Search

PRODUCTIVITY IS BUNK

POINT NO. 1: WAGES ARE NOT GOING DOWN

Our concern may be based on shaky statistics. - It Is true that industrial unions are settling for nieager increases... however, that covers only about 11% of the private sector. - It is true that the want ads in some cities look skimpy...but millions of jobs neverev.en hit the want ads. - It Is true that hourly wages are flat. . but that includes - at most - about 70%- of all workers. What we call ''wages" tends to miss bonuses, commissions, business perks andequity, and even cash under the table - none of which are factored accurately, if atall, by the Bureaus of Labor Statistics and.EconomicAnalysis. - It is true that 'real wages' have declined, but that may not be as serious as it sounds, A worker who earned $15,000 a year in 1965 would have to be earning $65,000 a year in 1995 to keep up, assuming an average inflation rate of 5%. If that worker was earning 'only' $60,000 today, their "real wages" would have gone down - yethe or she is not poor, does not feel poor, and has not stopped consuming. Even in the short term, the status of workers is not crystal-clear. Picture six scenarios in a small hypothetical company, which last year had ten employees making exactly$30,000 a year. Scenario No. I: Everyone gets a 2% raise ($600), but health insurance, pension costs, worker's comp, and FICA go up also. "Total compensation" paid by the employer has actually increased by up to 5%, but the workers, wh-o feel understandably that incomemeans "cash", sense that they arefalling behind i'1,fl tlon. . Note that FICA taxes flow to senior citizens, who a·s a group have received modest "cost of living" raises for 24 years Ina row. No such indexlnQ protectsyounger workers, who may not have had any raises at all. In 1965 the maximum annual FrCA tax was $174,and many children supported their parents. Today, however, the maximum FICA tax is$7,588, and many parents are helping support their children. Scenario No. 2: Everyone gets a $600 raise, but health insurance premiums go up so fast that employees are charged $900 each for their coverage. Once again, totalcompensation is up, but take-home pay Is down by $300. ( for that matter, the health plan Isprobably .more restrictive as well.) . Yet those insurance dollars are not going to a foreign power, but to doctors, nurses, drug companies, and HMO's . Their wages have grown af least 1% faster than inflation, every single year since 1975; their clinics and hospitals aresparkling and new, even if factories around them are closing. According to C.E. Stuerle in the Spring 1994 Health Affairs, the average American householdtransfers over $6,000 to the health care industry each year: $920 In payroll taxes for Medicare Part A, $2,800 in Indirect taxes for MedicarePart B, Medicaid, and other federal programs, $2,010 in foregone wages, (if theiremployer offers coverage), nd over $1,000 in out-of-pocket drug costs, deductibles,and co-insurance.


In other words, wages are not flait; they're just going to othe. r people! The American worker has created the largest health care Industry in the history of theworld. The American worker has helped to generate trillions of dollars in corporate profits {much of which went to shareholders, who may not be the same as current employees).The American workers even capitalized their competitors after World War II, largelythrough the Marshall Plan and the Japanese Occupation. This is hardly a mark of sluggishness; in fact, when you "add back" FICA taxes and healthinsurance premiums, the average worker's wage has actually increased. The great majority of corporations pay out more every year in total compensation, not less. Therefs no conspiracy to rob the average worker, other than taxes and health insurance. On an 'added-back' basis,we ought to be congratulating ourselves on highe r productivity - as though we actually had acommon definition of what productivity means. When incomes go up, we credit higherproductivity, and when incomes go down, we blame a lack of productivity -without finding the real cause of stagnant wages. . Scenario No. 3: Everybody gets a $600 raise, health insurance costs are stable, and twoof the employee's spouses are hired as part-timers for $10,000 a year. Average compensation is now $27,166 instead of $300,000, because $326,000 is divided 12 ways instead of $300,000 divided 1O ways. So what? No one is worse off, and two of the families are more prosperous because theirtotal income is now $40,600 a year. If the term "average wages" jumbles together full-timers, part-timers, and the unemployed, then it is not a very useful statistic. I do not pretend that wages have kept up with inflation; but it is not all the fault of wages -some of it is the fault of inflationI The 1950's workers who bought a house, raised a family,and sent kids to college on one income did not make tremendous amounts of money. If you read their diaries or pull out the newspapers of the day, the key to prosperi was low prices for the things they needed to buy. Ranch houses for $12,000, 1% down and 3 ¼ interest FHA, health. insurance for $9 a month, college at $18 a credit, free public schools thatwere stimulating and safe.. that's why it didn't take two incomesto enter the middle class. (This hasn't changed, either. An American family earning $15,000 a year, youn or old, is in trouble - but in most parts of the worfd,$15,000is a lot of money. It just doesn t handle our bloated costs for mortgages, utilities , car insurance, etc.) The loss of this less expensive world is far more complex than just blaming immigrants or'corporations.' When urban hospitals were staffed by nuns, construction workers earnedthe minimum wage, rural schoolteachers had to board with local families, and middle class households had maids, you're darned right a single income went further. It was a Norman Rockwell workl, built largely on cheap energy, cheap real estate, and unpaidfemale labor. Scenario No.4: Business is very good, and the employer announces an expansion. The existing 10 workers get a 10% raise to $33,000, ten new part-timers areadded making $10,000 each, and the part-timers have a new supervisormaklng $25,000. The new median wage is now $25,000.....yet is anyone worse off? Average incomeand median income are only meaningful when applied to a static labor force. Scenario No. 5: The employer announces a new compensation plan-:- a base salary of $15,000, and the chaMe to earn more in commissions and bonuses. Over the nextyear, some employees do earn $75,000 or more, while others who are not cut out tobe entrepreneurs are forced to quit (This has actually happened in trucking, and of course hasbeen true of sales for many years.) The workplace is both less democratic and less secure, actually more like America used to be.(in 1910, 70% of us were self-employed, and many died poor and heartbroken). Yet those withtuck. gumption, and the capital to make a go of the new arrangement will be better off. They'll be "purged" of their desire for security, and with that, their children may be better off, not worse; they'll be conditioned to look for opportunities, not jobs.


