers parents to sign a petition to turn around a failing public school. Florida allows for the formation of public charter schools that must meet key accountability provisions, but it should allow for multiple authorizers. Additionally, the state should establish a publicly funded scholarship program limited to low-income students in chronically failing public schools and ensure private schools that participate meet certain accountability provisions.

SPENDING WISELY C (GPA 2.0)

Florida allows the state to intervene in academically underachieving schools and districts, but additional governance flexibility, such as mayoral control, is needed. While Florida allows districts to achieve cost efficiencies through multiple management alternatives, it should require districts to link spending data to student outcomes and permit governance changes when funds are mismanaged. Adopting these changes will strengthen Florida’s ability to ensure that resources are spent wisely and that districts are focused on improving student achievement. Florida has made significant progress in teacher pension reform by establishing a fully portable retirement option for teachers. The state should continue its reform efforts by requiring all teachers to participate in its portable plan.

To see how your state was graded click here.

Time for government employee pay and benefit cuts?

President Obama, senior administration officials and public policy advisers have stated that the greatest threat to our national security is our national debt. Our military understands this and the Department of Defense is taking the lead in proposing major cuts in pay and benefits for our military, veterans and their families.

The Center for American Progress led by Chairman John Podesta has called for capping military pay raises, eliminating military health benefits for many retirees who are covered by an employer-provided plan, and reducing the value of military retired pay as well as making military retirees wait until age 60 to start receiving it. These proposals have been embraced by the Department of Defense. It is estimated these changes will save $1 trillion over the next ten years.

Should all government employees at every level show the same commitment and take the same pay and benefit cuts to keep us all from falling off the “fiscal cliff”?

If our soldiers who are on the front lines defending this nation and our veterans who have served honorably can sacrifice cannot every government employee? Should not teachers, our police, firefighters, city, county state and federal employees not do their part as well? Are we not one nation facing the same fiscal future?

Americans for Prosperity (AFP) has recognized government pay and benefits as a priority issue to be addressed during the upcoming Florida legislative session.

The Five for Florida Plan states, “Our politicians must stop making promises that taxpayers can’t afford. We must force them to be honest with us, and make decisions that will protect us now and in the future. We need an honest, transparent retirement plan that works for both hardworking taxpayers and government workers.”

AFP’s Five for Florida Plan reports:

  • Florida’s Retirement System (FRS) serves more than 1 million government employees, making it the fourth largest public pension program in the country. Source: James Madison Institute
  • The FRS is 88% funded, assuming a 7.75% return on investment. Over the last 12 years, the fund has received an average return of 3.3%. Source: James Madison Institute
  • Florida currently has an optional defined contribution plan, however only 16% of employees elect to be enrolled in it, versus the 84% in the pension plan. Source: James Madison Institute
  • Public sector pension programs guarantee a rate of return that is 3 to 4 times higher than what private sector workers are able to earn. Source: The Heritage Foundation
  • The State of Florida currently contributes $5.5 billion per year to the FRS, but would need to double that contribution to $11 billion a year for the fund to remain solvent. Source: James Madison Institute

Changes must come; government must set the example for the rest of us by stepping up to the plate and making the hard decisions to rein in spending in the short and long terms. Government employee salaries and benefits are now coming under greater scrutiny by both liberal think tanks like the Center for American Progress and conservative ones like Americans for Prosperity.

Finally, we are getting somewhere when both of these organizations come to the same conclusions. The question is do our political leaders have the will to do what is needed?

Now is the time for political leaders at the city, county, state and federal government to see the writing on the proverbial “fiscal cliff”.