The Average CEO today makes 347 Times the Salary of the Average American Worker

Is there any excuse for the obscene amount of money we pay the heads of our businesses and our money industry in this country? Is their value to our economy equivalent to what they receive in compensation? And  if it is, why are they so eager to hide it, as revealed in this article from last Sunday’s New York Times? Why not vaunt it as befits leading members of our supposed “meritocracy?”

Is it not, rather, indicative of that mentality that makes them wish to wall themselves off as a separate class from the rest of us in sequestered enclaves of privilege?

   

By MATTHEW GOLDSTEIN, Sunday,  May 28, 2017 for The New York Times

The Pay Gap Widens

. . . No matter how you look at it, the pay gap between corporate executives and most everyone else in America keeps getting bigger.

Some 50 years ago, the typical chief executive made just 20 times what an employee did, according to the A.F.L.-C.I.O. By comparison, it calculated that the average C.E.O. today made 347 times the average salary of an American laborer, as defined by the Bureau of Labor Statistics: $37,632. 

Reversing this ever-widening pay gap is a union rallying cry, especially at companies that have been shedding jobs in the United States. . . .

   

Amid populist anger over income inequality, the S.E.C. in 2015 required publicly traded corporations to begin providing standard information in 2018 on the disparities between pay for chief executives and rank-and-file workers. That so-called pay-ratio rule would give investors and employees another metric for evaluating C.E.O. pay.

Unions strongly supported the measure, which the S.E.C. was directed to formulate under the 2010 Dodd-Frank financial overhaul rules. Most corporations bitterly opposed it. And in February, with Mr. Trump in the White House, corporations won a victory; the S.E.C. said it would seek a new round of public comments, and might reconsider the measure. The acting chairman, Michael S. Piwowar, who had voted against the pay rule in 2015, announced the change.

Jay Clayton, the newly sworn-in chairman, has not taken a position on the pay-ratio rule. When asked during his confirmation hearing whether he agreed with Mr. Piwowar’s decision, Mr. Clayton said, “I do not know enough about the issue.” But Republicans in Congress have generally voiced support for rolling back much of Dodd-Frank, and Mr. Trump has said he intends to “do a big number” on the law.

 

 

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Business Roundtable, an association of chief executives of leading United States companies, sent a letter to the S.E.C. on March 23 saying it “has significant concerns” with the pay-ratio rule and recommended that it be “reformulated in a more constructive and less burdensome manner.” The association went on to say the rule “will cause internal discord among employees” [as it very well should] and “serves no material, valid or helpful purpose for investors.”

The chairman of Business Roundtable is Jamie Dimon, the C.E.O. of JPMorgan Chase and the 25th-best-compensated chief executive in the Equilar survey. His pay package rose 49 percent last year, to $27.2 million. Mr. Dimon, a member of Mr. Trump’s C.E.O. advisory group, visited the White House on Feb. 3 and has praised the president for awakening “animal spirits” in the economy. [Mr Dimon is identified in an adjoining article in the Sunday Times as “the highest paid finance executive” whose “total compensation was $27.2 million, nearly a 50 percent increase from the $18.2 million he received in 2015. . .” No wonder he didn’t want it advertised.] 

Alan Johnson, managing director of the pay consulting firm Johnson Associates, said he supports the opposition to the pay-ratio rule because it “is a cooked-up thing to embarrass firms with a lot of part-time workers.” He added that focusing on compensation leads to “pay envy” and does not do anything to address a fundamental problem, which is that average workers need better job training and job assistance programs. [Of course they do. Why don’t he and others of the managerial class do something about this instead of inventing a new syndrome, “pay envy”?  As far as part-time workers are concerned, the firms that hire them deserve to be embarrassed since the recent proliferation of part-time employees serves as an excuse for not providing them with medical and other benefits.]

But Susan R. Holmberg, a fellow with the Roosevelt Institute, a liberal public policy group, said that if the pay-ratio rule encourages employees to join unions, it is a good thing for workers, since it could lead to future wage gains.

“It magnifies the unequal pay practices,” Holmberg said. “It shows what a company’s priority is, and it triggers people’s sense of fairness.”

Mr. Trump “ran on this populist message,” she said, and it is odd that the administration would be taking another look at the pay-ratio rule, because “C.E.O. pay is the No. 1 populist issue.”

Investing in Human Capital

Still, there is some progress on the pay inequality front.

This year, the A.F.L.-C.I.O. Equity Index Fund and the New York State Common Retirement Fund reached an agreement with Regeneron Pharmaceuticals, a biotech company, to include new language on executive and employee compensation in its proxy statement. It says the company is taking a “non-elitist” approach by awarding stock options to all of its 5,500 employees, not just to executives. The change has helped lead the union and the New York pension system to withdraw a proposed shareholder amendment on the issue of pay.

Alexandra Bowie, a Regeneron spokeswoman, said the revised language in the company’s filings did not reflect a change in policy but a “broader effort to include more detailed and accessible language.”

As for Leonard S. Schleifer, the chief executive of Regeneron, his total compensation for 2016 was $28.2 million, almost 40 percent less than the year before, and nearly matching the 32 percent slide in the company’s share price.

Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System, said company boards need to be sensitive to issues of income inequality. “I have no problem with someone doing well, who creates value,” she said, “but I do think a company and a board as they look at compensation need to make sure everyone down the chain is also benefiting from the performance of the company.”

Boards need to consider not only how much top executives are getting paid, she said, but also whether rank-and-file workers are being compensated fairly too. The crucial question is this, Ms. Sheehan said: “Are they investing enough in the human capital in the company?”