Scenario No. 6: The employer decides to downsize, having observed that in · extremely competitive markets, the company with the most full-timers loses. Our ten permanent workers are replaced with 30 part-timers and contract laborers, each earning $10,000. If the old full-timers are unionized, and go on strike, maybe the employer moves to Alabama or Nevada and does it anyways. It is painful enough when this happens in firms that are going broke; when it.happens in profitable firms, it seems close to immoral. Ironically, though, the employer h sactually created 20 new jobs. Botto_mline -there is no such thing as "the typical Amencanworker," whose wages go up or down in unison. What we have instead are multiple labor markets, in multiple geographic areas, each with their own prevailing wagestructure. America has· over 134 million workers, both futl- and part-time; over 3 million either gain or lose jobs every month. {This is the equivalent of the entire country of Ireland being laid off.) In one city (Battle Creek, Michigan), the Kellogg Food Company announces layoffs, while a large auto stamping firm pays a bonus if you stay there four months. In Milwaukee, 2,000 Briggs & Stratton workers are fired, but 100 miles away In Madison, or Sheboygan, factories are hiring vocational­ school graduates every day. Picture a hypothetical city with three large employers: a steel mill, a hospital, and a K-Mart. Over several years the steel mm cuts its labor force in half (while doubling output), the hospital pays the highest wages, and K-Mart Is adding staff all the time. No one's wages are reduced, but the average salary is is worse , simply because K-Mart has expanded. The most productive industry -steel - has the fewest employees; the least productive industry - health care - is propping up the middle class; and even if K-Mart does grant raises, it will still have employees on food stamps (a 10% raise doesn't mean that much when you start at $5.00 an hour.) Any unemplored steel worker whofinds a job at K-Mart has certainly not seen much benefit from industrla "productivity"! Besides, anyone who says that American workers are worse off must immediately clarify "how many?', and does that mean "inost", and does "most" mean "all''? Mostcommentaries on· . American labor are not empirical; theycontain emotionally compelling anecdotes, but very seldom do you see a true longitudinal study of, say, 10,000 workers, who are employed full-time throughout a 10-or 20-year period. If such a study existed, would 5,100 of the 10,000 be worse off? I doubt it very much. Will 3,000 be worse off? 2,000? 800? Every worker must fall by definition into one ofthree categories: #1. they have the same job as 20 yearsago #2. they have clanged jobs in therast 20 years #3. they were not wovking20 years ago Group #1, those with seniority, is almost always making more money than in the pastGroup #3 is obviously making more.money, even If not a lot Group #2 is where the action is, statistically. A A lot of people do lose money.when changjng jobs (I've been one on them.)But do the unmistakeable, painful casualties In Group# 2 outweigh the equally unmistakeable (if less newsworthy) gains of the others? Some people must be getting better jobs, or else we would have had a 20-yearrecession. . . Regional differences must be factored in as well. When a large corporation moves itsfactory from Michigan to Georgia, someone in Michigan making $18 an hour (plus $16 In benefits) will be laid off, while a non-uoion worker in Georgia moves up from $6 anhour to $9 an hour (plus perhaps $5 In benefits) taking their place. Is this progress? The place the factory moves from 1sdevastated, while the place they move to is better off. The Michigan worker gets a worse job and 3 minutes on McNeill-Lehrer to describe his ugly situation, while the Georgia worker gets a better job and the media ignores him (though retailers know where he lives) (And if that's not confusing enough, what about a German factory that moves to South Carolina to lower its wage cost from $36 an hour to $18 hour? You don't hear too many complaints in Charlotte, S. C. about the horrible global economy; after all, the German company could move to Poland and get skilled workers for $3 an hour!)


In libertarian theory, if a company can move to where labor costs are lower, then workers can move to where w ges are higher. The laid-off Michiganworkers above should just move to Silicon Valley. But of course workers do not move readily; after layoffs, manypeople take a worse job just to stay close to family and friends, or to stay In a house that is paid for. 'vVhen you look closely at people whose income has plummeted,they are often perfectly employable, only not In their own city. The insecurity Americans are feeling is largeiy for the felt disappearance of seniority.The opportunity to work 15 or 20 years at the same place and then "cruise"to age 65 was and still is a rather dignified way of life. Unfortunately, the protection of older workers costs a lot of money - just ask any city government or school system- and in labor-intensive, competitive industries, being forced to pay full seniority wages can quite literally put a firm out of busines.s Companies which protect older workers frequently have no jobs at all for peopleunder 25. Young people "pay the price".for older workers' job security. (Which may not be such an awful thing; in some cultures it would seem immoral to have a 60-year old bagging groceries.) The best solution is a pension system that lets the 60-year oldretire with security, as the U.S. military does, but that takes real dollars and realmandates, so it will not happen soon. POINTNo. 2: GOOD JOBS ARE NOT DISAPPEARING If we define a decent job as paying $25,000 ($12.00 an hour), the U.S. economyoffered about 27 million such jobs in 1970, 23 million to men and 4 million to women. (adjusting all dollars for inflation) We had about 40 million such jobs in 1992 , 26 million for men and 14 million for women. (see · Statistical Abstract of the U.S. , Table 723) This is not a disappearance, it's anincrease, especially in light of global competition and a relentless drive in mostindustries to cut labor costs. The discontent has to come from who gets the jobs, nottheir absolute number, with these sources: a. Layoffs and plant closings generate headline,swhereas hiring is incremental with very little publicity. AT&T ets a lot of press for 40,000 layoffs, but nationwide the telecommunications industry is adding 400,000 Jobs a year!(including almost all those laid off by AT&T) b. Very few good jobs have trickled down to the crime-ridden black ghettoes. Most employers do not want to hire young black men, even minority employers. Nationwide over 60% of new jobs in the 1980's went to women, and that number Iseven larger in black areas. c. There are rural areas where every new job does pay only $6 or $8 an hour. Radio talk shows have many honest, well-meaning callers who say that the jobmarket has collapsed, and in their own small town, it probably has. The nation isjust so much bigge.r d. When divorce occurs, there are usually two adults looking for a good lobs. A two-earner family earning $50,000 suddenly becomes two families earning $25,000each, and America looks poorer, even though neither spouse's employer haschanged wages at all. e. There remains a block of men who can fix a car, build a house, or fight a war -but who do not earn a living wage, due to a lack of strong unions and advanced skills. These are the "yeomen" of American, but high-tech industry has left thembehind. There are at least 12 million American adults who cannot type or use a computer, and no ·public policy except World War II has really helped them very much. Unionized factories used to offer decent jobs to this group, but today, 26% of Chrysler's new. assembly line workers have been to college. Kimberley-Clark offers 30 general laborer jobs In Kentucky and gets thousands of applicants; an iron mine In Minnesota has six job openings and gets 900 applicants; this is a significantdemographic bulge. What hurts is that these are