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Biltmore, Asheville N.C., once the home of  George Vanderbilt, is the largest privately-owned house in America. Mr Vanderbilt bankrupted himself in the course of its construction. 

Does His Home in the Hamptons Come at the Cost of Your Airpassenger Discomfort?

Do you realize that the reason you are sitting on an airplane just inches from the person in front of you is so that the CEO of the company that owns the plane you’re on can have a fatter bonus—own a larger home? Must everything in this country that touches on our health, our happiness and our livelihood be tied to the prosperity of a few fat cats who want to live in obscene luxury, beyond one’s wildest dreams?

United Airlines Boeing 787-8 Dreamliner

By NELSON D. SCHWARTZ, May 28, 2017, for The New York Times

When an unlucky passenger was violently dragged off a full United Airlines flight in Chicago in April, setting off a public-relations nightmare for the company, the blame naturally fell on the cabin crew, the police and eventually airline executives.

But ultimately, the episode was set in motion elsewhere — on Wall Street.

Relentless pressure on corporate America is creating an increasingly Dickensian experience for many consumers as companies focus on maximizing profit. And nowhere is the trend as stark as in the airline industry, whose service is delivered in an aluminum tube packed with up to four different classes, cheek by jowl, 35,000 feet in the air.

“There’s always been pressure from Wall Street,” said Robert L. Dilenschneider, a veteran public relations executive who advises companies and chief executives on strategic communications. “But I’ve been watching this for 30 years, and it’s never been as intense as it is today.”

article-0-1CE8758A00000578-24_964x721A billionaire’s home in the Hamptons

Rich bonus packages for top executives are now largely tied to short-term income targets and fatter profit margins instead of customer service. Of course, bolstering profits — and in turn, stock prices — has always been a big part of management’s responsibility to shareholders, but making it virtually the only criterion for executive pay is new.

Five years ago, American Airlines factored in on-time arrivals, lost baggage and consumer complaints to help calculate annual incentive payments for top management. Today, these bonuses are based exclusively on the company’s pretax income and cost savings.

United has also scaled back bonuses linked to reliability and customer satisfaction for senior executives in recent years. But in the wake of what happened in April, bonuses “will be made more comprehensively subject to progress in 2017 on significant improvement in the customer experience,” the company said in a financial filing.

“Fifteen years ago, airlines competed with each other over who could buy the most planes or have the most routes,” said Jamie Baker, a top airline industry analyst at JPMorgan Chase. “Executives are just as competitive today, but it’s about who can achieve an investment-grade rating first, who can be a component in the S. & P. 500, and who has better returns for investors.”

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These new incentives also partly explain why airlines are packing seats more densely and squeezing more passengers into the back of the plane. “Densification is driven by the desire to sweat the assets and generate revenues without having to commit capital to building new planes,” Mr. Baker said.

Such a shift isn’t unique to the airline industry.

“As in other industries, like manufacturing or consumer goods, the focus is on more traditional financial metrics like pretax income, margins, return on capital and total shareholder return,” said Andrew Goldstein, head of the executive compensation practice in North America for Willis Towers Watson. “Airlines haven’t abandoned operational and customer-service metrics, but they are putting less emphasis on those factors.”

United’s stock has surged to more than $80 per share from $25 per share five years ago, with profit margins rising to 13.6 percent from 3.7 percent over the same period. Overall industry margins hit 16.3 percent, up from 5.2 percent in 2012.

Spirit’s operating margins are among the highest in the industry, topping 20 percent in 2015 and 2016. But Paul Berry, a company spokesman, said Spirit had pivoted to focus more on customer service in the last year, even as some larger rivals keep cutting costs to compete.

Despite rewarding top executives strictly according to financial targets, American said it, too, was committed to improving the passenger experience.

“Every single person at American knows we succeed or fail based on how well we serve customers,” said Joshua Freed, a company spokesman. “We will only meet those financial goals if we keep our customers happy.”

Still, the promise of steady profit growth has prompted even Warren E. Buffett to take a fresh look at airline stocks. He once famously called the industry a money-losing “death trap,” but reversed course late last year, with his company, Berkshire Hathaway, acquiring stakes in several airlines.

“In the past, airline stocks were seen as hazardous to one’s wealth,” said Mr. Baker, the JPMorgan analyst. “They were trading vehicles, and potential destroyers of capital.”

The pressure on United, American and other giants is only going to increase with the rise of so-called ultra-low-cost carriers like Spirit, Frontier and Allegiant. In fact, American and United are rolling out a stripped-down new class called Basic Economy.

Here, in exchange for the cheapest tickets, fliers can’t choose their seats before checking in and are more likely to be stuck in the middle of the row. They board last and are less likely to be able to sit with companions. No carry-on luggage is permitted, forcing anyone without elite frequent-flier status to check anything larger than a backpack — for a fee.

a-woman-passenger-on-a-plane-using-an-ipad-sitting-in-her-seat-in-ep0ery

“That’s the experience on a ultra-low-cost carrier,” said Rajeev Lalwani, an airline industry analyst with Morgan Stanley. As the legacy airlines introduce similar no-frills offerings to hold off upstarts like Spirit, he said, “part of the idea is to get folks to upgrade to premium economy and collect fees.”

It’s also the wave of the future, at least for budget-conscious travelers.

“For the lowest price comes the most basic product,” said Alan Wise, a senior partner with the Boston Consulting Group, who leads the firm’s travel and tourism practice for North America. “Spirit has been a growth story in the space, and it’s forced the legacy carriers to adapt and innovate.”