companies.which thirty ye_ars ago hired virtually anyone who applied..... veterans, dropouts, even those who Just had a relative at the plant. The needs of successful corporations havechanged much faster than the qu.alifications of the work force. A couple with si c ildren needs a good job, but there is no guarantee they will find one. Good jobs are distributed by talent, not family size. The result Is what soclol09ists call"assortatlve mating", i.e. two professionals marry each other and their family incomemay exceed $100,000 . In other words, the sheer number of family-wage jobs has not decreased; the sticky part is that some families have two ofthem. We are a Ion way from the ideal of the 1950's. which was one marriage to a lifetime, onejob to a family, and Jobs that paid enough to let one spouse stay home. In 1924 Henry Ford described his family-wage system as one where "The man does the work in theshop, but his wife does the work in the home. The shop mustpay them both." Pat Buchanan recently quoted Pope Leo's Rerum Novarum, which stated that employers had a moral responsibility to pay a living wage to heads of families. (Of course, notbelieving in unions, Buchanan has no way whatsoever to enforce this.) · The new availability of decent jobs for women has drastically changed the institution of marriage, making it more a voluntary bond of affection. It used to be a religious commandment, (sometimes enforced cruelly) , as well as an economic necessity. Singlemothers were shunned, rebuked, even driven to suicide, and quite a few marriages wereof the "shotgun" variety. It is now much easier for any woman to live alone- a tremendous behefit for women who do not want a man around. However, the result of this economic freedom Is more children without fathers. To most conservatives, single parenthood is quite simply bad for America: bad for crime, bad for school performance, and bad for future familyformation. In their eyes, job gainsfor . women are coming at a terrible price; discrimination and chauvinism"would be preferable to brokenhomes and mothers at work. This is not a simple issue. From a feminist view, broken families are probably better than the violence and condescension toward women behind the placid 1950's exterior. Households in the 1950's were no happier than today, it's just that the women found it harder to leave. (see StephanieKoontz, The Way We NeverWere.) . On the opposite side, George Gilder has claimed that men turn into criminals when theycannot be the main provider. tt doesn't say much for men - that they ruin societies when they cannot run them - but he may be right. Today's welfare system has indeed made women more independent, so that now their communities are ruled by boys with guns -hard ly an improvement over 'patriarchy.' It is true that ghetto jobs are mostly lousy jobs, but before World War II almost all thejobs were lousy ones. In 1940 about 60% of full-time workers were still consideredpoor.......................................... not just "insecure", but poor, with no telephones or Indoor plumbing, and their children went out to work to make ends meet. (Having two parents did not make them prosperous.) Until World War I, the second-largest category of American workers were domesticservants-(sometimes Including prostitution) - a much worse job than either McDonald's or, for that matter, a Mexican electronics factory, could ever imagine. . People then did not have "jobs" with a corporate employer, they had work, on someone else's farm or household. A job was not something you had, but something you did, for many different people. If this sp radic income dld not sustain a family, then the only solution was larger households; a single mother moved In with her parents.This ls what most people who are now on welfare would fincf again, if welfare ever really ended whether they'd accept this 'work', or turn to crime, will be interesting, to say the least.


The majority of low-w,;1ge jobs are concentrated in food, retailing, secretarial, cleaning.and light assembly, nd they haye been low-wage jobs for many year_s. (Whenever I read that there's been a decline In unskilled wages, I always ask, "Vv'hatdee/me? When were they high?") The McDonald's in Minot, North Dakota does notpay low wages because of immigration (there is almost none), or because of foreigntrade (Minot trades with Canada, hardly a low-wage haven), or because of low productivity (if 6 teenagers can serve 300 lunches and make change, they areextremely productive), or because it's a "service job" (the back area of McDonald's is a small faclofY..) The Beverly Enterprises nursing homes do not pay low wagesbecause the jobs were easy (have you ever bathed a handicapped person?), orbecause the firm lacked capital (it was a darling of Wall Street for years). If imports were utterly banned in this country, I do not think a single waitress, hairdresser,janitor, or nurse's aide wou@ get a raise. "The world economy" is just an alibi. McDonald's pays low wages because its own workers are unorganized, the industry as a whole Is unorganized, and the product Itself is a luxury. If everyone involved in producing a Big Mac got a living wage, the Big Macmight cost over $5, and we'd all just pack our lunch. For good or ill, the product hasbecome popular at a price based on cheap labor. Low-wage jobs are about one-third of total jobs, no different now than in the 1960's (see John Schwarz's America's Hidden Success ) The textile mills who now move from Lousiana to Mexico for cheap labor are the same firms who, years ago,moved from Massachusetts to Louisiana for cheap labor. The meatpackers who bust their unions today were doing the same thing (only more brutally) ninety yearsago, when scabs were paraded in the streets. Low-wage industries contain somepretty stubborn operators, as Bill Clinton found out during health care reform; theyare willing to tolerate enormous turnover and low morale. .. No one is neutral about the "secondary job market" of restaurants, gas stations, etc. Liberals consider it the shame of a nation, that people can work full time and still be eligible for tax credits or food stamps. The idea that a firm'sprosperity should depend on not paying benefits is, frankly, embarrassing. Tell a liberal that higher wages or hearth care mandates will put a small firm out of business, and their emotional response is "Fine, they're just taking advantage of desperate workers, they shouldn'_t be In business if they can'tpay a living wage.'' Conservatives always defend the entrepreneur, meanwhile, pointing out that thosehe . 'exploits' might be worse off if no employer was there to 'exploit' them. TheMexican 'maquiladora' sector is extremely ugly - but is it uglier than the poverty that preceeded it? Conservatives also point to the Immigrants and dropouts who do get afirst job and work their way up to prosperity; in their view, driving a firm out of business for any reason is idiotic. Substandard jobs are looked at in the same way as substandard houses or cars or medical care - not pretty, but probably the best that society can afford for these people right now, and far better than no jobs at all. Bad jobs are seen as a by-product of capitalist energy,fmperfect but part of a)gr eatergood. In this view, . we need the freedom to start dry cleaners, if we want the freedom that produces a Bill Gates. American workers themselves look on lqw-wage jobs as transitional, something to put up with while one saves or gets an education. Most workers in restaurants do notdream of organizing their job site, but of owning their own restaurant (and having theirown low-wage employees.) · Some groups will succeed in any labor environment. Think of Utah -- few naturalresources, no major corporations, a small public sector - and yet a large middle class has grown up on the virtues of sobriety, chastity, hard work, and the family support system of the Mormon Church. It did not take minimum wage laws, enterprise zones,or low interest rates for the Mormon tribe to make progress - because their culturewas so strong. Ethnic Chinese, expatriate Palestinians, and the Black Muslims have a similar trackrecord - namely, their own social virtues count more than any labor laws . Theydevelop capital largely by saving it and sharing it among themselves. Women who want children are expected to marry, without exception; fathers are expected tosupport their families, without exception and no one disdains a job because it does not seem respectable. They turn lousy jobs into decent lives by collective action andpersonal responsibiltiy.


P OINT NO. 3: HIGH WAGES 00 NOT DEPEND ON.P RODUCTIVI TY They depend on bargaining power, inertia, protection, and passive employers. Take a good long look at those Americans who actually make a good income. (let's say $45 ,000 a year) They are concentrated in the followingareas: a. State and Federal Government b. Education c. Regulated Utilities d. Health Care e. Finance, insurance, accounting and law f. Chemicals/Petroleum/Mining g. Construction/Machine Tools h. Automobile and Airplane manufacturing i. Beverages - j. . Paper and wood manufacturing k. Highly advanced products, i.e. software design I. Successful sales people m. Successful athletes and entertainers n. Successful business owners in any field Now look even close.r Areas a, b, c, (government, education, and utilities) are cost plusindustries,where salaries and benefits are passed on to more or less Involuntary customers. These Institutions have the luxury of raising prices (or taxes) whenever costs get higher, and of course a city hall or a power stationnever moves to the Phillipines for cheaper labor. Most employeesget a raise every year, even if a small one, and combined with seniority this creates a workplace of highly-paid indMduals. Thetypical government manager makes more mon-ey when his people are well paid, as opposed to the private manager who may benefit from holding down labor costs. But productivity has nothing to do with It, all that matters is that th. ere's money In thebudget. Workers are paid from pools of wealth, and a state or federal tax base is about the deepest pool of wealth there is. Areas d and e ( ealth care insurance accountin and law) consist of entirely domestic idustries, i.e. insu ated . m foreign competition. No American health insurer buys heart surgery in Korea to save $10,000, although we will buy foreign steel for that reason in an instant No one tries to hire a Mexican insurance agent, attorney or accountant, or even thinks about it Our complex legal and tax systems can best be manipulated by other Americans; their degrees and licenses constitute a hiddenprotectionism. As Lester Thurow comments, it is easy for economists to support free trade, so long as no one is importing cheap economists to take jobs away. Economists who praise competition generally do so the way historians praise war, 1.e . from the sidelines. I like to call them "limousinecfarwlnlsts." . Areas f throu h j (chemicals, construction, etc.) are high-paid, blue-collar Industrieslargely because they ve been unionized for a long time. The workers actually madethese into high- paying jobs by their demands duringWorld War 11, plus their earlier history as craft unions. Their employers also had more money to pass around, sometimes because they were regulated (i.e . airlines), and often because they too were doing cost-plus government work on space, defense , andhighway construction. . Areas k through n successful small business and hi h-tech include people whoactually compete and succeed at 1t. uccess u en repreneurs o not really have ''wages" at all, nor are their incomes reported11.'.i th any precision to Washington.


High-tech firms want their skilled employees to be relatively free of financial pressure; the character of the work is such that sweating and pressuring your employees is counter­ productive. While a worker who is being evicted or lacks health Insurance can still cook trench fries, the same is less true for computer programmin.gHenry Ford did not double wages in 1914 out of love for workers -he did so because turnover was costing him money. Still, the entire biotechindustry employed 78,000 in 1992, which was about the numberof people that General Motors laid off. The cost-plus and domestic Industries(government, education, health care, insurance, and accounting) generate about 23 million full-time jobs, many of them well-paid and secure. Although competition is supposed to be cause of higher livin9 standards, the middle class Is filled with people who have had permanent raises due to seniority and protection, rather than anyincrease in producitvity. The industry with the largest average wage increases since1970 is education, due primarily to bargaining power, not productviity. {In fact there are about 500,000 retired civil servants whose current pension income exceeds their final working salary. They're prosperous not because they're "productive" -they aren't even working - but because they're in for a cut of the swag.This group is symbolically led by Albert Gore, Sr., whose Senate pension exceeds$93,000 a year.) Incomes are also related to the size of the average firm. Back in the 1950's, over half the nation's manufacturing workers were employed by Fortune 500 companies. They were in large unions that demanded wage increases each year, from companies that were profitable and generally afraid of them. (They were more afraid of their unions than of their shareholders). Non­ union firms also paid increases, partly to keep out radical unions and partly to protect their employees from inflation. The good jobs of the 1950's and 60's were not created by "roaring productivity", but by militantworkers who demanded all that employers could afford to give, and physically prevented theiremployers from hiring .anybody cheaper. The reed of employers (especially in the Northeast) was held back by the fear of union rprisals. Closing a profitable plant and firing workers would.haveled to strikes, boycotts, legislative action, and possibly violence. A downsizing chief executive would not belionized by Wall Street if he had to pay 5 years severance to everyone he fired. If an office building tried to replace its veteran janitors with benefit-poor "temps" , it would besurroundedby pickets immedlateyl.Therewas no "social contract'' to share the nation'sprosperity- just a series of strong labor contracts to actually make it happen. . Theoretically we could have strong labor again. At least 2 out of every 3 Americans works for . someone else, so if they (plus millions of unemployed) voted as a pro-laborbloc, they would win every seat in Congress, every term. Workers would vote their owninterests, instead of voting to punish gays and welfare mothers. Employers would be kept away from immigrants and teenagers, and wages would be forced up almost everywhere. Most jobs in this country are not exportable (not yet anyways); employers still need cheerful, co-operative workers, and workers could sell that co-operation for far more than they dotoday. Workers could also refuse to trade with firms that mistreate·d their employees.Workers' · pension funds could (and should) refuse to buy stock in such firms.(Remember when Jeremy Rifkin suggested that pension funds would runAmerica.and ''The North will rise again....."?) · · We would not need as many government 'mandates' if labor acted in unison. For example, if 80 million union members and their families threatened a boycott, Pizza Hutwould instantly buy health insurance for all its employees, and the same is true for slave-labor clothing sold at Wa!Mart. To some extent any wage is the amount an employer must pay to keep workers happy, and employers today have more "freedom" to search for workers who are happy withless. Although lower wages cause more turnover, some businesses actively dislike their own work force and ""'.ant more turnover. Sometimes it is very tempting to lay offexperienced workers, who may have higher salaries, unfunded pensions, andexpensive post-retirement health care- - and yet are embittered, hard to change, andtheir skills may not fit new technolog.y