To be sure, some industry veterans insist it is a mistake to simply blame investors or hedge-fund managers for fostering a race to the bottom in customer service.

“The response isn’t to Wall Street. It’s to customer behavior,” said Alex Dichter, a senior partner at McKinsey who works with major airlines. “About 35 percent of customers are choosing on price, and price alone, and another 35 percent choose mostly on price.”

Mr. Dichter noted that when American added two to four inches of legroom in coach in the early 2000s, “as far as I know, the airline didn’t see one bit of improvement in market share or pricing.”

“The great irony is that most C.E.O.s would love to compete on product and experience,” he added. “It’s much more fun. The problem is that customers aren’t paying attention to that.”

This last suggests that we do have an alternative—be prepared to pay a bit more and reverse this race to the bottom.

How the Rich Misunderstand the Plight of the Poor

This is a continuation of the theme of the previous blog—that the very rich have no real understanding of the problems of the poor and consequently usually come up with the wrong solution for them.

               Sam Walton and Charles and David Koch

By HAROLD MEYERSON,  Friday, May 26, 2017 for The Los Angeles Times

The billionaires, apparently, we shall always have with us — even when we decide how to run the state-funded schools where they rarely send their own kids.

In the Los Angeles school board elections earlier this month, a number of billionaires, including Eli Broad, Netflix founder Reed Hastings and two Walton family siblings, poured millions into the campaigns of two charter-school advocates. These billionaire-sponsored candidates defeated two badly outspent opponents who took a more cautionary stance on expanding charters, lest they decimate the school district’s budget. In total, pro-charter groups outspent teacher unions, $9.7 million to $5.2 million. (In the 2016 state legislative campaigns, the charterizers outspent the unions by a far larger margin, $20.5 million to $1.2 million.)

Though a number of the billionaires who’ve involved themselves in the charter cause are conservatives and Republicans, the actual election battles they join almost always pit Democrat against Democrat — in part because nearly all big cities are now overwhelmingly Democratic. In California, where Republicans’ numbers have ebbed past the point of power, the lion’s share of billionaires’ legislative campaign contributions have gone to more centrist Democrats, who not only are reliable votes on charter issues but also often oppose environmental and other measures advanced by their more progressive colleagues.

Charter billionaires have settled on a diagnosis, and a cure, that focuses on the deficiencies of the system’s victims, not the system itself.

   Eli Broad and Reed Hastings

Of all the issues billionaires could choose, why charters, and why now? One reason commonly adduced is that they’ve noticed something troubling: Public school graduates lack the skills necessary for employment. Many of those needed skills, however, are the kind that students acquire in vocational educational programs, not at charter schools.

That there are huge problems in the education of low-income students is beyond dispute — but this is hardly a recent development. The real recent development is the rising share of such students as the middle class has waned.

If the Waltons, say, decided to redirect more of their fortune to raising Wal-Mart workers’ wages, that in turn might enable hundreds of thousands of families to have more economically secure and stable lives, which could have a greater effect on student performance than charterization.

It’s hardly fair, of course, to tar all billionaire charterizers with that kind of brush. But the fact is that they have emerged as a force at a time when our staggering levels of economic inequality have become a widely acknowledged problem. That’s not just a coincidence.

 Andrew Carnegie

Indeed, we have to go back to the economic polarization of pre-New Deal America to find a time when the super-rich felt so compelled to better the lot of the poor, as they understood it. Andrew Carnegie, who grew mightily rich by building the American steel industry, famously established libraries in thousands of cities and towns. Though, unlike today’s charter backers, he wasn’t draining off funds that could go to public libraries in the process.

What Carnegie and today’s pro-charter rich have in common is a belief in individual betterment — but not only that. They also share a fierce opposition to collective betterment, manifested in their respective battles against unions and, in many cases, against governmentally established standards and services.

Living in separate eras when the middle class was — and is — embattled and the gap between rich and poor was — and is — immense, billionaires have largely shunned the fights that might truly narrow that gap: raising the minimum wage, making public colleges and universities free, funding sufficient public investment to create genuine full employment, reviving collective bargaining and raising progressive taxes to pay for all of that.

As the billionaires see it, it’s the lack of skills, not the dysfunctions of the larger economic system that they (or their parents) mastered, that is the cause of our national woes. Pure of heart though some of them may be, the charter billionaires have settled on a diagnosis, and a cure, that focuses on the deficiencies of the system’s victims, not the system itself. How very comforting for them.

Harold Meyerson is executive editor of the American Prospect. He is a contributing writer to Opinion

Poverty Is the Issue, Not Food Stamps

This column has been absent for the past few weeks as we have been tied up with other concerns. So that this editorial from today’s New York Times, along with the column that follows on charter schools from yesterday’s Los Angeles Times, seem a very good place to pick up again our preoccupation with income inequality in this country. Together they state  in simple, easily comprehensible language the radically differing points of view between the right and the left on both the causes of and the solutions to poverty in the U.S.

EDITORIAL, May 27, 2017 from The New York Times

Food stamps work. Each month they help feed 43 million poor and low-income Americans, most in families with children and working parents. Food stamps, officially the Supplemental Nutrition Assistance Program, keep millions of people from falling into poverty each year and prevent millions of poor people, many disabled or elderly, from falling deeper into poverty.

They also improve the future prospects of poor children by fostering better health and graduation rates.

Benefits average only $1.40 per person per meal, ineligible recipients are rare and incorrect payments are few. Into the bargain, food stamps support the farm economy and the broader economy by creating a bigger market for food and supplying cash that is quickly spent.

President Trump’s budget plan would destroy the food stamp program, on the pretense that it discourages work. That’s nonsense, because most adult recipients either work or are unable to do so because of age or disability. A more plausible explanation is that cutting food stamps would help to offset the cost of huge tax cuts for the rich.

The damage would likely be permanent. Food stamps would be reduced by 25 percent — $193 billion over 10 years — much of which would be achieved by shifting costs to the states, which could not afford to make the payment, leading them to cut food aid.

Disparities in hunger and poverty across the states, typical before the modern food stamp program began in the 1970s, would return, as would more hunger over all, especially in recessions, when states are forced to cut spending.

The budget would also reduce the food stamp program by making its strict requirements even stricter. For example, it would all but prohibit states from waiving a federal rule that generally cuts off unemployed childless adults after three months. The cutoff is supposed to prevent freeloading, but it mainly affects people who have low skills, arrest records, substance abuse problems or other impediments to employment. The budget would also make it harder for states to adjust the eligibility formula where rents or child care costs are high. And no matter how large a family is, the benefit calculation would be capped at six people.

The proposed cuts have little chance of enactment, but they are still dangerous. Extreme proposals are a way to make less extreme proposals seem acceptable. To avoid that trap, members of Congress from both parties need to do more than simply declare the Trump budget dead on arrival. They need to make specific objections and draw clear lines in the sand. Otherwise, the objectionable provisions will return, slightly altered, but hardly less awful. They also need to resist accepting federal spending cuts as inevitable.

That so many working households are eligible for food stamps reflects the prevalence of low wage jobs. In 2016, six of the 20 biggest occupations — mainly in retail, restaurants and home care — had median wages around poverty level for a family of three. Eight of the 10 jobs that are expected to add the most positions in the next decade pay poorly.

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So the problem is not the number of people on food stamps; it’s that companies pay wages so low that their employees qualify for them. It is a problem that Congress and the White House can rectify, not by cutting spending, but by raising the minimum wage, updating the overtime-pay rules and instituting paid sick leave — for starters.

The President Battles It out with United Technologies CEO over Globalization

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This article from today’s Wall Street Journal gives the reader an unparalleled opportunity to see how issues of globalization get played out at the highest levels of government and industry. We see what issues of national and international importance CEOs wrestle with and how labor responds (or doesn’t) to their decisions.

By JOSEPH RAGO, May 6, 2017 for The Wall Street Journal

United Technologies Corp. is a multinational manufacturing conglomerate, with subsidiaries like Pratt & Whitney and Otis Elevator that were founded 90 and even 160 years ago, that makes everything from escalators to jet engines. Last November UTC’s Carrier unit, which makes heating, ventilation and air conditioning equipment, became a symbol of how Mr. Trump claimed trade and globalization had undermined American workers. . . .

Gregory-Hayes-CardCEO Gregory Hayes

Mr. Hayes played football at Cornell, transferred to Purdue, and then joined Sundstrand, which was acquired by United Technologies in 1999. He rose through management and took over in late 2014. He had a rough first year, with shares slipping 18%. In 2015 UTC rolled out a restructuring plan to shed $1.5 billion in costs over three years.

The plan included closing two high-cost campuses in Indiana. One, outside Indianapolis, made gas furnaces. The other, in small-town Huntington, made electronic circuit boards. About 2,100 jobs would be lost in total, while furnace production would shift to Monterrey, Mexico.

Most of the furnace industry—both UTC’s competition and suppliers—has already moved to low-cost Mexico. The Indianapolis plant is an old-fashioned production line, where a component moves every couple of seconds and an operator performs a rote task, like installing fasteners in a handle. The jobs are relatively low wage and low skilled

.Pratt & Whitney jet engines

Mr. Hayes and his board concluded that closing the plants “was the right thing to do for the business long-term” to remain competitive in the market. If the larger business wasn’t profitable, then nobody would have job security. He thought UTC “could tell a story” about the higher-wage, higher-skilled domestic jobs it was creating in aerospace.

United Technologies also offered workers a yearslong lead time to plan their next steps, generous severance, and its 20-year-old Employee Scholar program, which pays full freight for two or four years of college education or vocational technical training for all employees, even after a plant shuts down.

“Look, we know there’s a dislocation associated with trade,” Mr. Hayes says. “There will be people left behind, and it’s the measure of how we treat those people and how we deal with those people that’ll determine whether or not we are ultimately successful.” Combined with globalization’s benefits—such as reducing the share of the world’s population that lives in poverty to 10% from 42% in 1981—he thought all this would be enough to gut out the politics.

“My political prognostication skills are about zip,” Mr. Hayes concedes. A familiar business terror struck in February 2016: a cellphone video that outraged the internet and then hit cable news. The 3½-minute recording, now viewed 3.9 million times on YouTube, showed a Carrier executive informing workers on the shop floor that their jobs would be moving to Mexico. “I want to be clear, this is strictly a business decision,” the executive said, amid jeers.

Botsford161201TrumpIN9161President Trump visits the Carrier Air-conditioning plant

History records hardly a campaign stop where Mr. Trump failed to assail Carrier. . . .

The candidate [Trump] promised to call the CEO [Gregory Hayes]: . . .  “OK? We will have a real border, the illegals will not be able to carry those air conditioners in.” Goods that crossed the border, “every single one, you’re going to pay a 35% tax on, OK?”