(One of the dangers of strikes is that the employer may not miss the veterans very much at all. Caterpillar, Inc. iri Illinois found that temporary employees were actually more efficien due to dexterity, teamwork, and positive attitudes. The painful fact about low-wage workers Is that they often create a perfectly acceptable product.) It is a myth that high investment always leads to high wa9es. Retail stores everywherehave invested billions in optical scanners, et. al., without the slightest intention of raising salaries. In the 1980's, we saw substantial Investment In hotels, resorts, casinos, and restaurants, without dislodging the low-wage structure of the industry. (In fact the only high wage jobs in this sector came from the construction Itself, which is normally unionized, and in the partly-unionized casinos of Las Vegas.) Another myth is that retraining will always bring higher pay. It is easy to find laborers who earned $12 an hour on a union job, got laid off, wentthrough retraining to gain new skills, and wound up making $9 an hour in a non-unionsetting. Service jobs are not inherently bad: given the working conditions of most human beings throughout history, making beds In a motel is not evil labor. It just doesn't pay very well. We need "re-organizing" muchmore than "retraining." Also consider the case of American agriculture. No one works with more capital than farmers, yet agricultural wages have remained very low, because workers areunorganized and farmers still expect easy access to cheap migrant labor (in the deepSouth, convict labor). Not that all farmers are mllllonaires, either. It is rare to find a farmer who is not five times more productive as he was 30 years ago; and yet, any career employee in state government or a . university, who has never produced anything more difficult thandriver's licenses or transcripts, usually has shorter hours, a better pension, and cheaperhealth care. The rewards of productivity and competition look rather paltry, when compared to the benefits of old-fashioned protection, both here and abroad. Something seems wrong when our most productive industry has created more bankruptcies,suicides, and insecurity than our least efficient bureaucracies. . Contrast farms to hospitals, where the nur:nber of employees-per-bed has tripledsince the 1950's, (i.e. a major decline in productivity), and yet until recently wages have grown faster than inflation. A similar picture exists in universities, where manyprofessors teach less yet earn more ·every year. A hospital or college that pays $40,000-$60,000to hundreds of professionals is a very nice place to work; It Is not so nice a place to pay for, as anyone who has bought health insurance or had to come up with college tuition can testify. When employees get high wages, it is sometimes because their employer hi:3sn'tfigured out h<?W to pay low wages and get away with It. The senior clerks at the Department of Motor Vehicles in Albany, NY do not make $38,000 because of productivity, but due to union seniority and the fact that the state is afraid to hire prisoners to do the work at $10 a day. The people who hold up road signs during construction work do not make $15 an hour because of productivity, but because their unions would close down job sites if restaurant-level wages were Imposed. The people who make beer earn an average of $19 an hour, while the people who serve beer earn $5 an hour - the difference is unions, not productivity. The key to raising avera e incomes is 'solldarity'....but America has precious little of itYou don't see ballplayers go on stnke to raise the wages of concession vendors, or software engineers go on strike to help the chip assemblers. If a European government hired "temps" for data entry or rubbish hauling, a general strike would close down the country and probably lead to new elections. In Bologna, Italy, a new McDonald's was closed down repeatedly by strikes until it conformed with union care for food workers. In Sweden, the lifetime earnings of a store clerk are very close to the lifetime earnings of an engineer, according to Hillary Barnes of The Economist, because their unions areequally strong. Swedish day-care workers are also well-paid - not because thay have more capital or more skill than American day-careworkers, but because of their union. German department store workers are lessproductive than their American counterparts, (based on revenue-per-employee), but which group gets six weeks paid vacation? At my own first job in 1975, the unionizedjanitors regularly made more than the unorganized, college-educated librarians .


Wages are also based on status,. How else do you explain the fact that dreary, exhausting,even dangerous jobs frequently pay less - far less -than jobs that are fascinating and enjoyable? The night clerk at a convenience store should make far more than a profe sorof art history, given the monotony and sheer danger of the job, but she does not, becauseshe is desperate, there are many willing replacements, and the employer is hard nosed enough to use thosereplacements if necessary. The owner of a convenience store recruits in a very differentlabor pool than a Dean of Art History, and that makes all the difference in the world. AsPaul Krugman has pointed out, if productivity were the sole deteminant of wages, then chip assemblers in the Phillipines would make $20 an hour and nurses would make $2 a day. Skilled Jobs tend to pay well, whether they are unionized or not: unskilled jobs tend topay pay poorly unless they are unionized. You can see this even within the same computer corporation. Their engineering employees in Silicon Valley get hot tubs,sabbaticals, and $60,000 a year without any hint of a union, while their production facilitiesin Malaysia pay 20 cents an hour, will move to Thailand for 3 cents an hour less, and labororganizers are shot on sight. In San Jose the emplo· yer pays for child care and is a "goodguy", while in Malaysia the same company (or its independent contractors) try to employ children..There is an almost­planetary gulf between highly skilled people who want "free agency" to maximize their'incomes, versus low-skilled people who treasure job security because they want be sure they will eat. Competition generally holds terror, not promise, for millions of unskilledworkers, no matter how 'productive' they may be. Once an employer has no fear of turnover, there is essentially no hmit as to how far wages can fall. . In fact, large sections of the American middle class live on an island of 'labor inefficiency.'Retirement, health insurance, and one parent at home would utterly disappear if everycorporation tried to maximize profits (and in places like Mexico, they have disappeared). The Hormel Co. of Austin, Minnesota is a good example of a firm that paid middle-class wa es when it was run by the founding family, but when it went public and came under "marketdiscipline", it slashed pay and benefits wherever possible. (Immigration had nothing to do with it, incldentally. Hormel did its low-wage recruiting among desperate American farmworkers.} Productivity does not always mean happiness at the level of the individ!,Jal fir m. If you cut staff by 50% and keep output steady, productivity has increased - right along with misery.Productivity only helps workers if they keep their jobs throughout the process. Productivitycan be raised through buying better equipment for current workers, but productivity can alsobe achieve_d by just finding cheaper workers. There is a world of difference! POINT NO. # 4: MOST NEW JOBS ARE NOT CREATED BY SMALL BUSINESS According to David Howell and David Birch, most new full-time jobs in recent years have been ¾ created b,y "gazelles" like Federal Express,- MCI, Microsoft, etc. In the recession year of1991, 7° 0 of the new jobs in the country were created by one employer - Walmart. The vast majority of tiny businesses start each year with four or five employees, and end the year thesame way, because . revenue per employee is too small. And just because big companies are unpopular, that does not mean they are harmful. Of the 93 million Americans who held full-time jobs in 1992, 41 million worked for companies that employed over 100 people. (44 per cent) Those 41 million had wages that were 30% higher than in small companies, and over 65% had employer health care benefits. Even when big companies do lay off people. they still offer some compensation and assistance. At least they feel they have to buy out their older employees, instead of just locking the doors. We are dismayed when we read about 10,000 layoffs a week, and it does create a real climate. of fear - but it literally affects welt under 1% of the work force. Even if 1 million workers lose their jobs in a year -which means 20,000 layoffs a week, higher than any recentaverage - and 70 per cent of them find new jobs at lower pay, the average wage in this country could fall by.........0.6 per cent. The misery of 700,000 people is real, but it is swallowed up in the law of large numbers. Downsizing may be more significant emotionally than it isstatistically.


Layoffs are still a slap on the face by the invisible hand. In llbertarian theory, the search for profits always leads to a higher standard of living - and it does, in the aggregate, inmost nations. But not for each and every worker: What we think of as a normal employment relationship is, to some extent, a postwar boom relationship. A slower rowtheconomy will leave some workershurting and others doing great. America has seen this.kind of roller-coaster in trucking and building trades. Raw competition leads to layoffs and pay cuts, then the field gets attractive again and employers come streaming back. Since many of the the laid-off workers have foundnew occupations, the labor pool ls smaller, and this can cause wages to creep backup. (Though they don't creep up very high... in the long run, the best way to force up wages is, in fact, force, through aggressive union organizing.) The real question is whether we needed so much social pain..... considering that a European approach would have banned the layoffs (or made them far more difficult) in the first place. The firms would still be around, the original workers would wtill be around, and (quite signficantly/ no one would heve lost their pension. The appeal of Social Democracy is that its societies seem to get Just as rich without hurting so many people.(Robert Kuttner's The Econ omic Illusion is the best description on this process I have seen.) Deciding which system is better is harder than it looks. If you are already employed, Europe is terrific, you get seniority wages, and generous benefits even ifyou are laid off. Yet if you had to pull up stakes and emigrate somewhere, America is the only place to go. Who is better off - the American who has 2 cars and a 3 bedroom rambler, but no health insurance and no pension, or the European with his apartment, hisbicycle, and his free health care? The European countries have another little secret. too t hey're all white. lf European nations were to absorb 40 million people of color, like America, their unemployment and health and education benefits would almost certainly be less generous. There is certainlynothing In their treatment of Jews, Gypsies, Turks, or Algerians to suggestotherwise. , To Europe's credit, their white workers do extremely well at taking care of one another, and they know how to vote together. The European concept is that bad jobs areactually worse than no jo s, although it takes generous social insurance to make this true. There is little debate any more about the superioirty of private property and free markets. The question is, what should be the rules of the game? America does not permit firms to derive their profits from arson, child labor, or not paying FICA taxes. We do permti them to compete by pollution, by hiring mothers of new-born children, and by not paying health beneftis. Our relatively free market in labor is good for Job creation - we always lead Europe in that regard - but it may be creating social costs that will takeyears to unravel. The harm caused by layoffs may be relative, too. If an airline replaces its $100,000 pilots with . $50,000 pilots, it Is probably not the end of the world. But if it replaces $30,000 ticket agents with $10,000 part-timers, this may have an impact on families and communities. POINT NO. 5: THE FEDERAL GOVERNMENT DOES NOT JUST DESTROY JOBS The government als-o creates millions of jobs, both in its agencies and through its Immense appropriations for Medicare, Defense, etc. World War II was the greatest job creator in our history, followed by more defense spending and interstate highways inthe 50's, Vietnamin the 1960's and 70's, and then another World War II (at least indollars) in health care ever since. The economic miracles in Germany, Korea, and Taiwan were all heavily subsidized by the same U.S. government Japan's industrial take-off was fueled largely by American militarypurchases for the Korean War. (The strong unions and national health systems in both Germany and Japan were promoted by none other than the American Occupation.)