Nine months later, when Mr. Hayes received Mr. Trump’s postelection call, “He said, ‘Greg, you’ve got to help me.’ I’m like, ‘Sir, you know, we have looked at this, this is a cost—there is just no way. We got the plant already built down in Mexico.’ He goes, ‘No, Greg, you don’t understand. You got to help me. You got me elected. . . . I didn’t have a great campaign, a great focus on the campaign early on, but once I got this Carrier thing I used it everywhere.’ I said, ‘Yeah, I noticed.’ ”

carrier-bigpic-600x392Inside the plant of Carrier Air-conditioning

Mr. Hayes agreed to “take a hard look.” His “biggest fear,” he says, wasn’t tariffs but reputational damage. Carrier air conditioners are among UTC’s few consumer-facing products, and “having Mr. Trump tarnish the brand—there was a huge cost to that.” Then again, the president also didn’t have to make the same 35% threat personally that he’d made in public hundreds of times.

UTC stayed, and also left. Indiana gave the company $7 million in tax incentives over a decade, and Carrier will invest $16 million to modernize the gas-furnace factory. The decision saved about 800 factory jobs in Indianapolis, as well as 300 HQ and engineering jobs, but the Huntington facility closed. . . .

“The rhetoric on trade is not helpful,” Mr. Hayes says, but he thinks Mr. Trump is “trying to move in the right direction” on deregulation and tax reform, plus he’s a better listener than his predecessor.

The drawback of the tumultuous Trump presidency so far, Mr. Hayes says, is uncertainty: “It’s bad for business, and there’s certainly a lot of uncertainty being created on a daily basis that is not helpful for us. For my people, they’re looking and say, ‘What do we do?’ I say, ‘Well, just relax, they’ll all be fine, right?’ You need to take everything with a bit of a grain of salt that comes out of Washington these days, and understand that there is a process, things will work themselves out.”

elevatorOtis Elevators

A populist might say that a company expecting sales of between $57.5 billion and $59 billion in 2017—more than Goldman Sachs or Coca-Cola —can afford to pay more for American labor. The Carrier deal cost UTC about $25 million a year over the original plan, or about two cents a share. “We’re a big company,” Mr. Hayes says. “We can certainly deal with that kind of financial headwind.”

Still, there’s a cost. “I truly believe that if you have open markets, and you have the ability to let capital flow to most efficient uses, you are going to get better results than if you try to direct capital,” he says. But he admits: “I got it completely wrong, in terms of the political sentiment in the U.S., and I—you know, frankly I should’ve known better, because there is a large portion of the population that has been disenfranchised by globalization.”

Mr. Hayes’s solution is to improve education, specifically with a national apprenticeship program that would guide local public-private partnerships to train and prepare the workforce better. He knows the problem firsthand: “I’ve got thousands of job openings.”

Do you really?

“Thousands,” he replies. “A lot of this is because we’ve got growth in business on the aerospace side, but we’ll be adding thousands of jobs in the next three years, and right now I cannot hire mechanics who know how to put together jet engines. But it’s not just jet engines. We also make fan blades, other products, very sophisticated things. These are the high-value manufacturing jobs that America can actually support.”

Pratt & Whitney  machinist at work

A Pratt machinist earns $34 to $38 an hour, which with overtime works out to more than $100,000 a year—“pretty good money,” Mr. Hayes says. The positions can be filled by high-school graduates with “basic competencies in math and English” sufficient to, say, read a blueprint.

Mr. Hayes’s apprenticeship idea is about teaching such candidates the technical skills they need for the manufacturing jobs of the future—the kind that aren’t becoming obsolete due to automation and artificial intelligence. Labor arbitrage, like moving to Mexico, can only work so long, as rising wages in China show. But humans can’t compete with robots, which, as he says one of his Chinese managers put it, “never get sick, never ask for a raise, and they work 24/7.”

Labor mobility is another concern. People are less willing to move to where jobs are. UTC recently built a factory in Lansing, Mich., to make engine housings for a new type of titanium-aluminum fan blade and needs to bring on about 1,000 new people. The work pays $23 an hour on average, yet some workers in Huntington, who earned $15 on average, “won’t move two hours north to Lansing.”

Mortgages, kids in school and cultural attachments can lead to such mismatches, but Mr. Hayes worries because labor mobility used to be “just a given.” His own career took him from Rockford, Ill., to San Diego to Valparaiso, Ind., to Hartford, Conn., over the years.

Whatever the obstacles, “we have to migrate from these very low-skill manufacturing jobs to the middle-skill and the higher-skill jobs,” Mr. Hayes says. His model is the 19th-century transition to an industrial economy from a rural one, in which 97% of American workers were farmers.

The irony is that for someone cast in 2016 as a villain, and despite U.S. law instructing executives to maximize shareholder value, Mr. Hayes believes companies are also accountable to other parties, including employees, consumers and the communities where they’re based—an obligation that extends to financial support for academic research and the arts. “You try and balance these things without saying, ‘Hey look, it’s just business, we are just going to do what’s right for us,’ ” he says. “You have to at least understand and have some empathy for the other stakeholders in this.”

Over the long run, the danger is that the Carrier ruction won’t be an isolated incident but part of a populist trend. “I think that we have to as a society face the reality that the jobs that we have today aren’t going to be here 20 years from now,” Mr. Hayes says, “and if we don’t do something fundamentally different soon, we are going to have class warfare, and that’s a scary thing.”

For business leaders, Mr. Hayes has a suggestion: “We have to defend what we think is right, what we think is the better course for the country, and I think it’s OK to speak up—you know, you’re going to get smacked down—and will the president and I be friends?” He lets the thought trail off.

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What is the Morality of Fining Children for Overdue Books They Cannot Afford?