Back home, semiconductors, aircraft, nd pharmaceuticals are just three key industries that owe much of their growth to government investments and/orpurchases. (Their best-paid employees may call themselves libertarians, but they are ignorant, or at least ungrateful.) Add to these the cotton gin, the Erie Canal, the Homestead Act, the REA, and the Internet, just for starters.The Reagan boom itselfdepended just as much on defense and health spending by Uncle Sam, as on tax cuts for entrepreneur;sin many cases, business investmentpicked up after the Pentagon started its spending spree. Employers hire people when somebody is spending,regardless of who's doing the spending. Employers fire people when there is a lack of customers, regardless of the savings level or low interest rates. (The national savings rate was 15% in 1929, and thefederal budget ran a surplus every year between 1923 and 1929...a lot of good that did us...) Our slower growth in the 1990's may have more to do with the lack of a big war than withany so-called lack of productivity. The government does not create jobs by "humaninvestment," but much more bluntly by just hiringpeople. Washington does manr stupid things, even some things that are close to evil - but in economic terms alone It does no do great harm. Even when the federalgovernment borrows $200 billion a year, it is hardly using ur our nation's capital.($200 billion does not "use up" a savings pool of $10-$15 trillion; if a loca farm or business is denied a loan, it is not because of the national debt!) We. need government inefficiency to spread purchasing power, especially in rural areas, where schools, prisons, hospitals and army bases are a major source of good jobs. We need government Investment in education, research, and infrastructure, which the unaided private sector has never done. We need government bailouts,(thoughhopefully not every year), to prevent panics and depression.s Republican folk wisdom says that the federal government dampens the economy; my only question, from the evidence of my senses, is "where?" The ml!lions whoreceive federal dollars are certainly not dampened; (Newt Gingrich'sdistricthas manysuch individuals, who vote Republican as they cash federal checks that Democrats made possible); the many businesses who sell things to federal beneficiaries are notdampened; and the wealthiest citizens (who pay most of the income taxes) don't seemall that dampened either. America's major, economic problem remains a lack of income, not a lack of factories or productivity. We can spew out whea cars, computers, and pacemakers for every citizen and then some, if people could only afford them.Thenumber of firms which have survived and prospered through government spending is larger, in my opinion, than the number which have closeddu_e to !axes.or regul tions. Al .o, the gove!nmentspends at least 95% of its funds in the USA, while pnvate companies are bu1lamgfactories at many wage levels all over the globe. When the government sells a $1 million Treasury bill to a wealthy widow in Palm Sprin s. and uses that money to build a new postal station in Montana, it is probably stimulating national investment, not detracting from il Government spending creates just as many jobs as private investment, and sometimes they are better jobs. Theimage of government as a 'vampire state' - draining the economy of its lifeblood -may be colorful, but {as shown best by Robert Eisner and Fred Block), it is simplyinaccurate. · We also hear that it takes "savings" to create more good jobs, but it surely takes "spending" as well. lf'every American family decided to save $1,000 In an IRA this year instead of buying Christmas gifts, the savings rate would increase, all right, but the resulting unemployment in travel and retail trade would be a disaster.Theoretically the millions laid off from department stores and toy factories will be re-hired, first by mutual funds to handle the new savings,and then in high-tech manufaGtu ring, but don't hold your breath. For these workers, the "short run" migh t last the rest of their lives. Even now, in many rural areas, the arrival of gambling casinoshas created more jobs than the residents'savings accounts ever did, and why? Because, like wars and natural disasters, they move money around...they get money out of savings and intocirculation, albeit in a very · unattractiveform.


It is true that environmental regulation kills jobs, although some of the jobs that are 'killed' are dirty, dangerous, and toxic. If the prosperity of America depends on chopping down every tree and paving every acre in the country, then It is oursystem that Is flawed, not the regulations. I discount the complaints about 'mandates' such as family leave and benefits for the disabled. Our daily lives are filled with mandates that were bitterly resisted by bu sinees, including the end of child labor, the 8-hour day workmen's compensation, Social Security, racial integration, and Medicare. Every single one of these was originally denounced as leading to the downfall of jobs and prospertiy, and the business presswas wrong every time. (Especially on Medicare... costing less than 3% of payroll,it has made no one poor, yet has made doctors, the elderly, and even the elderly's heirs markedly better off.} After the Great Society began we added 60 million jobs, and we'll go on adding them if even if do have mandatory 5-week vacations or universal health insurance. We hear every day that if Social Security taxes go over 20% there will be black disaster, but they've been that high in France, Germany, and Scandinavia for many years in the midst of substantial broad prosperity. (These nations already are very elderly, offergenerous benefits, and are far from going broke the world is more complicated than is dreamt of In Republican philosophy.) And don't forget the G.I. Bill.... talk about successful federal programst It was darned expensive ($70 billion a year in 1996 dollars), and it propelled millions into professional careers.Every .time we have sent a generation to college, that generation has been better off-including Phil Gramm, who was a beneficiary of the powerful National DefenseEducation Act. Price supports for farmers have not been a failure either. Th ey were at leastdesigned to be a family minimum wage, allowing farmers to earn a decent living in the place where they grew up. European nations treat small retail shops the sameway, keeping out discounters like Wat-Mart..It is considered better for social stability to let people stay in their home town and let children continue in the family business, even if this costs other citizensarather small amount of money, i.e. higher prices for sugar or toothpaste or notebookpaper. French unions contested a recent plant closing on the grounds that people havea right to work near the place that their grandparents are buried. Protection preserves social solidarity, which in the long run (argued by EdwardLuttwak) will actually create a stronger economy. By minimizing layoffs ancf wage cuts, workers have more loyalty, older people will be less isolated, and there should be less crime. Government protection does create a social liability, but maybe that is better than the millions of disastrous, private liabilities that are created byunemployment and bankruptcy. POINT NO. 6 -THE SOLUTION IS NOT MORE FREEDOM It is hard for anyone to be against freedom, especially since the collapse of Communist states all over the world. But if you ask anyone from West Germany, or the prosperousstates of East Asia, they'll tell you that America's problem is not enough discipline,including: 1. The discipline to Impose 21st-century standards on high schools. American teenagers have had the "freedom" to goof off or drop out and American schools have had the "freedom" to operate with no attention to employers' needs. We prize "local control", which may be generating a social disaster. The ethnic groups and which have succeeded in America have, in general, beenruthless about education: amohg Japanese-Americans, Korean-American,s and manysimilar groups, failure in school is neither expected nor allowed. VVhite kids could afford to be casual about education when factory work and construction wereexpanding -- even now, 25% of older high­ school dropouts make over $40,000 ayear but they will not be successful in a high-tech world. There was a time when factories wanted their workers uneducated, hoping they'd be moredocile, but this has changed very rapidly.


The government cannot change this. A tough national exam for high school graduation is one place to start real reform. Denying driver's licenses to studentswith poor grades, and restricting the number of hours tudents can work might bevery unpopular, but would absolutely send the right signals. Expelling disruptivestudents and sending them to work camps is another form of 'tough love', even if itviolated the First Amendment. One defect of a "free" job market is that employers would rather hire ahigh . school student for eight exhausting hours a day, ruining his or herstudies, while an older worker with children stays unemployed. American has had a labor surplus inmost industries for many years, so we do not treat ouryoung people as precious. We let them graduate from high school with a shocking lack of marketable skllls. It is hard enough now to find jobs for the American adults who are close to illiterate; thethought that this number grows daily should be an absolute national alarm. This doesn't mean that ev ryone has to go to college, however; the U.S. military hasthousands of high school grads doing well at extremely technical jobs. (Russia and Eastern Europe had more Ph. D.'s per-capita than any other culture, right before theircollapse.) If every teenager could operate a computer and write a business letter, I do notthink we'd have to worry much about future poverty. Literate and numerate people not only earn more money, on average, they are also more peaceable when they dohappen to be unemployed.................................................................................... they're more likely fo escape to the library, rather than stand on a street corner and plan burglaries. The computer Industry sometimes lays off as many people as the steel industry, but you don't read about ex-programmers becoming janitors or dishwashers; thanks to education, they nearly always land on their feet. 2. The discipline to have a national savings plan. ' There is one other source of good jobs that almost no one talks about....... namely, retirement. One purpose of Social Security was to open the labor force to the young, and John Schwarz estimates that without pension plans to clear the way for the baby boom of the '70's and 80's, we would have 20% unemployment right now. It is rathe( hard to give your 30-year old children a better life when, at 65 or 70, you in effect still have their job. All successful retirement plans involve some element of forced savings, and the history of voluntary pensions is not encouraging. Only 10% of profit-sharing and 401K planparticipants have balances In excess of $50,000, (even amongst those who are close to retirement age), and the pension plans of the self-employed are, in general,pathetic. . Pensions are one area whete freedom can be deceptive. If we don't impose mandates early enough we'll just have to impose larger taxes later on. As JohnGoodman and Sam Beard have pointed out, we would not need so many increases in Social Security and Medicare if we had a national savings plan that, in effect, forced older people to arrive af age 65 with real money. The "freedom" of young people notto save and the "freedom" of employers not to save tor them Is somewhat deceptive. It does makes labor cheaper, therefore we create more jobs, today; but we will pay forit, and dearly, later on. Actuarially each of us should save 9.25% of salary for 40 years in order to have a generous retirement. Corporations and unions which did this patemalistically in the 50's and 60's helped to create today's elderly middle class. (Real estate inflation did not hurt, either; soaring home prices were like a second pension in some parts of thecountry.) Unfortunately, entire industries (such as food, retail.and entertainment) remain withoutpensions even now. Those employers have been "free," all right, and the people who worked in those industries are the poor elderly who must be sustained by the taxpayers. The cost of living long did not disappear, some employers just avoided it.


With mandatory savings and reasonable rates of return, this country could easily have

100 million millionaires. Our voluntary pension· system is a failure: 43% of private sector workers have nothing, and while the public sector is better, they can always say"charge it" to the taxpayers. Those who do save wind up paying twice- once for their own policies, and again in taxes for those who do nothing. A mandatory system is actually fairer to those who save the most.


The pension program we need now would combine mandatory IRA's, along with agovernment "floor" for' those who are too old already or too poor to participate. Employers could serve as tax collectors, which is what they do now in the Social Security program. If every American was forced to save at least $3,000 a year from age 25, the power of compound interest would make them far more independent laterin life. (In fact the first $20,000 or so of each account could be an emergency fund for layoffs, uninsured medical bills, replacing automobiles or furnaces, college tuition, etc.)


There is nothing wron9. with individuals having several employers and several careers, but it wlll be a hollow 'liberation' 1f they all wind up at 65 with no money. Temporary employment would be far more tolerable if we just solved the Issue of benefits, and we can - by universal programs that depend on individual mandates, not the generosity of employers. Public education has many flaws, but one of its virtues is that it is funded separately from employment no one's child has to change schools just because theirparents change jobs.

I do not advocate a savings plan in order to create jobs..... in fact, those $3,000 contributions

represent computers not purchased, or vacation trips not taken, so at first they will costjobs. But The issue is not current prosperity - the issue is howto deal with modern medical success.

We have barely begun to comprehend the tremendous cost of saving lives. Before 1900, you didn't need to lay off people at age 55; most of them had died. When Bismarck set Germany's retirement age at 65 , that was the uivalent of ;ige 95today. Two-thirds of all the men

and women who have lived past 65 m the history of the world are alive today_.

The disappearanc,eor more precisely, the delay of death_ is a tremendous demographic change,

and we had better not wait around for employers to re-establish lifetime employment.Today's "virtual corporations" realizes that the way to avoid huge pension costs is tohave no retirees in the first place.


No society is 100% free or 100% coercive; the key is to have smart coercion rather than dumb coercion. Forcing people to save is smarter - and cheaper -- than forcing themto pay taxes for entitlements. Forcing students to learn and behave in high school is smarter - and certainly cheaper-- than trying to get them off welfare, years later.Forcing people to read the Bible or listen to Mozart, instead of popular trash, is probably a smart idea. Forcing workers to join a union Is probably smarter and cheaper than trying to enforce minimum wages. Forcing doctors and hospitals and drug companies to lower their prices is certainly cheaper than mandating everyone to buyhealth insur nce. .

In all these areas and more, freedom alone is not the answer. It is possible that our success in

the 21st century will be based on what we do not tolerate.