Another of the indignities heaped upon the poor by our system of government. Can you believe it? Andrew Carnegie, who initiated the tradition of free libraries in our republic, must be turning in his grave. Wasn’t it precisely to those poor children to whom books are denied because their parents are too poor to pay their fines that he dedicated his libraries? He wanted to see every child in the country have the same equal opportunity of education, not denied him/her in order to fund the library for those lucky enough to afford their fines.

 By JIM DWYER, May 5, 2017, for The New York Times

         

Library fines are the first serious penalties that most children run into outside the home, and for generations, they have been education and vexation.

At age 10, Geoffrey Canada could not find a book he had borrowed from the library branch near Boston Road in the South Bronx.

There, he regularly plowed through adventure books by Robert Louis Stevenson, science fiction, the works of Poe and Kipling. He and his three brothers each got a weekly allowance of a quarter, which would have given him a shot at paying off the 2-cent-a-day fine had it not climbed to about $1.80. His mother, raising the boys on her own, lived paycheck to paycheck.

“There was no way I was ever going to find that money,” Mr. Canada, the founder of the Harlem Children’s Zone program, said this week. “I never went to that library again.”

That was more than a half-century ago. In February, Maria, the mother of a 4-year-old boy, returned a batch of DVDs to the branch of the New York Public Library in the Washington Heights section of Manhattan. They were late. The fines were more than $100. Her card was automatically blocked.

Her son, a late talker with special needs, had become an early, unstoppable reader who bloomed in the library. “I couldn’t bring him there and not let him borrow books,” she said. “When he asked about going, I told him it was closed or some other thing. Without exaggeration, it broke my heart.” After a meeting with the branch manager, her privileges were restored.

In their 2015 public tax returns, the city’s three independent library systems, the New York Public Library, the Queens Library and the Brooklyn Public Library, reported collecting a total of $5.5 million in fines.

Just as adults discover they cannot renew their driving licenses if they have too many unpaid tickets, children discover that they lose library privileges if they rack up more than $15 in late fees. The library is the Department of Motor Vehicles on training wheels.

A recent tally found that library cards were blocked for more than 225,000 young people in the city.

That means around one in five city children with library cards cannot use them.

The social cost has become too steep, says Anthony W. Marx, president of the New York Public Library, the largest system.

“We see the blockage of fines concentrated in the poorer neighborhoods where we want kids to be reading,” Mr. Marx said. “If fines are getting in the way, we need to find solutions.”

Among a number of approaches, Mr. Marx has sought private funding for a $10 million endowment that would create fine-free borrowing in perpetuity. The other leaders of city libraries, Dennis M. Walcott (Queens) and Linda E. Johnson (Brooklyn), say they, too, would rather be handing books to children than collecting fines from them, but have not joined Mr. Marx’s quest for an endowment.

“It’s a balancing act,” Mr. Walcott said, making the obvious point that when people hold books and DVDs too long, others are stopped from using them.

Ms. Johnson said: “You don’t want to reward bad behavior, and on the other hand, we want to make sure the people who need them the most are not blocked out.”

In Queens, young scofflaws can “read down” their fines by committing to reading a certain number of books. “We waived $160,000 in fees this year,” Nick H. Buron, the borough’s chief librarian, said.

Branch managers can waive fees case by case — “That happens more often that we would like,” Ms. Johnson said — and in 2011, there was a citywide book-fine amnesty, instigated by Mr. Marx.

The libraries rely on the fine revenue, and many users can afford the fees.

No one is suggesting that people — including children — should not be held responsible for bringing books back.

“People talk about the moral hazard,” Mr. Marx said. “But there’s also a moral hazard in teaching poor kids that they will lose privileges to read, and that kids who can afford fines will not.”

Moreover, he said, there’s a “moral upside” of sharing, pointing out that laptops are widely available in branches in the poorest neighborhoods and that very few are stolen.

The Future for Uber Drivers in a Gig Economy

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This five-part article on the use of behavioral techniques by Uber to stimulate a higher performance from its drivers, which appeared in The New York Times, reaches its conclusion with some prognostication on what this could lead to in the future for gig economy workers in the tech world.

By NOAM SCHEIBER, April 2, 2017, for The New York Times

There are aspects of the platforms that genuinely do increase drivers’ control over their work lives, as Uber frequently points out. Unlike most workers, an Uber driver can put in a few hours each day between dropping children off at school and picking them up in the afternoon.

Uber is even in the process of developing a feature that allows drivers to tell the app in advance that they need to arrive at a given location at a given time. “If you need to pick up your kids at soccer practice at 6 p.m.,” said Nundu Janakiram, the Uber official in charge of products that improve drivers’ experiences, “it will start to give you trips to take you in the general direction to get to a specific place in time.”

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There is also the possibility that as the online gig economy matures, companies like Uber may adopt a set of norms that limit their ability to manipulate workers through cleverly designed apps.

Kelly Peters, chief executive of BEworks, a management consulting firm specializing in behavioral science, argued that the same data that makes it easier for Uber to nudge drivers into working an additional 30 or 60 minutes also makes it hard to escape the obligation to look after them.

For example, the company has access to a variety of metrics, like braking and acceleration speed, that indicate whether someone is driving erratically and may need to rest. “The next step may be individualized targeting and nudging in the moment,” Ms. Peters said. “‘Hey, you just got three passengers in a row who said they felt unsafe. Go home.’” Uber has already rolled out efforts in this vein in numerous cities.

That moment of maturity does not appear to have arrived yet, however. Consider a prompt that Uber rolled out this year, inviting drivers to press a large box if they want the app to navigate them to an area where they have a “higher chance” of finding passengers. The accompanying graphic resembles the one that indicates that an area’s fares are “surging,” except in this case fares are not necessarily higher.

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Some drivers believe that the intent is to trick them into driving where Uber wants them to go, rather than where driving would be most profitable, by implying that they will find a surge there. “They’re trying to move people where they want them,” said Mr. Weber, the Tampa-area driver. “But you get there and it’s nothing. It happens all the time.” Mr. Weber noted that the design of the graphic makes the prompt much easier to accept than decline, which requires pressing a small rectangle in the top left corner.

Uber said that the feature was an experiment intended primarily to help new drivers who frequently say they do not know where to find passengers, and that it could be changed if drivers were dissatisfied.

Individual features aside, the broader question of how much Uber seeks to influence drivers through behavioral science may come down to how much its business model requires it.

While the company has made no secret of its investment in self-driving cars, it could be a decade or more before they completely replace human drivers. In the meantime, as long as Uber continues to set growth and passenger volume as critical goals, it will have an incentive to make wringing more hours out of drivers a higher priority than the drivers’ bottom line whenever it faces a close call between the two.

It will also have an incentive to obtain these hours as cheaply as possible. And there is simply no cheaper way than hiring contractors and nudging them to drive when and where they are needed. Industry insiders estimate that relying on independent contractors rather than employees can lower direct costs by roughly 25 percent.

Moreover, the contractor model itself provides a strong impetus for companies like Uber to grow. Many companies in the gig economy simply do not have enough workers, or rich enough data about their workers’ behavior, to navigate busy periods using nudges and the like. To avoid chronic understaffing, they have switched to an employee model that allows them to compel workers to log in when the companies most need them.

Once companies achieve a certain scale, on the other hand, they enter a virtuous cycle: The risk of understaffing drops with a big enough pool of workers, and the cost savings of using contractors begins to outweigh the inefficiencies. This in turn frees up money to enter new markets and acquire new customers, which makes the contractor model still more efficient, and throws off still more savings.

It is, as a result, not too hard to imagine a future in which massive digital platforms like Uber have an appetite for tens of millions of workers — not only for ferrying people, but also for delivering food and retail goods. Nor is it hard to imagine workers’ obliging them, perhaps because their skills do not match the needs of more traditional employers, or because they need to supplement their wages.

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In such an economy, experts say, using big data and algorithms to manage workers will not simply be a niche phenomenon. It may become one of the most common ways of managing the American labor force.

“You have all these players entering into this space, and the assumption is they’ll do it through vast armies of underemployed people looking for extra hours, and we can control every nuance about what they do but not have to pay them,” said David Weil, the top wage-and-hour official under President Barack Obama.

When you stop to consider the enormous cost advantages, Mr. Weil said, “it says to me this is an area that will grow fast.”

This concludes the five-part article on Uber and its drivers

The Health Care Industry has Become a Major Employer in America Today

In this article, condensed from The Sunday New York Times, we learn that administrators essential to the proper dispensation of health care today have more than doubled hospital staffs, that these new employees are well paid and account for much of the skyrocketing increases in medical costs. Consequently it will be difficult to pare down the costs of health care without throwing lots of people out of work.

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By CHAD TERHUNE, April 23, 2017, for The New York Times

. . . But the country has grown increasingly dependent on the health sector to power the economy, and it will be a tough habit to break. Thirty-five percent of the nation’s job growth has come from health care since the recession hit in late 2007, the single biggest sector for job creation.

Hiring rose even more as coverage expanded in 2014 under the health care law and new federal dollars flowed in. The law gave hospitals, universities and companies even more reason to invest in new facilities and staff. Training programs sprang up to fill the growing job pool. Cities welcomed the development — and the revenue. Simply put, rising health spending has been good for some economically distressed parts of the country, many of which voted for Mr. Trump last year.

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The West Virginia University health system, for example, recently opened a 10-story medical tower in Morgantown and hired more than 2,000 employees last year. In Danville, Pa., the Geisinger Health System has added some 2,200 workers since July, and it’s trying to fill 2,000 more jobs across its 12 hospital campuses and insurance company. Out west, UCHealth in Colorado expanded its Fort Collins hospital and is building three new hospitals in the state.

In cities such as Pittsburgh, Cleveland and St. Louis, health care has replaced dying industries like coal mining and heavy manufacturing as a primary source of jobs.“The industry accounts for a lot of good middle-class jobs and, in many communities, it’s the single-largest employer,” said Sam Glick, a partner in the San Francisco office of Oliver Wyman, a consulting firm. “One of the hardest decisions for the new Trump administration is how far do they push on health care costs at the expense of jobs in health care.”

House Republicans, with backing from Mr. Trump, took the first swipe. Their American Health Care Act sought to roll back the current health law’s Medicaid expansion and cut federal subsidies for private health insurance. The plan faltered in the House, but Republican lawmakers and the Trump administration say they are again trying to draft a replacement for Obamacare.

Neither the Affordable Care Act nor the latest Republican bill tackles what some industry experts and economists see as a serious underlying reason for high health care costs: a system bloated by redundancy, inefficiency and a growing number of jobs far removed from patient care.

Labor accounts for more than half of the $3.4 trillion spent on American health care, and medical professionals like health aides and nurse practitioners are in high demand. But the sheer complexity of the system has also spawned jobs for legions of data-entry clerks, revenue-cycle analysts and medical billing coders who must decipher arcane rules to mine money from human ills.

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For every doctor, there are 16 other health care workers. And half of those 16 are in administrative and other nonclinical roles, according to Bob Kocher, a former Obama administration official who worked on the Affordable Care Act and is now a partner in the venture capital firm Venrock. “I find super-expensive drugs annoying, and hospital market power is a big problem,” Mr. Kocher said. “But what’s driving our health insurance premiums is that we are paying the wages of a whole bunch of people who aren’t involved in the delivery of care. Hospitals keep raising their rates to pay for all of this labor.”

Take medical coders. Membership in the American Academy of Professional Coders has swelled to more than 165,000, up 10,000 in the past year alone. The average salary has risen to nearly $50,000, offering a path to the American dream.

“The coding profession is a great opportunity for individuals seeking their first job, and it’s attractive to a lot of medical professionals burned out on patient care,” said Raemarie Jimenez, a vice president at the medical coding group. “There is a lot of opportunity once you’ve got a foot in the door.”

Some of these back-office workers wage battle every day in clinics and hospitals against an army of claims administrators filling up cubicles inside insurance companies. Overseeing it all are hundreds of corporate vice presidents drawing six-figure salaries.

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Administrative costs for the American health care system are the highest in the developed world, according to a January report from the Organization for Economic Cooperation and Development. More than 8 percent of domestic health spending is tied up in administration, while the average globally is about 3 percent. America spent $631 for every man, woman and child on health insurance administration for 2012, compared with $54 in Japan.

America’s huge investment in health care and related jobs hasn’t always led to better results for patients, data show. But it has provided good-paying jobs, which is why the talk of deep cuts in federal health spending has many people concerned.

Chad Terhune is a senior correspondent for Kaiser Health News and California Healthline, an editorially independent service of the California Health Care Foundation.

The American Middle Class Is at Risk.

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Read these words carefully:

“The number one threat to American constitutional government today is the collapse of the middle class. Not the rise of presidential power. Not the growing national security state. Not the gridlock in Washington. Not the polarization of the two political parties. . . .

“The problem today is that the basic foundation upon which our middle-class constitution was built—the prerequisite of relative economic equality—is crumbling. More than eight years after the financial crash, disparities in economic power are at the forefront of popular debate. There is widespread concern about rising inequality and increasing share of wealth going to the top 1 percent and 0.1 percent of people. In the past generation, the average worker hasn’t seen his income rise; adjusted for inflation, it’s been stagnant. People are working harder and harder, with gains in productivity and rising GDP but without increase in wealth or economic security. Economic inequality is also turning into political inequality. Political leaders increasingly express a growing popular sentiment that “the system is rigged” to work for wealthy and corporate interests, who have the means to buy influence through campaign funding and then sustain their influence with “armies of lobbyists” in Washington. This outrage also isn’t partisan: it comes from both the populist right and the progressive left.

“Worse yet, these populist concerns aren’t imagined. In a battery of studies over the last decade, political scientists have demonstrated that economic elites dominate the American political system. The wealthy participate more at every stage of the political process—from meeting candidates, to donating, to voting. Moneyed interests get greater access to elected officials and their staffs. Elite economic interest groups (business and industry) make up the majority of interest groups and spend the most money on lobbying. Political scientists have even shown that the majority’s views have effectively no impact on American public policy; the strongest predictor is the views of wealthy elites. These findings operate across all areas of policy, and they provide systematic evidence that politics is bent in favor of the wealthiest members of American society. They also raise a disturbing question: Can our constitutional system survive the collapse of the middle class?”

We could have written the above. It summarizes excellently the whole purpose for which we established this blog—to state clearly what we see as the greatest threat to our democracy, to warn people against it, and to start figuring out what we can do about it.

What you read above are quotations from a new book entitled The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic by Ganesh Sitaraman, an associate professor at Vanderbilt Law School. We strongly recommend it to our readers and are adding it to our bibliography.

 Angus Deaton, a Nobel Prize winner in economic science,  reviewed  this book for The New York Times, and he had this to say about it:

“In this fine book, both a history and a call to arms, Ganesh Sitaraman argues that the contemporary explosion of inequality will destroy the American Constitution, which is and was premised on the existence of a large and thriving middle-class. . . .

“The founders worried a good deal about people getting too rich. Jefferson was proud of his achievement in abolishing the entail and primogeniture in Virginia, writing the laws that ‘laid the ax to the threat of Pseudoaristocracy.’ He called for progressive taxation and, like the other founders, feared that the inheritance of wealth would lead to the establishment of an aristocracy. . . .”

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Further along in his review, Deaton lists some of the author’s suggested corrections to our current excessive inequality:

“Yet it is clear that we in the United States face the looming threat of a takeover of government by those who would wish to use it to enrich themselves together with a continuing disenfranchisement of large segments of the population.

Sitaraman reviews many possible correctives, including redistribution to reduce inequality; better enforcement of antitrust laws; campaign finance reform to break the dependence of legislators on deep pockets; compulsory voting; and restrictions on lobbying, including the possibility of “public defender” lobbyists to act on behalf of the people.

I would add the creation of a single-payer health system, not because I am in favor of a socialized medicine but because the artificially inflated costs of health care are powering up inequality by producing large fortunes for a few while holding down wages; the pharmaceutical industry alone had 1,400 lobbyists in Washington in 2014. American health care does a poor job of delivering health, but is exquisitely designed as an inequality machine, commanding an ever-larger share of GDP and funneling resources to the top of the income distribution.”

If you care as much as we do about the disparity of wealth in this country at present  and the destructive effect it is having on our democracy, get this book and read it.